Members’ voluntary winding-up–declaration of solvency:
In respect of a members’ voluntary winding-up, two directors, where there are only two directors, and a majority of directors, where there are more than two, should make a declaration, called “declaration of solvency‟. In the declaration, the following matters are required to be stated, namely, (i) that they have made a full enquiry into the affairs of the company, and (ii) that having made such enquiry, they have formed the opinion that the company has no debts or that it will be able to pay its debts in full within a period not exceeding three years from the commencement of the winding-up. To be effective:
(a) it must have been made and filed with the Registrar within the five weeks immediately preceding the date of passing of the winding-up resolution; and
(b) it must be accompanied by a copy of the auditor’s report on the profit and loss account of the company for the period commencing from the date of the company for the last account to the latest practicable date immediately before the making of the declaration and the balance sheet of the company made out as on the last -mentioned date and, also, embodies a statement of the company‟s assets and liabilities as at that date. The report of the auditor must be prepared, as far as circumstances permit, in the manner laid down by the Act (Section 488). This accompaniment is intended to be an additional safeguard.
Unless the above mentioned conditions are complied with, the resolution passed for voluntary winding-up would be invalid and the members’ voluntary winding-up cannot be effected [S.P. Bhargava vs. Rameswar A.I.R. (1952) M.P. 3]
Where the declaration of solvency is made by the directors without any reasonable gr ounds that the company will be able to pay its debts in full within the period specified in the declaration, it would render them liable to imprisonment which may extend to 6 months and or to pay a fine exceeding ` 50,000. If the company is wound-up in pursuance of such a resolution within a period of 5 weeks after the declaration was made, but its debts are neither paid off nor provided for in full within the period specified in the declaration, it would be presumed, till the contrary is shown, that the directors did not have reasonable ground to form the opinion as to company‟s solvency [Section 488(3) & (4)].