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Declaration of solvency

This has application to company insolvency or liquidation. If the winding-up of a company is to enjoy the title of a membersvoluntary winding-up it must be preceded by a a Declaration of Solvency by the directors. This is a statutory declaration, in the form laid down in the Companies Act, that the company will be able to pay its debts in full within twelve months. It must be made within the five weeks preceding the resolution by members to wind up the company and must contain, inter alia, a statement of all extant assets and liabilities. If these conditions are not met or are proved to be falsely obtained then the winding-up cannot be a members’ voluntary winding-up and must be treated as a creditors’ winding-up. either voluntary or involuntary depending on the circumstances.

Reference: The Penguin Business Dictionary, 3rd edt.