What Do I Need to Know About the Declaration of Solvency?

All directors and owners of a company should be aware of the declaration of solvency – particularly if considering solvent liquidation. The declaration of solvency must be submitted before claiming entrepreneurs relief through members voluntary liquidation (MVL). Business Rescue Experts, licensed insolvency practitioners and specialists in MVLs, are sharing what is involved in solvent liquidation. […]

All directors and owners of a company should be aware of the declaration of solvency – particularly if considering solvent liquidation. The declaration of solvency must be submitted before claiming entrepreneurs relief through members voluntary liquidation (MVL). Business Rescue Experts, licensed insolvency practitioners and specialists in MVLs, are sharing what is involved in solvent liquidation.

What is the declaration of solvency?

The declaration of solvency is prepared before solvent liquidation – providing information on the company’s finances up to five weeks before the winding up resolution – and is split into three different parts:

  • Statement of assets and liabilities of the company
  • The sworn declaration of solvency by directors
  • The endorsement of the proposed liquidator

What is the statement of assets and liabilities?

As mentioned above, this is the first part of your declaration. This statement, in simple terms, represents the company’s financial information ahead of the solvent liquidation. It’s important that all available information is included to avoid a false statement. All assets must be listed, as well as liabilities, and it must also set out the costs of the procedure and any interest returns due to creditors. Similarly, you must outline the returns available for the shareholder once the capital distribution becomes available.

Sworn declaration of solvency

Unlike the statement of affairs – sworn by a statement of truth – the declaration of solvency must be done so by a solicitor or notary. There will be costs involved, typically around £10 per swear. The wording is also critical to the declaration and must comply with insolvency legislation.

The proposed liquidator

The proposed liquidator of the case will present the declaration of solvency to the shareholders of the company. From there, resolutions can be made for the business to enter solvent liquidation, and the liquidator will also endorse the document. This will then be made public and placed on record at Companies House.

Once the procedure begins, the assets of company will be realised to pay off the remaining creditors. The balance will then go to the shareholders by way of capital distribution. Any eligible shareholders can also claim entrepreneurs relief.

What if I provide false information?

A false declaration of solvency is a serious threat to the future of your company. It’s important to note that you cannot be suffering from the early signs of insolvency before opting for this procedure, so you must seek advice at the earliest possible opportunity. An insolvent company is one where liabilities exceed the assets, and, therefore, your business is not suitable for solvent liquidation.

If your company is found to be insolvent, your company could be placed into creditors voluntary liquidation (CVL). Similarly, an MVL could become a CVL if creditors come forward with outstanding debts that have not been paid and submit claims against your business. If this does happen, there is also a chance that you – as a director – could face criminal charges. While you could face disqualification, for a period of up to 15 years, imprisonment is also an option in the most severe cases.

Ultimately, you must always ensure your company is solvent and there are no creditors to worry about. If not, you must seek advice from insolvency practitioners immediately.

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