The other reason why the balance sheet can be an all but meaningless guide to solvency is that a company which is borrowing money is much more likely to be fattening up its accounts by doing minimal writedowns, and generally overvaluing assets - to impress the bank.
Whereas, ordinarily, the name of the game in a business is to maximise cash generation while minimising profits (because profits are taxed) and thus one writes off everything under the sun to the maximum extent allowed, and any useless assets are promptly scrapped.
So, the kind of company which is most likely to go bust due to lack of cash is also the one which most likely was running dodgy (if legal) accounts.