Commercial Law, 2019 Bar — Question B.11-a

ESSAY

W Medical, Inc. operated a full-service hospital named WMed. Using its stockholders' advances and a mortgage loan from Bank X, W Medical, Inc. commenced the construction of a new 11-storey WMed Annex Building. Unfortunately, due to financial constraints, only seven (7) floors were constructed and the WMed Annex Building remained unfinished. Despite the non-completion of the WMed Annex Building, W Medical, Inc. continued its operations and earned modest revenues. While W Medical, Inc.'s assets are more than its liabilities and it is able to turn a monthly profit, it could not pay its loan installments to Bank X as they fall due. (a) What is the concept of “insolvency” under the Financial Rehabilitation and Insolvency Act (FRIA)? May W Medical, Inc. be considered “insolvent” under the FRIA? Explain.

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