Before making distributions to shareholders, companies are required to satisfy either the Trading Solvency test or the Balance sheet solvency test 

The trading solvency test requires that a company is able

to pay its debts as they become due in the normal course of business

The balance sheet solvency test requires that value

of a company’s assets is greater than the value of its liabilities

Companies

are required to satisfy solvency test contained in section 4 of Companies Act  1993.