Understanding the Declaration of Solvency
Before a company can voluntarily begin to wind up its affairs, it must present a Declaration of Solvency. Essentially, this is a statement from the directors of a company indicating they have evaluated the situation and believe that the company will be able to pay off all its debts in full within a year of starting the winding-up process.
This important document must be submitted via the BizFile+ website to the Accounting and Corporate Regulatory Authority (ACRA). However, a word of caution: directors who proclaim solvency without reasonable grounds can find themselves in legal trouble, facing up to a $5,000 fine, a year in jail, or even both.
This Declaration of Solvency needs to be accompanied by a statement of affairs. This statement, ideally made as close as possible to the date of the Declaration, should cover the company’s assets, the likely proceeds from selling those assets, company liabilities, and the estimated costs of shutting down operations.
You’ll need to use Form VWU-9, which can be found on The Insolvency Office of the Ministry of Law’s website, for the Statement of Affairs.
Once the Declaration of Solvency is delivered to ACRA, the company members must pass a special resolution to wrap up the company within five weeks. This typically happens in an Extraordinary General Meeting (EGM) where members vote to approve the resolution.
After members say ‘yes’ to the resolution, the company must:
- Submit a copy of the resolution to ACRA within a week of it being passed.
- Advertise the resolution in the Gazette and at least one local daily newspaper in English within 10 days.
Lastly, the company will need to recruit a liquidator to handle the disbursement of assets and wrap up company affairs. Bear in mind that upon the appointment of the liquidator, the directors lose their powers unless the liquidator permits them to continue.