what is declaration of solvency?

Ans. Declaration of Solvency – Directors of the company shall call for a Board of directors meeting, and make a declaration for winding up, accompanied by an Affidavit, stating that;

● the company has no debts to pay, or

● the company will repay it’s debts; if any, within three years from the commencement of winding up, as specified in declaration

The directors must have made proper inquiries and believe that the company is solvent – i.e. it will be able to pay all of its creditors within prescribed period after the commencement of the winding up. Only then can they resolve that the company is solvent and the Declaration of Solvency can be executed. Once the directors have executed that Declaration of Solvency and have resolved to call a meeting of members to consider the appointment of liquidators.

The Declaration of Solvency is the company’s formal declaration that it is currently solvent. The declaration contains a statement of all of the assets and liabilities of the company, and must result in a surplus of assets. If the company is not solvent, a member’s voluntary winding up is not possible. Directors must be certain that the company is solvent when they execute the Declaration of Solvency.

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