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Home > Journals > Michigan Law Review > MLR > Volume 30 > Issue 7 (1932)

 

Abstract

There is general unanimity that as to real persons "insolvency" means the inability of a debtor to pay his obligations as .they fall due in the usual course of business - even though the value of his assets exceeds the aggregate of his liabilities. But the question - when is a corporation insolvent - the question to which this paper is devoted, is one with very varied answers. The answers may vary both with the nature of the corporation concerned and with the type of transaction involved. There are, however, two conventional definitions of corporate "insolvency," with occasional variations and flourishes upon both: the one, insufficiency of assets to pay liabilities; and the other, inability to pay obligations as they mature in the usual course of business. But such simple tests do not embrace all the elements of our complex problems; problems which involve the annulment of preferences by, or the appointment of a receiver for, or the dissolution of, a bank, a public utility, or an ordinary private corporation. Superimposed, and making the chaos of meaning more chaotic, are various statutory definitions of "insolvency." The most notable example of legislation issuing from the states is the Uniform Sales Act, providing that "a person is 'insolvent' . who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether he has committed an act of bankruptcy or not, and whether he is solvent within the meaning of the federal bankruptcy law or not." Then there is the National Bankruptcy Act which provides that" a person shall be deemed insolvent . . . whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay his debts." These statutes are not as troublesome, however, as those concerning preferences, receiverships, dissolution and the like, which are reserved for further consideration. The complexity is by no means minimized by the fact that many of the latter statutes fail to designate the attributes of "insolvency" upon which they are framed.

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