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What is a Solvency Resolution?

9/13/2014

 
So, your accountant has sent you a Solvency Resolution to sign. What's that all about?!

Definition: A solvent company is one where the assets are more than the liabilities. An insolvent company is the opposite, namely, the liabilities e.g., loans are more than the assets, e.g. house.

Picture
The Companies Act 1993 makes the following provisions:
  1. Under section 135 of the Act, a director must not allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company's creditors; 
  2. Section 136 of the Act provides that a director must not agree to the company incurring an obligation unless the director believes that at that time, on reasonable grounds, the company will be able to perform their obligations. 
  3. In addition, the company cannot (while it remains insolvent), issue a "solvency certificate" which is a necessary pre-requisite to a number of matters such as paying a dividend, reducing its capital, and (in some circumstances) paying salaries or drawings to working shareholders.

So, in view of these requirements of the Act, your accountant may ask you as a shareholder to sign a resolution stating that you will financially support the company.

Note: If you have a LTC and it has a land-and-build-to-rent project, then it is likely that during the construction phase your LTC will be technically insolvent.

For more information, please call us on 0800 890 132 or contact us here
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    Garreth Collard

    Accounting for your rental residential investment property; specialised property tax advice.  Buy me a coffee! 

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  • HOME
  • ABOUT
    • IN THE NEWS >
      • OWNERSHIP STRUCTURES
      • TURNING SKILLS INTO MONEY AND A BETTER LIFESTYLE
    • PARTNERS
    • SERVICES
    • TESTIMONIALS
    • WHY USE A PROPERTY ACCOUNTANT
  • FAQ
    • AML/CFT
    • ANTI-CORRUPTION
    • AUDIT SHIELD
    • DATA PRIVACY
    • FORMS
    • GETTING STARTED IN INVESTMENT PROPERTY
    • HOW TO CALCULATE RENTAL YIELD
    • INFO FOR NEW INVESTORS
    • INVOICES
    • NEW VS OLD VS LAND&BUILD
    • TAX RETURN FAQ
    • TAX POOLING
  • CONTACT
  • BLOG