Section 494 of the Corporations Act 2001 (Cth) is ‘Declaration of Solvency’ and is extracted below.
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Section 494 of the Corporations Act 2001 (Cth) is Declaration of Solvency and reads as follows:
Declaration of Solvency
(1) Where it is proposed to wind up a company voluntarily, a majority of the directors may, before the date on which the notices of the meeting at which the resolution for the winding up of the company is to be proposed are sent out, make a written declaration to the effect that they have made an inquiry into the affairs of the company and that, at a meeting of directors, they have formed the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up.
(2) There must be attached to the declaration a statement of affairs of the company showing, in the prescribed form:
(a) the property of the company, and the total amount expected to be realised from that property; and
(b) the liabilities of the company; and
(c) the estimated expenses of winding up;
made up to the latest practicable date before the making of the declaration.
(3) A declaration so made has no effect for the purposes of this Act unless:
(a) the declaration is made at the meeting of directors referred to in subsection (1); and
(b) the declaration is lodged before the date on which the notices of the meeting at which the resolution for the winding up of the company is to be proposed are sent out or such later date as ASIC, whether before, on or after the first-mentioned date, allows; and
(c) the resolution for voluntary winding up is passed within the period of 5 weeks after the making of the declaration or within such further period after the making of that declaration as ASIC, whether before or after the end of that period of 5 weeks, allows.
(4) A director who makes a declaration under this section (including a declaration that has no effect for the purposes of this Act by reason of subsection (3)) without having reasonable grounds for his or her opinion that the company will be able to pay its debts in full within the period stated in the declaration is guilty of an offence.
(5) If the company is wound up pursuant to a resolution for voluntary winding up passed within the period of 5 weeks after the making of the declaration or, if pursuant to paragraph (3)(c) ASIC has allowed a further period after the end of that period of 5 weeks, within that further period, but its debts are not paid or provided for in full within the period stated in the declaration, it is to be presumed, unless the contrary is shown, that a director who made the declaration did not have reasonable grounds for his or her opinion.
The maximum penalty for the offence of Declaration of Solvency is:
1 year imprisonment.
However, it should be kept in mind that maximum penalties are reserved for the most serious cases.
Your legal team will be able to advise you of the essential elements the prosecution would need to prove in order to establish the offence, whether those elements are capable of being established in your particular situation, the most effective and efficient way forward and the likely outcome.
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