There are two main tests to declare a company insolvent the cashflow test and the balance sheet test. These tests can be performed by auditors when working on the financial accounts directors when reviewing the state of the company at any point or by court request. In the case of creditors trying to prove the company is insolvent.

The cashflow test is used to determine whether a company can fulfill its projected expenses when they fall due, including upcoming debt maturity, salaries, and taxes. If they cannot, this suggests an imminent or near imminent risk of insolvency. Significant amounts of debt maturing in the short term, so-called maturity walls, pose a particular problem for the cashflow test. A company may have a significant amount of debt principal repayments, which are due in a relatively short period of time, which far exceeds what the company currently has in terms of available liquidity and its expected free cashflow generation up until the debt maturity date. In this case, there is a high likelihood of the company not being able to service the required debt principal payments. Once management identifies that the company won't be able to meet all its outgoings. In other words, that the company is at risk of insolvency the director's duties might shift. In the UK the directors of companies in the zone of insolvency must serve creditors as opposed to shareholders. This means they must aim to maximize creditors' potential recovery in the us the interpretation depends on the state where the company operates. However, director's duties broadly remain acting in the best interest of the corporation for the benefit of its shareholders.