Running a company in Australia comes with a steady rhythm of annual compliance tasks. One that’s easy to overlook-but important to get right-is the solvency resolution under the Corporations Act 2001 (Cth).
If the phrase “solvency resolution ASIC” has you wondering what to do and when, you’re not alone. The good news is that the process is straightforward once you understand the rules, the timing, and the paperwork directors need to keep on file.
In this guide, we’ll explain what a solvency resolution is, who must pass it and when, how to complete it step-by-step, when ASIC lodgements are required (and the key exemption), and the common pitfalls to avoid. We’ll also share practical tips to help your board stay compliant with minimal fuss.
What Is a Solvency Resolution?
Solvency is about whether your company can pay its debts as and when they fall due. A company that can meet its obligations on time is solvent. A company that can’t is-by definition-insolvent.
A solvency resolution is a formal resolution directors must consider annually, stating whether they believe the company will be able to pay its debts when they are due and payable. It’s a short, practical checkpoint designed to keep directors focused on the company’s financial health and to prompt timely action if there are warning signs.
Importantly, a solvency resolution is a board resolution-so it can be passed at a board meeting or by written circulating resolution, depending on your governance rules. There’s no requirement in the law to hold a physical meeting just for this purpose.
At its simplest, a positive solvency resolution might read:
“The directors resolve that, 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.”
Directors should ensure the wording is clear and that the resolution is dated and properly recorded in the company’s minute book or board portal.
Who Must Pass One and When?
The annual solvency resolution requirement applies to Australian proprietary companies (Pty Ltd), subject to a key exemption explained below. If your business operates through a company, this is likely on your compliance calendar each year.
Timing matters. The board must pass the solvency resolution within two months after the company’s annual review date (the review date appears on your ASIC annual statement). Treat that two‑month window as a firm deadline-missing it can trigger lodgement obligations and late fees.
How many directors need to agree? Follow your company’s governance rules. A board can pass the resolution under the voting rules in your Company Constitution (for example, by a majority at a quorate meeting), or by a written circulating resolution if your constitution allows. There’s no blanket requirement that every director must sign a paper copy, but ensure the resolution is validly passed and documented in line with your company’s rules.
If your company has a sole director, that director makes and records the resolution. If you have overseas-based directors, they still participate and remain responsible for the decision.
How To Complete Your Solvency Resolution (Step‑By‑Step)
1) Note your review date (and set reminders)
Your annual review date is shown on your ASIC annual statement. Mark the date and set two reminders-one at the review date and one before the two‑month deadline-to make sure the board considers solvency on time.
Directors should consider current and forward‑looking financial information before forming an opinion, such as:
- Balance sheet and current liabilities
- Aged payables and receivables
- Cash flow forecasts and funding facilities
- Known or contingent liabilities and upcoming commitments
- Any material changes since last year (e.g. lost contracts, new loans)
It’s wise to involve your accountant so the board has reliable data for its decision.
3) Hold a board meeting or circulate a written resolution
Choose the process that best fits your company’s governance. Many boards use a short written circulating resolution for efficiency, while others place the resolution on the agenda of the next scheduled board meeting. Either way, follow your Company Constitution for quorum and voting rules.
If you prefer a ready‑to‑use format, a simple Directors’ Resolution Template can streamline your minutes or circulating resolution.
4) Record the decision properly
Keep a clear written record that includes the date, the directors involved, and the resolution wording. Where documents are executed by the company (for example, a formal declaration or minute that needs to be signed), it’s good practice to follow the execution options in section 127 of the Corporations Act or your constitution.
Store the resolution with your board minutes and company records. Good record‑keeping helps demonstrate compliance if ASIC requests evidence.
5) If you can’t make a positive resolution, act quickly
If the board forms the view that the company is not solvent, or if the board does not pass any solvency resolution within two months after the review date, you may have additional ASIC lodgement obligations (explained below). Don’t sit on a negative outcome-this is the moment to get advice and consider next steps.
Do you always need to lodge something with ASIC?
No. If the board passes a positive solvency resolution within two months of the review date, there is no routine requirement to lodge that positive resolution with ASIC. Keep it in your company records.
When must you lodge with ASIC?
You must lodge with ASIC if either of these applies:
- The board passes a negative solvency resolution (i.e. it resolves that the company is not solvent), or
- No solvency resolution is passed within two months after the review date.
In either case, the company must lodge the prescribed ASIC form (currently Form 485 – Statement in relation to the solvency resolution) within the required timeframe. This lodgement alerts ASIC that the company could be in financial difficulty or has not met the resolution deadline.
Note: Form 485 is the relevant form for solvency resolutions. Other forms used for general company detail changes are not appropriate for this purpose.
The key exemption: Chapter 2M financial reports
Companies that prepare and lodge financial reports under Chapter 2M of the Corporations Act (for example, large proprietary or public companies) and include a directors’ declaration about solvency are generally exempt from the separate annual solvency resolution requirement for that review period.
Put simply, if your company has already lodged its audited financial report and the directors’ declaration of solvency under Chapter 2M for the relevant year, you don’t need to pass a separate annual solvency resolution as well.
What if the company might be insolvent?
If the board can’t make a positive solvency resolution, act fast. Directors should consider immediate steps-such as tightening cash flow, negotiating with creditors, or exploring formal restructuring options-and seek professional advice. Being proactive can reduce the risk of insolvent trading and help directors demonstrate they’ve made decisions in good faith and with care (the principles behind the business judgment rule in section 180(2)).
Common Pitfalls and How To Stay Compliant
1) Leaving it to the last minute
The two‑month window after your review date can pass quickly. If no resolution is passed in time, you may need to lodge with ASIC and you could incur late fees. Set calendar reminders and lock in a simple annual process so the board addresses solvency on time every year.
2) Assuming a meeting is mandatory
You don’t have to hold a physical meeting solely for the solvency resolution. A valid circulating resolution is fine if your constitution permits it. Use a practical format like a Directors’ Resolution Template to keep things efficient.
3) Thinking every director must sign
The key is to pass a valid board resolution under your governance rules. Some companies require a majority at a quorate meeting, others allow a unanimous written resolution. Check your Company Constitution so you follow the right process for your company.
You only lodge if the resolution is negative or not passed within the two‑month window (using Form 485). If the board passes a positive solvency resolution on time, keep it in your records-don’t lodge it by default.
5) Not documenting the decision properly
Thin or inconsistent records cause headaches. Make sure your board minute or written resolution clearly states the directors’ opinion on solvency, is dated, references the review date period, and is stored with your minute book. If signing a standalone document, consider the execution methods in section 127.
Annual review time is a smart moment to tidy broader governance. Many boards also revisit key documents such as a Shareholders Agreement, a Company Constitution, and directors’ protection documents like a Deed of Access & Indemnity. Keeping these current supports good decision‑making and helps manage director risk.
7) Forgetting how deadlines work
When counting days for any follow‑up tasks tied to the review date, it can help to sanity‑check timing against your understanding of a business day (though the solvency resolution deadline itself is a two‑month period, not “business days”). Build a calendar checklist that leaves a buffer before the deadline.
FAQs: Straight Answers To Common Questions
Is a solvency resolution the same as audited financial statements?
No. A solvency resolution is a board decision about solvency. Audited financial statements are independently audited accounts. However, if you lodge financial reports under Chapter 2M and the directors include the required solvency declaration, you do not need a separate solvency resolution for that review period.
Do we need to lodge a positive solvency resolution with ASIC?
No. If you pass a positive solvency resolution within two months after the review date, keep it with your company records. Lodgement is required only if the resolution is negative or none is passed within the timeframe.
What should directors review before voting?
Look at up‑to‑date management accounts, cash flow forecasts, debt facilities, aged payables and receivables, upcoming commitments, and any events after the reporting period that impact solvency. Directors should ask questions, request clarifications, and rely on accountant input where needed before forming an opinion.
Can we use a standard template?
Yes. Many companies keep it simple with a short board minute or written circulating resolution. A practical Directors’ Resolution Template helps you capture the key wording, date, and director approvals in one place.
What happens if we pass a negative resolution?
Don’t panic-but act quickly. You’ll need to lodge the prescribed form with ASIC and consider immediate steps to address solvency risks. Directors should seek advice promptly to manage creditor communications, explore restructuring options, and reduce the risk of insolvent trading exposure.
What are the consequences of ignoring the requirement?
Failing to pass a solvency resolution within two months can trigger Form 485 lodgement obligations, late fees, and increased ASIC scrutiny. Ongoing non‑compliance can lead to more serious issues, including potential deregistration action. The bigger risk, however, is missing early warning signs and drifting into insolvent trading.
Key Takeaways
- Most proprietary companies must pass a solvency resolution each year within two months after the ASIC review date; it can be passed at a meeting or by circulating resolution.
- If your company lodged Chapter 2M financial reports that include a directors’ solvency declaration for the relevant year, you are generally exempt from passing a separate annual solvency resolution.
- Keep a written record of the decision in your minute book-only lodge with ASIC if the resolution is negative or the board fails to pass a resolution on time (Form 485).
- Follow your Company Constitution for quorum, voting and execution methods, and store records securely for future reference.
- If you can’t make a positive resolution, act quickly: seek advice, consider cash‑flow measures or restructuring, and understand director duties, including the principles behind section 180(2).
- Use practical tools like a Directors’ Resolution Template and an annual compliance calendar to stay on track.
If you’d like a consultation on solvency resolutions, ASIC compliance or refreshing your governance documents, you can reach us at team@sprintlaw.com.au or 1800 730 617 for a free, no‑obligations chat.
