108Company to satisfy solvency test

1. A power referred to in subsection (1) of section 107 must not be exercised unless the board of the company is satisfied on reasonable grounds that the company will, immediately after the exercise of the power, satisfy the solvency test.

2. The directors who vote in favour of the exercise of the power must sign a certificate stating that, in their opinion, the company will, after the exercise of the power, satisfy the solvency test.

3. If, after a resolution is passed under subsection (1) and before the power is exercised, the board ceases to be satisfied on reasonable grounds that the company will, immediately after the power is exercised, satisfy the solvency test, any exercise of the power is deemed not to have been authorised.

4. The provisions of section 56 apply in relation to the exercise of a power referred to in subsection (1) of section 107, with such modifications as may be necessary.

5. In applying the solvency test for the purposes of section 107(1)(e),—

6. assets excludes all amounts of financial assistance given by the company at any time under section 76 or section 107(1)(e) in the form of loans; and
7. liabilities includes the face value of all outstanding liabilities, whether contingent or otherwise, incurred by the company at any time in connection with the giving of financial assistance under section 76 or section 107(1)(e).

8. Nothing in subsection (5) limits or affects the application of section 4(4).

9. Every director who fails to comply with subsection (2) commits an offence and is liable on conviction to the penalty set out in section 373(1).

Notes

• Section 108(5)(a): amended, on 15 April 2004, by section 6(1) of the Companies Amendment Act (No 2) 2004 (2004 No 24).
• Section 108(5)(b): amended, on 15 April 2004, by section 6(2) of the Companies Amendment Act (No 2) 2004 (2004 No 24).
• Section 108(5A): inserted, on 30 June 1997, by section 7 of the Companies Act 1993 Amendment Act 1997 (1997 No 27).