A statutory declaration of solvency is the sworn statement directors make to confirm a company is able to pay all its debts in full, with statutory interest and the costs of liquidation, within 12 months.
You need this document if you want to close a solvent, cash-rich company through a Members’ Voluntary Liquidation (MVL). If the declaration is wrong or carelessly made, the consequences can be serious for the directors involved.
When do you use a declaration of solvency?
You make a declaration of solvency when you intend to place a solvent company into MVL. The declaration is a legal precondition: without it, you cannot proceed with an MVL. The statement must reflect a genuine, well-informed belief that all liabilities will be settled in full within 12 months of liquidation beginning.
Who must sign it?
All directors or, at a minimum, a majority of the board sign the declaration. A sole director signs alone. Each signatory must have carried out a proper inquiry into the company’s affairs before signing.
In practice, this means they need to review up-to-date management information, check creditor balances, consider contingent liabilities and take professional advice if there’s any uncertainty.
What goes into the declaration?
The statutory declaration of solvency typically includes:
- Company details: legal name and registered number.
- A statement of assets and liabilities with values you reasonably expect to realise.
- Confirmation that you have made a full inquiry into the company’s affairs.
- A statement that the company will be able to pay its debts in full, with interest at the official rate, within 12 months from the start of the liquidation.
- The date and the signatures of the directors making the statement.
It must be sworn before a solicitor or notary, giving it formal legal status.
When is the declaration made?
In most cases the declaration is sworn a day or two before the shareholders pass the special resolution to wind up the company and appoint the liquidator. The law sets tight a timing requirement — within five weeks of the shareholders passing the resolution to wind up the company — so treat the declaration and the shareholders’ meeting as part of one coordinated sequence.
What if the declaration is made falsely?
A declaration of solvency is not a box-ticking exercise. Making a false or reckless declaration can expose directors to personal consequences, for example being made personally liable for company debts or director’s disqualification.
If, despite the declaration, it turns out the company cannot pay all creditors in full within 12 months, the MVL must be converted into a Creditors’ Voluntary Liquidation. The liquidator will investigate what changed and whether the original declaration was made with due care. If a court finds that the declaration was made without a proper basis, personal consequences for the signatory directors can follow.
If you’re on the margin, don’t guess. Getting advice from a regulated insolvency professional will help you to avoid any risks. We’ll help you understand what needs to be included, how to assess solvency properly and when the timing is right.
How your insolvency practitioner supports the process
Working with a regulated insolvency practitioner isn’t just a legal requirement. It makes the MVL process much smoother for you. We guide you through every step of preparing and filing your declaration of solvency, including:
- Preparing the draft declaration and statement of assets and liabilities.
- Ensuring all figures are accurate and up to date.
- Arranging for the declaration to be sworn.
- Coordinating the shareholders’ resolution and appointment of the liquidator.
With the right support, many of our clients complete this part of the MVL in less than a week.
Key takeaways
- A statutory declaration of solvency is mandatory for an MVL and must be based on a full, documented inquiry into the company’s affairs.
- You must be able to pay all creditors in full, with statutory interest and liquidation costs, within 12 months of liquidation starting.
- If solvency is doubtful, don’t proceed to an MVL and instead talk to your insolvency practitioner about a CVL.
- Making a false or reckless declaration can have personal consequences for directors.
- Meticulous preparation with a licensed insolvency practitioner significantly reduces risk and speeds up distributions.
Talk to us about a statutory declaration of solvency
Thinking about closing your cash-rich company through a Members’ Voluntary Liquidation and need help preparing a robust statutory declaration of solvency? Our licensed insolvency practitioners will review your figures, highlight any gaps and handle the formalities so you can move forward with confidence.
Get in touch for free, confidential advice tailored to your company’s position.
