Written by Ingrid Aguirre, CFA; Don Barbo, CPA/ABV
What Are Solvency Opinions?
A solvency opinion is a professional assessment of a company’s financial health, specifically its ability to meet its long-term obligations. This opinion evaluates whether a company is solvent—meaning its assets exceed its liabilities—based on both current and projected financial conditions and that it has the ability to pay its obligations within a specified amount of time if required by lenders. A solvency opinion serves as a critical tool in corporate finance and transactional contexts, providing stakeholders with confidence in a company’s financial viability.
Why Are They Important?
1. Legal Compliance:
Solvency opinions are vital for ensuring compliance with various legal and regulatory requirements. They assure boards of directors, shareholders, and lenders that financial decisions—such as mergers, acquisitions, and dividend distributions—are made with a clear understanding of the company’s financial standing.
2. Risk Mitigation:
By obtaining a solvency opinion, companies can mitigate risks associated with potential insolvency claims. A well-supported opinion can protect directors and officers from liability by demonstrating that they acted in good faith and made informed decisions based on sound financial analysis.
3. Stakeholder Confidence:
A credible solvency opinion enhances transparency and builds trust among investors, creditors, and other stakeholders. It reassures them that the company is on solid financial footing, thereby facilitating smoother transactions and negotiations.
How Are They Used in a Litigation Context?
In a litigation context, solvency opinions play a pivotal role.
1. Defense Against Claims:
If a company faces lawsuits related to insolvency, such as fraudulent transfer claims, an independent solvency opinion can serve as a robust defense. It provides evidence that the company was solvent at the time of the transaction in question, helping to protect against accusations of misconduct.
2. Expert Testimony:
Solvency experts can be called to provide testimony in court, explaining the methodologies and analyses that led to the solvency opinion. Their insights can clarify complex financial matters for judges and juries, lending credibility to the company’s position.
3. Settlement Negotiations:
In disputes involving insolvency, a well-prepared solvency opinion can facilitate settlement discussions. It provides a factual basis for negotiations, helping to establish fair terms based on the company’s actual financial situation.
The VMG Health Advantage
VMG Health provides comprehensive solvency opinions tailored to your specific needs. Our team of financial experts uses rigorous analysis and proven methodologies to ensure our opinions stand up to scrutiny, both in and out of the courtroom.
Our services include:
- Comprehensive asset and liability analysis
- Regulatory compliance assessments
- Expert testimony and litigation support
Secure your company’s financial future and protect your interests with a reliable solvency opinion from VMG Health. Contact us today and discover how we can help you navigate the complexities of financial integrity and legal compliance.
Sources
Hayes, A. (2024). What Is Solvency? Definition, How It Works With Solvency Ratios. Investopedia. https://www.investopedia.com/terms/s/solvency.asp
Jacobsen, C. (2018). Solvency Opinions: Legal Insights and Best Practices for Valuation. BV Research Pro. https://www.bvresources.com/articles/training-event-transcripts/solvency-opinions-legal-insights-best-practices-for-valuation
Jacobson, C. A., & Selbst, S. B. (2014, July 9). BVR’s Advanced Webinar Series on Valuations for Business Transactions: Part 1: Solvency Opinions [Webinar]. Business Valuation Resources LLC.
