A declaration of solvency is a legal document prepared and signed by the directors or officers of a company to affirm that the company is solvent, meaning it has sufficient assets to cover its liabilities. This declaration is typically made in certain situations, such as during a voluntary winding up of the company.
The declaration of solvency is commonly required in jurisdictions like Singapore and others where specific legal procedures are in place for winding up a company. In these cases, if a company wishes to wind up voluntarily, it must provide evidence to show that it can pay off its debts in full within a specified period, usually not exceeding 12 months.
Key components of a declaration of solvency may include:
Statement of Assets and Liabilities: The declaration will include a statement detailing the company’s assets and liabilities, showing that the assets exceed the liabilities by a sufficient margin to cover all outstanding debts.
Statement of Director’s Belief: The directors or officers making the declaration will state that they have formed the opinion, after making a full inquiry into the company’s affairs, that the company will be able to pay its debts in full within the specified period.
Date of Declaration: The declaration will be dated and signed by the directors or officers who make the declaration, typically before a notary public or another authorised person.
Once the declaration of solvency is made and filed with the appropriate regulatory authorities, the voluntary winding-up process can proceed according to the relevant legal requirements. It is important to note that making a false declaration of solvency can have serious legal consequences for the directors or officers involved, including potential civil and criminal liabilities. Therefore, the declaration must be made honestly and based on accurate financial information about the company’s financial position.