2011 • Volume 36 • Number 1

Delaware’s Solvency Test: What Is It and Does It Sense? A Comparison of Solvency Tests under the Bankruptcy Code and Delaware Law

Robert J. Stearn, Jr. and Cory D. Kandestin

Whether a firm is solvent or not has important consequences under both Delaware state law and federal bankruptcy law. However, unlike federal bankruptcy law, which uses uniform statutory tests to determine solvency, Delaware corporate law has no uniform tests. Instead, Delaware’s solvency tests have their origins in common law jurisprudence, and the tests are inconsistently defined and applied. This article examines the ambiguities in Delaware solvency law and recommends that the Delaware courts clarify the law and adopt uniform solvency tests.