(1)A solvency statement is a statement that each of the directors—
(a)has formed the opinion, as regards the company's situation at the date of the statement, that there is no ground on which the company could then be found to be unable to pay (or otherwise discharge) its debts; and
(b)has also formed the opinion—
(i)if it is intended to commence the winding up of the company within twelve months of that date, that the company will be able to pay (or otherwise discharge) its debts in full within twelve months of the commencement of the winding up; or
(ii)in any other case, that the company will be able to pay (or otherwise discharge) its debts as they fall due during the year immediately following that date.
(2)In forming those opinions, the directors must take into account all of the company's liabilities (including any contingent or prospective liabilities).
(3)The solvency statement must be in the prescribed form and must state—
(a)the date on which it is made, and
(b)the name of each director of the company.
(4)If the directors make a solvency statement without having reasonable grounds for the opinions expressed in it, and the statement is delivered to the registrar, an offence is committed by every director who is in default.
(5)A person guilty of an offence under subsection (4) is liable—
(a)on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);
(b)on summary conviction—
(i)in England and Wales, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);
(ii)in Scotland or Northern Ireland, to imprisonment for a term not exceeding six months, or to a fine not exceeding the statutory maximum (or both).
Cases considering section 643 (4)
[2018] EWHC 600 (Ch) · 21 March 2018Interprets
Interprets the solvency statement requirement as requiring directors to consider all liabilities, including contingent and prospective liabilities, and available assets or arrangements for meeting them. The assessment must be realistic and commercial, and cannot rely on uncommitted related-company support. (see paras [20]-[25]; [178]-[186])
[2016] EWHC 1686 (Ch) · 11 July 2016Limits
Interprets the solvency-statement mechanism. Directors must actually form the statutory opinions and take all liabilities into account, but the statutory test is a practical assessment rather than a worst-case or winding-up test.
Requires each director to form the opinion that there is no ground on which the company could then be found unable to pay or discharge its debts. The court adopted a straightforward assessment of the company’s situation at the statement date.
Requires an opinion that the company will be able to pay or discharge debts as they fall due during the following year. The claimants did not challenge the directors’ compliance with this cash-flow limb.
Requires directors to take contingent and prospective liabilities into account. The court held that this means a commercially realistic assessment of their nature, timing, available assets and provision, not face-value aggregation or a worst-case assumption.
Confirms the formal content of a solvency statement. The statements signed by the directors complied with the prescribed formal requirements.
Limits the reasonable-grounds requirement to the criminal offence created by the subsection. The absence of reasonable grounds does not itself invalidate the capital reduction, although extreme unreasonableness may bear on whether the opinion was formed.
[2019] EWCA Civ 112 · 6 February 2019
The definition of a solvency statement illustrated an express statutory assessment of present and prospective ability to discharge debts, including contingent liabilities. Whether it exceeded the proposed real-risk test was left undecided. (see paras [210]; [212])
What each judgment says about section 643 is in the case-law panel in the full Act.
958.A solvency statement made under section 643 must be made by all of the directors. If one or more of the directors is unable or unwilling to make this statement, the company will not be able to use the solvency statement procedure to effect a reduction of capital unless the dissenting director or directors resign (in which case the solvency statement must be made by all of the remaining directors).
959.The solvency statement must be in the “prescribed form” and “prescribed” in this context means prescribed by the Secretary of State in regulations or by order made under the Act.
960.The solvency statement must state the date on which it is made and the name of each director of the company but there is no requirement that the directors must all be in the same location when they make this statement. The registrar will be able to make rules under section 1068 as to the form of the solvency statement.
961.In forming their opinions, the directors must take account of all the company’s liabilities including contingent and prospective liabilities (see subsection ( 2) ). So, in circumstances where a company holds redeemable preference shares which, for the purposes of the accounting standards that applied to the company on the date that the directors made the solvency statement, are treated as liabilities, a proposed redemption or purchase of these shares in the relevant period should be treated as a contingent or prospective liability.
962.If the directors make a solvency statement without having reasonable grounds for the opinions expressed in it, and that statement is subsequently delivered to the registrar, every director who is in default commits an offence (see subsection ( 4) ). The penalty for this offence is set out in subsection ( 5) .