Introduction
The Companies Act 2015 requires directors of companies to pass an annual solvency resolution[1]. A solvency resolution is defined in the Act[2] as a resolution by the directors of the company as to whether or not, in their opinion, there are reasonable grounds to believe the company will be able to pay its debts as and when they become due and payable.
Solvency resolutions must be passed within two months of a company’s financial year end. For example, if a company’s end of financial year is 31 December, the Solvency Resolution must be passed by 28 February.
Notification requirements
If the company is solvent and the solvency resolution is passed in time
If, (as in most cases) a solvency resolution is passed within the allowed two-month period, there is no need to do anything else. The resolution is minuted in the ordinary way.
If the company is solvent and the solvency resolution is not passed in time
If the company is solvent and misses the two-month deadline which under the Act, then the Registrar must be notified within seven days of the end of the two-month period. This is in the form of A70 attached.
The company’s financial year is determined, under s.407 of the Act, by reference to 12-month periods from the date of registration of the company (some special circumstances apply). For this reason, Form A70 refers to a two-month period after the date of anniversary of registration. However, realistically a company’s end of financial year and anniversary date of registration may not always align.
If the company is not solvent
In rarer cases the directors’ resolution will be that the company cannot pay its debts as they fall due (a negative solvency resolution). In that case the Registrar must be notified using the same form A70 within seven days of the resolution being passed.
Other factors
If the directors of the company believe that the company can only pay its debts as and when they become payable under certain conditions and they believe that those conditions will continue (eg shareholder financial support), that is a valid solvency resolution.
The requirement to pass a solvency resolution does not apply to companies that that have lodged Annual Reports with the Registrar within the last financial year.
Conclusion
It is important, to remain compliant with the Companies Act, that directors give attention to passing their annual solvency resolution. The majority of Fiji companies have calendar financial year ends – meaning that the annual deadline for their solvency resolutions is 28 February.
If you have any questions regarding this Alert or require assistance with drafting the solvency resolution, please contact either Glenis Yee or Janice Fong.
Disclaimer
The information and opinions in this Legal Alert are for general information purposes only. They are not intended as specific legal or other professional advice and should not be relied upon or treated as a substitute for specific advice. Munro Leys can accept no responsibility for any loss arising from reliance on the general information contained in this Legal Alert.