When protecting corporate creditors, how does the "maintenance of capital test" differ from the "solvency test"?
A) It is the only one found in the CBCA.
B) It is the one which has a "capital fund" to preserve.
C) They are similar but referred to differently in different provinces.
D) Simply a matter of legal jurisdiction over type of corporation.
E) It is less restrictive on the payment of dividends.

Question

Quizplus · Accepted Answer

The maintenance of capital test and solvency test are similar in that they are both used to protect corporate creditors. However, the maintenance of capital test requires a corporation to maintain a specific amount of capital (often called a "capital fund"), while the solvency test looks at whether a corporation is able to pay its debts as they come due. The maintenance of capital test is typically used in jurisdictions that have adopted the CBCA (Canada Business Corporations Act).

When Protecting Corporate Creditors, How Does the "Maintenance of Capital