What Is a Declaration of Solvency and Who Needs One?

A Declaration of Solvency is the sworn statement that directors must make before a solvent company can be closed through a Members' Voluntary Liquidation (MVL). It is made on Companies House form LIQ01.

What does a Declaration of Solvency say?

It is a statement by a majority of the company's directors that the company is solvent, meaning it can pay all its debts in full, with interest, within 12 months of the date of the declaration.

It must include:

• A statement of the company's assets and liabilities
• Confirmation that the directors have made a full enquiry into the company's affairs
• The directors' view that the company can pay all its debts within 12 months

Who needs to sign it?

A majority of the directors must sign. Each signing director must do so in front of a solicitor or commissioner for oaths, who witnesses the signature. If a company has three directors, for example, at least two must sign.

Why is it required?

Without a valid Declaration of Solvency, the company cannot go into an MVL. An MVL is usually the most tax-efficient way to close a solvent company, because it often allows shareholders to receive retained profits at Capital Gains Tax rates rather than Income Tax rates.

If the declaration later turns out to be false, the directors who signed it may become personally liable for the company's debts.

What is the LIQ01 form?

LIQ01 is the Companies House form that contains the Declaration of Solvency. Once signed and witnessed, it must be filed at Companies House as part of the MVL. The licensed insolvency practitioner normally handles the filing.

How is the declaration witnessed?

Each signing director's signature must be witnessed by a solicitor. This can be done by video call, which helps when directors are in different places. The fee is £100 per document.

The steps are:

1. Get the LIQ01 form. Your insolvency practitioner will usually provide it.
2. Do not sign it before the video call.
3. Book a video appointment.
4. Join the call with the unsigned form and your passport or driving licence.
5. Sign the form live while the solicitor watches.
6. Email the signed form to the solicitor, who countersigns it and emails it back to you, usually the same day. Nothing is posted.
7. Send the countersigned form to your insolvency practitioner.

Book a video appointment