If you’re a director or company secretary of an Australian company, you may be aware that one of your obligations under the Corporations Act 2001 (Cth) is to pass a solvency resolution annually. Or you might not be aware…in which case, read on.

Under s347A of Corporations Act, directors of a company must pass a solvency resolution within 2 months of the company’s annual review date. If you don’t know your annual review date, you can find it listed on the ASIC register or check the annual company statement issued by ASIC. A solvency resolution states that the directors believe that the company can (or cannot) pay its debts when they are due. Where the company has a board of directors, the resolution must be passed by a majority. The solvency resolution may be positive (ie: that the company can pay its debts when due) or negative (ie: that the company cannot pay its debts when due).

If a negative solvency resolution is passed, you must lodge it with ASIC via form 485 within seven days. If a positive solvency resolution is passed there is no lodgement requirement, simply keep the resolution on file with your other corporate documents.

Exemptions

If the company has lodged a financial report with ASIC within the 12 month period prior to the annual review date, it will be exempted from passing any solvency resolution. This exemption applies to AFSL holders who are already meeting their compliance obligations under the Corporations Act to lodge annual financial statements with ASIC using forms FS70 and FS71.

If you require any assistance in preparing a solvency resolution or you are unsure if you need to pass a solvency resolution, please contact us for more information.