Capital impairment test

A test that appears in several places in the CBCA and compares the realizable value of the corporation’ assets to its liabilities and stated capital. The test must be satisfied before certain actions, such as declaring dividends and redeeming and repurchasing shares, may be taken by the board of directors. Different formulations of the test are used as a condition of the directors being permitted to take particular actions. To be permitted to declare dividends, the directors must have reasonable grounds to believe that the realizable value of the corporation’s assets is not less than its liabilities and the stated capital of all classes.