In our December 2010 and April 2011 insolvency updates, we reported on the UK High Court and Court of Appeal decisions in BNY Corporate Trustee Services Limited v Eurosail. The issue before both Courts was whether Eurosail was insolvent by virtue of being unable to pay its debts under the balance sheet limb of the solvency test in section 123 of the UK Insolvency Act 1986. The Court of Appeal upheld the High Court decision that Eurosail was solvent, noting that it had not reached the "point of no return".

Earlier this year, the UK Supreme Court handed down its decision in the case. While the Supreme Court ultimately agreed that Eurosail was solvent, it disagreed with the Court of Appeal's application of a "point of no return" test. The Supreme Court held that the correct test is whether on the balance of probabilities the debtor has insufficient assets to be able to meet all of its liabilities, including prospective and contingent liabilities. The Court noted that the more distant the liabilities, the harder it would be to satisfy this test.

Given the circumstances of the case, particularly the fact that maturities on some of Eurosail's obligations could be deferred for more than 30 years and that Eurosail was paying its debts as they fell due, the Supreme Court held that it could not find Eurosail to be insolvent. In reaching its decision, the Supreme Court warned that Courts "should proceed with the greatest caution" in finding a company to be insolvent under the balance sheet limb of the solvency test in section 123.

See Court decision here.