Golden Signatures: The Power of Solvency Declarations
Golden Signatures: Why Solvency Declarations Aren’t Just Paperwork
Every year, company directors receive a solvency resolution to pass. Many brush it off as just another formality. But this golden slip of paper carries serious legal weight—and can either protect or expose directors depending on how it’s handled.
What Is a Solvency Resolution?
A solvency resolution is a formal statement by company directors that confirms whether the company can pay its debts as and when they fall due. Under Section 347A of the Corporations Act 2001, this resolution must be passed within two months after a company’s annual review date.
There are two possible outcomes:
- A positive resolution: the company is solvent.
- A negative resolution: the company is not solvent.
If no resolution is passed within the required timeframe, or if the resolution is negative, the company must lodge a Form 485 with ASIC within seven days after the end of that period.
💡 Important note: Companies that have lodged a financial report under Chapter 2M within the last 12 months may be exempt from this resolution requirement. This often applies to larger entities with statutory audit obligations.
🔗 ASIC User Guide – Solvency Statement
Solvency Resolution vs Solvency Declaration: Know the Difference
What’s the difference between a solvency resolution and solvency declaration:
- A solvency resolution is an annual board decision under section 347A.
- A solvency declaration is a formal director statement included in financial reports prepared under section 295(4)(c).
Directors signing a declaration in financial reports must believe, based on reasonable grounds, that the company can pay its debts.
🔗 ASIC Regulatory Guide 22 – Directors’ Solvency Declarations
Why It Matters to Business Owners
Think of a solvency resolution as your company’s gold standard—an annual check to make sure there’s still value in the vault.
Ignoring it, rushing it, or signing blindly can lead to:
- Civil penalties (under Section 180 for lack of due care)
- Disqualification as a director (Section 206C)
- Criminal charges (Sections 1308 and 1309 for false declarations)
In one 2022 case, ASIC disqualified a director for three years after he signed off on solvency—even though his company had over $600,000 in unpaid taxes and no ability to pay suppliers.
Don’t Sign on Hope Alone
Your solvency resolution must be based on present, verifiable financial information—not future expectations or verbal promises.
“Formal declarations must be based on current, verifiable facts—not assumptions about future events.”
– ASIC vs Fortescue Metals Group Ltd. (2011)
As a director, you must be able to show how you formed your opinion—through reviewing cash flows, liabilities, and forecasts.
What If Directors Disagree?
Disagreements happen. Especially when a business is under cash pressure.
If not all directors agree:
- Review up-to-date financial documents together.
- Document the basis for each opinion.
- Let dissenting directors formally abstain.
- Seek independent legal or financial advice.
- Record all discussions in the board minutes.
ASIC expects all dissenting views and risks to be properly documented. Directors are individually accountable.
The Gold Is in the Governance
Whether or not a Form 485 is lodged, companies must keep detailed records of their solvency resolution. This includes:
- Meeting dates, times, and attendees.
- Financial reports reviewed.
- The resolution wording.
- Questions raised and risks discussed.
- Any abstentions or objections.
These records are a director’s best defence in the event of an ASIC review or legal dispute.
🔗 ASIC – Company Officeholder Duties
Why We Send These to You
At DJ Grigg Financial, we don’t just send you solvency documents to tick a compliance box. We do it to protect you and your business.
By reviewing and signing them properly, you’re:
- Reducing your risk of legal or financial penalties.
- Making informed decisions about your business health.
- Strengthening your governance and peace of mind.
We’ve seen cases where a signature made in haste led to serious fallout. Don’t let that happen to you.
Contact Us Today
If you’re unsure about signing, or want support reviewing your solvency position, we’re here to help.
Get in touch or call 03 5174 9111 to chat with our team.