Solvency Opinions
Any time a company engages in a leveraged transaction, both debtors and creditors are concerned about the company's ability to meet future obligations. Aside from a company's mere survival, all parties involved face serious legal ramifications if courts determine that the company was insolvent at the time of the transaction. For this reason, board members and executives should seriously consider obtaining a solvency opinion in connection with a leveraged transaction.
A solvency opinion involves both a fair market valuation opinion and a forward looking analysis of the firm's operations. The ultimate objective of the analysis is to determine whether or not the debtor received "reasonably equivalent value" in exchange for the transfer or obligation incurred. Failure to establish a basis for reasonably equivalent value constitutes constructive fraud and renders the transaction voidable, even several years after the fact. However, if a quality, independent solvency opinion was obtained, courts will generally accept it as evidence of the firm's solvency at the time of the transaction.
Our Approach
In order to withstand legal scrutiny in connection with U.S. bankruptcy law and the Universal Fraudulent Transfer Act, Scalar Partners performs several crucial tests to determine solvency and establish a defensible basis for reasonably equivalent value. Our analysis considers the following factors:
- Was the debtor insolvent at the time of the transaction, or will the debtor be made insolvent as a result?
- Will the debtor have sufficient capital to fund operations after the transaction?
- Will the debtor be able to meet current and anticipated debt obligations as they mature?
- Would the debtor be able to satisfy its obligations if it encountered a reasonably foreseeable downturn?
We have the valuation and financial modeling expertise to provide the highest quality solvency opinions, and at a reasonable price. Our opinions provide an additional level of protection, mitigating our clients’ risk of fraudulent conveyance, particularly in the case of leveraged transactions, stock redemptions and dividend distributions.