Statutory Declaration of Solvency (UK)

A Statutory Declaration of Solvency in the United Kingdom is a legally binding written instrument.

A Members' Voluntary Liquidation is the formal procedure for winding up a solvent company in England and Wales, governed by Part IV of the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016 (SI 2016/1024). The MVL is initiated by the shareholders (members) of the company passing a special resolution to wind up the company voluntarily, under section 84(1)(b) of the Insolvency Act 1986. For the winding up to proceed as an MVL (rather than a Creditors' Voluntary Liquidation), the directors must make and file the Statutory Declaration of Solvency before the resolution to wind up is passed.

Section 89 of the Insolvency Act 1986 sets out the requirements for the declaration: it must be made by the majority of directors (or, if the company has only one director, by that sole director); it must be made within the five weeks immediately preceding the date of the resolution to wind up; it must include a statement of the company's assets and liabilities as at the latest practicable date before the making of the declaration; and it must be sworn or affirmed before a solicitor, commissioner for oaths, or notary public. The declaration must be filed at Companies House within 15 days after the winding-up resolution is passed, under section 89(3) of the Insolvency Act 1986.

Making a Statutory Declaration of Solvency without having reasonable grounds for the opinion expressed is a criminal offence under section 89(4) of the Insolvency Act 1986. Any director who makes a declaration without reasonable grounds is liable on conviction on indictment to imprisonment for up to two years, or a fine, or both. In practice, if the company fails to pay its debts in full within the period stated in the declaration, there is a statutory presumption that the director did not have reasonable grounds. The MVL would also convert to a Creditors' Voluntary Liquidation (CVL) under section 95 of the Insolvency Act 1986, with significantly greater cost and reputational consequences for the company and its directors.

An MVL is the most tax-efficient exit route for many owner-managed businesses and holding companies in England and Wales. Under an MVL, the assets of the company are distributed to the shareholders as capital (rather than income), which may qualify for Business Asset Disposal Relief (formerly Entrepreneurs' Relief) under section 169H of the Taxation of Chargeable Gains Act 1992, reducing the effective Capital Gains Tax rate to 10% on qualifying gains up to the lifetime limit (£1 million from March 2020). A licensed insolvency practitioner must be appointed as liquidator to conduct the MVL under section 91 of the Insolvency Act 1986.

A Statutory Declaration of Solvency is needed when the directors of a solvent private or public limited company in England or Wales wish to commence a Members' Voluntary Liquidation — the formal procedure for winding up a company that can pay all its debts in full.

An MVL with a Statutory Declaration of Solvency is needed when a business owner retires and wishes to close a trading company or holding company in a tax-efficient manner. Rather than allowing the company to remain dormant (which carries ongoing compliance costs and administrative burden), the MVL distributes the company's remaining assets to shareholders as capital, potentially qualifying for Business Asset Disposal Relief under section 169H of the Taxation of Chargeable Gains Act 1992 at a 10% CGT rate for qualifying shareholders.

The declaration is needed when a company has ceased trading — for example, following the completion of a specific project, the sale of its trading business as a going concern, or the retirement of its sole shareholder-director — and holds cash or other assets that need to be returned to shareholders. An MVL is significantly more tax-efficient than extracting the remaining assets as dividends (which are subject to dividend tax at up to 39.35% for additional rate taxpayers in 2024/25) or as salary.

The declaration is required when a group of companies is being restructured and a subsidiary or intermediate holding company needs to be dissolved. Where the subsidiary has significant assets or intercompany loans that must be formally realised and distributed, an MVL provides a structured process with formal creditor protection, rather than the administrative strike-off procedure under section 1004 of the Companies Act 2006 (which does not provide the same level of creditor protection and cannot be used where the company has traded in the past three months).

Where a company is a Special Purpose Vehicle (SPV) that was incorporated for a specific purpose — a property development, a joint venture, or a specific contract — and that purpose has been completed, the SPV can be wound up by MVL once all liabilities have been settled and the remaining assets are to be returned to the investing shareholders.

A Statutory Declaration of Solvency cannot be made if the company is insolvent (i.e. if it cannot pay its debts in full within 12 months). Insolvent companies must use a Creditors' Voluntary Liquidation (CVL) under section 98 of the Insolvency Act 1986, or may be subject to compulsory liquidation on a winding-up petition presented by a creditor under section 122 of the Act.

A UK Statutory Declaration of Solvency must comply precisely with section 89 of the Insolvency Act 1986 and must be sworn or affirmed before a solicitor, commissioner for oaths, or notary public to be valid.

The company identification clause states the full registered name of the company, its registered company number at Companies House, and its registered office address. These must match the company's current registered particulars exactly.

The directors making the declaration clause names each director who is making the declaration and confirms that they constitute the majority of the board. If the company has, for example, three directors, at least two must make the declaration. A sole director makes the declaration alone. The declaration is personal to each director — each director must individually form the opinion and is individually criminally liable if they did not have reasonable grounds.

The enquiry statement clause states that the directors have made a full inquiry into the company's affairs and have formed the opinion that the company will be able to pay its debts in full, together with interest at the official rate under section 189 of the Insolvency Act 1986 (currently 8% per annum under the Judgment Debts (Rate of Interest) Order 1993), within a specified period not exceeding 12 months from the commencement of the winding up.

The statement of assets and liabilities clause sets out a statement of the company's assets and liabilities as at the latest practicable date before the making of the declaration, in sufficient detail to support the directors' solvency opinion. Assets should be listed at realisable value (not book value), and all liabilities — including contingent liabilities, trade creditors, HMRC liabilities (corporation tax, VAT, PAYE/NIC), intercompany loans, lease liabilities, and any pending claims — must be included. HMRC liabilities are often the most significant: the liquidator will need to obtain clearance from HMRC before making the final distribution to shareholders, and the statement must reflect any known or anticipated HMRC liability accurately.

The period for payment clause states the specific period within which the directors believe the company will be able to pay its debts in full (with interest). The maximum permitted period is 12 months. In practice, most MVLs complete within three to six months, and the directors should state a period that reflects their genuine expectation based on the company's asset composition and the time needed to realise assets, obtain HMRC clearance, and settle creditors.

The jurat clause records the formalities of the declaration: the names and addresses of the deponents (the directors), the place where the declaration is made, the date, and the name, qualification, and signature of the person before whom the declaration is made (the solicitor, commissioner for oaths, or notary public). A Statutory Declaration of Solvency that has not been properly sworn or affirmed before an authorised person is invalid.

The filing obligation note reminds the directors that the declaration must be delivered to the Registrar of Companies at Companies House within 15 days after the passing of the winding-up resolution, under section 89(3) of the Insolvency Act 1986. The declaration must also be delivered to the appointed liquidator. Failure to file within 15 days does not invalidate the declaration but is a breach of a statutory obligation, and the company and each officer in default may be subject to a fine under section 89(6) of the Act.

Under UK law, the UK GDPR and Data Protection Act 2018 apply to personal data processed under this agreement. The Consumer Rights Act 2015, enforced by the Competition and Markets Authority (CMA), protects consumer rights. Section 43 of the Companies Act 2006 governs company names. The Employment Tribunal adjudicates employment disputes under the Employment Rights Act 1996. The High Court of Justice and County Court have jurisdiction for civil matters under the Senior Courts Act 1981. The forms-legal.com Statutory Declaration of Solvency (UK) template covers the mandatory elements under Freedom of Information Act 2000.