What is a Declaration of Solvency in an MVL?

A declaration of solvency is a legal document which must be signed by a majority of directors of a company before it is placed into a Members Voluntary Liquidation. 

If you are considering closing your solvent business, our team at The Insolvency Experts assist you with a Members Voluntary Liquidation. 

What does a declaration of solvency mean?

A declaration of solvency is a statement that the company is solvent and can pay off its debts within the first 12 months of the start of a Members Voluntary Liquidation (MVL). 

It needs to be sworn in front of a solicitor who will typically charge a fee of £15-£20. 

An example of a declaration of solvency

The statement of affairs must be testified before a solicitor, practice or notary. 

The procedure must be testimony by:

  • All directors when there are two or less
  • The majority of directors when there are more than two

The wording of a declaration of solvency must comply with insolvency legislation and declare as follows:

“We being all/ the majority of the directors of the company do solemnly and sincerely declare that we have made a full enquiry into the affairs of this company, and that, having formed the opinion that this company will be able to pay its debts in full together with interest at the official rate within a period of 12 months, from the commencement of the winding up.”

What are the requirements for a declaration of solvency?

A declaration of solvency must give confirmation of the company’s financial position no earlier than 5 weeks before the winding up resolution is made by the shareholders of the company.

There are three parts to a full declaration of solvency document:

  • A statement of assets and liabilities
  • The sworn declaration of solvency 
  • The endorsement of the proposed liquidator

When is a Declaration of Solvency needed in an MVL?

A director must swear the declaration of solvency before the MVL is initiated to prove that the company can back any outstanding debts within the following year. 

A company that cannot confirm its solvency will not be eligible to enter an MVL. 

When is a declaration of solvency signed?

A declaration of solvency is signed not long before the MVL is formally initiated. 

The sworn declaration of solvency must also be accompanied by a statement of assets and liabilities which sets out the company’s financial position. 

Who signs a declaration of solvency?

A declaration of solvency needs to be sworn by directors of the company. If there are only one or two directors, then they are all required to sign. For a company with more than two directors, a majority must sign the declaration. 

Swearing of the declaration must be witnessed by a solicitor or notary.