Solvency Opinions: Approving Leveraged Dividend Recapitalizations

As 2021 counts down, the deal environment continues to see high activity including that of special dividend transactions. In times like these, VRC feels it important to remind our clients and partners of the importance of solvency opinions.

In Delaware, boards of directors can be personally liable for approving and paying an unlawful dividend. Board members can demonstrate that they have fulfilled their fiduciary duties in dividend recapitalization transactions by obtaining opinions from third-party solvency opinion experts. Solvency opinions provide critical information to the board in assessing the company’s ability to pay a special dividend.

The use of solvency opinions has arisen from requirements under state law governing a company’s capacity to pay a dividend as well as fraudulent conveyance law governing dividends and other transfers without adequate consideration. A solvency opinion consists of a set of analyses that address solvency requirements under these laws. Specifically, these analyses look at whether:

  1. Company assets exceed liabilities pro forma for the payment of the dividend,
  2. Company assets will not be left with unreasonably small capital to operate the business, and
  3. If it is reasonable to believe the company will be able to pay its debts as they come due.

Obtaining a solvency opinion may also be advisable in other types of transactions including share repurchase programs, LBOs, refinancings, spin-offs, and restructurings.

Why Choose VRC as Your Solvency Opinion Provider?

Experience. VRC has rendered over 1,000 solvency, capital adequacy, fairness, and other board-level opinions since 1975. We have been recognized by a committee of our peers and notable deal professionals for nine consecutive years as Valuation Firm of the Year.

Senior-Level Attention. Each engagement is executed by senior-level professionals. Every opinion we deliver is reviewed and approved by VRC’s Financial Opinion Committee. The committee is an elite collective of senior firm members who ensure each opinion meets current and evolving best practices, is analytically sound, well-documented, and well-substantiated.

Independence. Unlike many competitors, our firm’s focus is concentrated on providing independent, sophisticated financial and valuation opinions. We are not conflicted or unencumbered by other professional services or extemporaneous practice groups.

Quality. VRC has an excellent track record of defending its opinions. Our work product aligns fully with regulatory guidance and incorporates the rigor of quality control to ensure independence, sophistication, and defensibility remains of the highest importance.

Value. We offer competitively priced high-quality services, free from success fees and contingency fees.

Responsive. Our firm is well-known and respected for its responsiveness, client-first approach, and customized solutions.


Experience Matters

Experience Matters

Board members must fulfill their fiduciary duties by obtaining a third-party valuation opinion – or face personal liability for approving and paying an unlawful dividend. Rely on the expertise of a valuation leader.

+ Clients Trust VRC