When must a solvency test be conducted for share redemptions?

A solvency test must be conducted both when the transaction is approved and when it occurs to ensure that the company maintains solvency throughout the process of share redemptions. This requirement is established to protect the interests of creditors and ensure that the company does not engage in transactions that could impair its ability to meet its liabilities.

When the board of directors proposes a resolution to redeem shares, they must first assess the company’s financial condition at that point in time to confirm that the company is solvent and can fulfill its obligations after the redemption. However, it is equally important to reassess the financial status at the time the transaction is executed because circumstances may change between the resolution’s approval and the actual share redemption. By conducting the solvency test at both points, the company safeguards itself against possible financial distress and ensures compliance with legal requirements related to share redemptions.

Other options fail to account for either the resolution stage or the transaction stage adequately, which would leave potential gaps in evaluating the company’s financial position and could lead to adverse legal consequences for the directors if the company is found to be insolvent at the redemption time.