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What is declaration of solvency?

Author

Sophia Bowman

Updated on March 17, 2026

What is declaration of solvency?

A declaration made by the directors of a company seeking voluntary liquidation that it will be able to pay its debts within a specified period, not exceeding 12 months from the date of the declaration.

Moreover, what do you mean by declaration of solvency?

A declaration of solvency is a formal, written declaration, made by the majority of the directors of a company stating that in the directors' opinion, the company is solvent. Solvency refers to a state in which a debtor is financially sustainable, and can therefore pay all debts as and when they become due and payable.

Similarly, why do I need a declaration of solvency? A declaration of solvency is required by a mortgage lender and or a buyer when the owner is gifting their share in a property for zero consideration. If you were made bankrupt after the gift then the transaction could be reversed in order for the property to be sold to pay off the creditors.

Simply so, what is declaration of solvency in company law?

When a company intends to liquidate itself voluntarily, its directors have to give a declaration of solvency (“DoSâ€). DoS is a statutory declaration made by the directors, that the company is solvent and will be able to pay its debts in full, within the time prescribed in DoS.

What is a declaration of solvency for an individual?

A declaration of solvency is required by a mortgage lender and or a buyer when the owner is gifting their share in a property for zero consideration. The gift means the owner no longer owns the property/asset which has a value.

Who prepares the declaration of solvency?

A declaration of solvency is sworn by the directors of the company. If there are just one or two directors, then all are required to sign; for a company with more than two directors, a majority must sign the declaration.

How long is a declaration of solvency valid for?

A declaration made by the directors of a company seeking voluntary liquidation that it will be able to pay its debts within a specified period, not exceeding 12 months from the date of the declaration.

What is the solvency test?

The solvency test consists of two parts: Trading solvency/liquidity - the company is able to pay its debts as they become due in the normal course of business; and. Balance sheet solvency - the value of the company's assets is greater than the value of its liabilities, including contingent liabilities.

Does a declaration of solvency need to be sworn?

A declaration of solvency must be given by directors before a company enters solvent liquidation and customarily the original declaration of solvency must be sent to Companies House to be filed. Declarations of solvency must be sworn before a solicitor or notary.

Is a declaration of solvency a statutory declaration?

Although called the 'statutory declaration of solvency', the declaration is not, in fact, of the general solvency of the company. What must be sworn is that the company can pay its debts in full with interest at the official rate within a period of not more than 12 months.

Why would a company issue a solvency statement?

To eliminate or reduce losses of the company to allow it (for example) to declare dividends to shareholders; An alternative to a share buy back where the company does not have sufficient distributable reserves; or. To reorganise and simplify group structures.

What do you mean by liquidator?

A liquidator refers to an officer who is specially appointed to wind up the affairs of a company when the company is closing—typically when the company is going bankrupt. Assets of a company are sold by the liquidator and the resulting funds are used to pay off the company's debts.

What is mean by liquidation winding up of a company?

Meaning and types of liquidation

Winding up of a company is the process whereby its life is ended and its property is administered for the benefit of its creditors and members.

What are the features of shares?

Write Features of Shares.- Secretarial Practice
  • Face Value: -Each share has a definite face value, say Rs.
  • Issue Value: - A Share may be issued at par (exact face Value), at Premium (more than the face value), or at discount (less than the face value)
  • Paid up Value: -Shares may be fully paid-up or partly paid-up.

What is Members Voluntary Liquidation?

A members' voluntary liquidation (MVL) is the formal process to bring a solvent company to a close. MVLs are only available for solvent companies and the directors are required to make a sworn declaration that the company: is solvent. can pay all its taxes. can pay all its creditors.

What is meant by statement of affairs?

A Statement of Affairs provides a detailed summary of a company's assets and liabilities and is a key part of the insolvency process. It provides a clear audit trail of the status of business assets, and how much would be available to creditors once assets have been sold.

Who can appoint liquidator for a company?

The company in its general meeting, where a resolution of voluntary winding up is passed, shall appoint a Company Liquidator from the panel prepared by the Central Government for the purpose of winding up its affairs and distributing the assets of the company and recommend the fee to be paid to the Company Liquidator.

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