The Solvency Test, which was established in Sri Lanka by the Companies Act No.7 of 2007, requires companies to satisfy the “cash flow test” (trading solvency) and the “assets test” (balance sheet solvency - that the assets of a company must be greater than its liabilities) in order to be deemed solvent. The test plays an important role in the management of companies and presents challenges to the board of directors of a company as to how a company enhances its solvency position. During last few decades, Sri Lanka witnessed cases of corporate failures, especially in finance companies. The economic impact of such failures would only reverse the development of any country affected by such. In the present social context, a company cannot stand in isolation - its actions and behaviour affect society, the lives of people it transacts with and the nation at large. Sri Lanka until the 2007 Companies Act, through a capital maintenance approach protected the creditors of a company. This paper identifies the short-comings of the previous framework which was detrimental to the creditors’ interests, whilst also discussing the improvements made to shareholder and creditor protection by the 2007 Act. Also explores and evaluates the practical impact and importance of the solvency test as a mechanism to provide effective protection to stakeholders of a company. The paper is based on the hypothesis that the solvency regime is a major step in ensuring the integrity of the corporate sector and it provides a better protection to stakeholders of a company, as opposed to the protection afforded by capital maintenance rules.