Updated: 26 January 2026
A declaration of solvency is a legal statement made by company Directors confirming the company can pay all its debts in full. It is required to close a solvent company through a Members’ Voluntary Liquidation (MVL).
Signing the declaration allows the MVL to proceed and access tax-efficient distributions, but it also places personal responsibility on Directors. If it is wrong, the consequences can be serious.
This guide explains when a declaration of solvency is required, who must sign it, what it must include, and what happens if it is incorrect.
What is a declaration of solvency?
A declaration of solvency is a sworn legal statement made by a company’s Directors confirming that the company can pay all its debts, including statutory interest and liquidation costs, within 12 months of liquidation starting.
It is a statutory requirement under the Insolvency Act 1986 and must be completed before a Members’ Voluntary Liquidation (MVL) can begin. Once signed, the declaration is filed at Companies House and relied upon by creditors and the appointed liquidator.
Without a valid declaration of solvency, a company does not qualify for an MVL and cannot proceed using this route.
Why is a declaration of solvency required?
A declaration of solvency is required in a Members’ Voluntary Liquidation as a legal safeguard for creditors. An MVL is only available to solvent companies, and the declaration provides formal confirmation that the business can meet all its obligations in full.
Protecting creditors
By signing the declaration, Directors confirm that the company can pay all its debts, together with statutory interest and liquidation costs, within 12 months. This gives creditors and other stakeholders confidence that their claims will be settled in full and on time.
Meeting legal requirements
The declaration is a mandatory statutory requirement under section 89 of the Insolvency Act 1986. Without a valid declaration of solvency, a company cannot proceed with an MVL and may instead need to consider a Creditors’ Voluntary Liquidation.
Establishing Director accountability
The declaration confirms that Directors have carried out a full enquiry into the company’s financial affairs. By swearing the statement, Directors take personal responsibility for their assessment of solvency and the accuracy of the information provided.
Who must sign the declaration of solvency?
Only company Directors are permitted to make and sign a declaration of solvency. The rules on who must sign are set out clearly in insolvency legislation and depend on the number of Directors appointed to the company.
- If the company has one or two Directors, all Directors must sign
- If the company has more than two Directors, a majority must sign.
Each Director who signs must be satisfied that the declaration is accurate and based on a full review of the company’s financial position. This responsibility cannot be delegated.
The declaration must be sworn in the presence of a solicitor or notary. In practice, this can usually be done online, allowing Directors to sign remotely without the need for an in-person meeting.
What must be included in a declaration of solvency?
A declaration of solvency must contain specific information to confirm that the company can meet all its obligations in full. It is a formal legal document and must be supported by detailed financial evidence.
Core declaration
The Directors must confirm that they have carried out a full enquiry into the company’s affairs and, based on that enquiry, believe the company can pay all its debts. This includes statutory interest and liquidation costs, and payment must be achievable within a maximum of 12 months from the start of the winding up.
The declaration must be dated and signed by the required Directors and sworn in the presence of a solicitor or notary.
Statement of assets and liabilities
The declaration must be accompanied by a statement showing the company’s financial position at the most recent practical date. This includes:
- Estimated realisable values of all assets
- Details of all liabilities, including contingent or potential debts
- Estimated liquidation costs
- Statutory interest payable on creditor balances
- Any expected surplus available for distribution to shareholders.
Company and Director details
The declaration must clearly identify the company by name and registration number and include the names of the Directors signing the statement.
In the UK, the declaration of solvency is filed using Form LIQ01.
Making a declaration without reasonable grounds is a serious criminal offence. This is why Directors should carry out thorough due diligence and seek advice from a licensed Insolvency Practitioner before signing.
When must the declaration of solvency be signed?
The declaration of solvency must be signed before the company enters a Members’ Voluntary Liquidation and within a strict legal timeframe.
Directors must sign the declaration in the five weeks immediately before shareholders pass the resolution to wind up the company. In practice, it is usually signed a day or two before the shareholders’ meeting to ensure the financial information is accurate and up to date.
The timing rules are strict:
- The declaration must be signed before the winding-up resolution is passed.
- If it is signed more than five weeks before the resolution, it has no legal effect.
- A copy of the signed declaration must be filed at Companies House within 15 days of the winding-up resolution being passed.
If the company’s financial position changes between signing the declaration and starting the MVL, the figures may need to be updated and the declaration re-sworn. This is why careful timing and professional guidance are important.
How to prepare a declaration of solvency
Before signing a declaration of solvency, Directors must be confident that the statement is accurate, complete, and capable of standing up to scrutiny. This requires a proper review of the company’s financial position, not assumptions or estimates.
Preparation usually involves:
Reviewing up-to-date accounts: Management accounts should be current and reflect the company’s true financial position. Any significant changes since the last set of accounts must be taken into account.
Identifying all liabilities: This includes all known debts as well as potential or contingent liabilities, such as redundancy payments, ongoing legal disputes, tax liabilities, or personal guarantees.
Valuing assets correctly: Assets must be valued realistically at their expected realisable value. Independent valuations may be needed for property, equipment, or other high-value assets to avoid overstatement.
Allowing for statutory interest and costs: Statutory interest, currently 8% per annum, must be included in the calculations, along with liquidation costs, professional fees, and any final tax liabilities.
Work with a licensed Insolvency Practitioner: An Insolvency Practitioner can guide you through the calculations, verify your figures are correct, and ensure the declaration meets all legal requirements. At Clarke Bell, we help Directors prepare accurate, compliant declarations and provide expert advice at every stage of the MVL process.
What happens if the declaration of solvency is wrong?
Signing a declaration of solvency without reasonable grounds is a serious matter. If the declaration later proves to be incorrect, Directors can face significant personal and legal consequences.
If the company cannot pay its debts in full within 12 months, the Members’ Voluntary Liquidation will typically be converted into a Creditors’ Voluntary Liquidation (CVL). From that point, the process is treated as an insolvency, and the focus shifts to protecting creditors.
Personal consequences for Directors
If the declaration was made recklessly, negligently, or without adequate investigation, Directors may face:
- Personal liability for company debts, particularly where funds were distributed improperly
- Director disqualification, potentially for up to 15 years
- Criminal penalties, including fines or imprisonment in serious cases
- Misfeasance claims, where a liquidator seeks recovery for breaches of duty.
The consequences depend on whether the error was an honest mistake or the result of a failure to carry out proper due diligence. This is why Directors should never sign a declaration of solvency unless they are fully satisfied that the company is genuinely solvent, and the figures have been carefully verified.
Related: Difference Between a Creditors’ and Members’ Voluntary Liquidation
Declaration of solvency and MVL tax benefits
A correctly prepared declaration of solvency allows a company to proceed with an MVL and access its key benefits.
Funds distributed through an MVL are usually taxed as capital gains rather than income. Where eligible, Business Asset Disposal Relief may apply, significantly reducing the tax payable on extracted profits.
These benefits depend on the company being genuinely solvent and the declaration being accurate.
Related: Members’ Voluntary Liquidation Tax: A Guide for Directors
What if you’re unsure the company is solvent?
If there is any doubt about whether the company can pay all its debts in full, a declaration of solvency should not be signed. Making assumptions or relying on best-case outcomes can put Directors at personal risk.
Uncertainty often arises in situations where potential liabilities exist, such as tax assessments, redundancy costs, legal disputes, or guarantees. Even where a company holds cash, these risks must be factored in.
Getting advice from a licensed Insolvency Practitioner at this stage is crucial. A professional review can confirm whether an MVL is appropriate or whether an alternative route, such as a Creditors’ Voluntary Liquidation, would better protect Directors and creditors.
Clarke Bell can help
A declaration of solvency is one of the most important steps in a Members’ Voluntary Liquidation. Getting it right protects Directors, ensures legal compliance, and allows the MVL to proceed smoothly.
Clarke Bell has over 30 years of experience helping company Directors close solvent businesses through MVLs. Our expert team will review your company’s position, help prepare an accurate declaration of solvency, and guide you through every stage of the process.
If you are considering an MVL or are unsure whether your company qualifies, contact Clarke Bell for a free consultation and clear advice on your next steps.
Frequently asked questions
Is a declaration of solvency legally required for an MVL?
Yes, a declaration of solvency is a strict legal requirement for a Members’ Voluntary Liquidation. It confirms that Directors have reviewed the company’s finances and believe all debts, interest, and liquidation costs can be paid in full. Without a valid declaration, a company cannot proceed with an MVL.
How long does a declaration of solvency last?
A declaration of solvency covers the 12-month period from the start of liquidation. During this time, the company must be able to settle all liabilities in full, including statutory interest and liquidation costs. If the company fails to do so within this period, the MVL may no longer be appropriate.
Can a sole Director sign a declaration of solvency?
Yes, a sole Director can sign a declaration of solvency. However, the responsibility is no less significant than for multiple Directors. The sole Director must still conduct a thorough financial review and be satisfied that the company is genuinely solvent before signing.
What happens if new debts appear after signing?
If new liabilities arise after the declaration is signed and they affect the company’s solvency, the MVL may need to be converted into a Creditors’ Voluntary Liquidation. This often triggers a review of the Directors’ conduct and whether the declaration was made with reasonable care.
Is signing a declaration of solvency risky?
Signing a declaration of solvency carries legal responsibility for Directors. While it is not risky when done correctly, inaccurate or careless declarations can lead to investigation, personal liability, or disqualification. This is why careful preparation and professional advice are essential before signing.
