Key point

When assessing if a company is insolvent on the "cash-flow" basis, the Court will consider not only whether a company manages to meet its debts as they fall due but also how a company does so. A company meeting its debts simply by increasing longer-term debt, will likely be held to be insolvent.

The facts

Casa Estates (UK) Limited ("Casa") operated as an introducer of investors to property in Dubai. Following its liquidation, payments to a director were challenged as transactions at an undervalue. As such, the solvency of Casa at the time of the payments had to be established. Casa appeared to have been paying its debts as they fell due at the time of the payments. However, this was achieved by using new depositors' monies to pay sums due to prior depositors.

The decision

Applying a "commercial approach" to the question, the Court of Appeal held that the question of "how" a company met its debts as they fell due needed to be considered. Each time Casa accepted a new deposit, and used it to pay a prior depositor, it simply created a debt due to the new depositor. As Casa was only able to meet its debts in such a manner then "in any commercial sense the company was insolvent, whether on a cash flow basis or a balance sheet basis".


This is a victory for common sense. The liquidators' evidence (which was not answered by the directors) was that it was only through misapplication of depositor monies that Casa was able to pay its debts.

Bucci v Carman