ASIC Form 520 Declaration of Solvency Requirements for Members' Voluntary Winding Up

Key Takeaways

• ASIC has published Form 520, the Declaration of Solvency that a majority of directors must sign and lodge under section 494 of the Corporations Act 2001 before a company enters a members' voluntary winding up.
• The declaration carries personal exposure for directors, because it attests that the company can pay its debts in full within 12 months of the winding up commencing.
• Compliance and legal teams handling entity rationalization or restructuring should confirm their internal processes support an accurate, properly supported declaration.

Deep Dive

ASIC has published Form 520, the Declaration of Solvency that a majority of directors must sign and lodge under section 494 of the Corporations Act 2001 before a company enters a members' voluntary winding up. The declaration carries personal exposure for directors, because it attests that the company can pay its debts in full within 12 months of the winding up commencing. Compliance and legal teams handling entity rationalization or restructuring should confirm their internal processes support an accurate, properly supported declaration.

Form 520 requires a majority of directors to declare that they have inquired into the company's affairs and, at a directors' meeting, formed the opinion that the company can pay its debts in full within 12 months of the winding up commencing. The declaration must include a statement of assets and liabilities, either on the form or in an annexure, as at the latest practicable date before the declaration is made. Assets are shown at estimated realizable values (cash, receivables, securities, property, plant, intangibles and others). Liabilities are shown by rank for payment, including secured, floating charge, winding-up expenses, unsecured creditors and contingent liabilities, with interest accruing until debts are paid in full. The form concludes with the estimated surplus after paying debts in full.

Key procedural points: the form must be signed by a majority of directors, and any annexure must be signed by the same people. It must be lodged before notices are issued for the members' meeting to consider the winding up. No lodgement fee applies, and ASIC does not issue a receipt unless requested. Annexures must meet formatting rules, including A4 paper, 10mm margins, company name and ACN or ARBN, consecutive page numbering, an identifying mark, and the prescribed endorsement wording.

Recommended actions: (1) maintain a checklist and timeline that sequences the directors' meeting, the solvency inquiry, the lodgement, and the issue of meeting notices; (2) require documented support for realizable value estimates and contingent liability assessments, and retain board minutes evidencing the inquiry; (3) confirm that the statement date is as recent as practicable; (4) request a lodgement receipt for the audit trail; and (5) escalate to legal counsel or insolvency practitioners where solvency is uncertain, since the guide advises consulting an accountant or solicitor.

Risk implications: Directors who make a declaration without reasonable grounds may face serious consequences under the Corporations Act, and an unsupported declaration may undermine the validity of a members' voluntary winding up. If the company proves insolvent, the process may have to convert to a creditors' voluntary winding up, with potential scrutiny of director conduct. The form also collects personal information, so lodgement handling should align with ASIC's privacy policy and internal data protection practices.

Source: Australian Securities and Investments Commission