False declarations of solvency

Copyright © 2025 LexisNexis
Produced in partnership with Micheal Murphy and Amelia Clegg of 23 Essex Street Chambers
Practice notes

False declarations of solvency

Copyright © 2025 LexisNexis

Produced in partnership with Micheal Murphy and Amelia Clegg of 23 Essex Street Chambers

Practice notes
imgtext

Under the insolvency Act 1986 (ia 1986) it is a criminal offence for a company director to make a statutory declaration of a company's solvency without reasonable grounds.

The offence can be tried in the magistrates' court or the Crown Court.

Elements of the offence

The offence is committed if:

  1. •

    there is a proposal to wind up a company voluntarily and

  2. •

    the directors of a company or the majority of them

  3. •

    make a statutory declaration that a full enquiry into the company affairs has been done

  4. •

    without reasonable grounds that the company can pay its debts and interest within a maximum of 12 months

Proposal for voluntary winding up

A company may be wound up voluntarily:

  1. •

    when the period (if any) fixed for the duration of the company by the articles expires, or the event (if any) occurs, on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution requiring it

Powered by Lexis+®
Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Insolvency definition
What does Insolvency mean?

This can be defined by two alternative tests (Insolvency Act 1986, s 123):

• cash flow test: a company is solvent if it can pay its debts as they fall due, no matter what the state of its balance sheet (Re Patrick & Lyon Ltd [1933] Ch 786);

• balance sheet test: a company which can pay its debts as they fall due may be insolvent if, according to its balance sheet, liabilities (including contingent liabilities) exceed assets.

Read more readmore

Popular documents

Asset stripping

Asset strippingWhat is asset stripping?Asset stripping is the controversial practice involving the purchase of a company and the deliberate depletion of that company’s assets for personal gain or to increase short-term profits. A subset of asset stripping is ‘phoenixing’, a practice which involves

The rule against acquisition of a company's own shares

The rule against acquisition of a company's own sharesThe offence of acquisition of limited company's own shares The general rule is that a limited company must not acquire its own shares, whether by purchase, subscription or otherwise, except in accordance with the provisions of the Companies Act

Priority between loss reliefs in loss making companies

Priority between loss reliefs in loss making companiesWhy does it matter?A company that is a member of a group and has incurred any of the types of losses available for surrender by way of group relief may, without any further rules, have more than one way in which to use the loss. There are a

If a beneficiary signs a deed of disclaimer of their share of an estate and the estate pays their legal

If a beneficiary signs a deed of disclaimer of their share of an estate and the estate pays their legal fees, will that count as a PET against their estate?A disclaimer is the refusal of a gift prior to acceptance. The refusal of the gift must take place before the beneficiary accepts any benefit