Solvency test on dividend declaration

asked Sep 30, 2013 in Dividend Tax by Ashi123
Is it compulsory for all companies to get a solvency certificate from auditors before making a dividend distribution?

1 Answer

+1 vote
answered Mar 3, 2015 by anonymous
Section 56(2) of the Companies Act requires companies to obtain a certificate of insolvency from the auditors before making a dividend distribution. However Sec 31 says that some of the sections given in the Second Schedule to the Act can be overridden by a unanimous resolution of the shareholders of a PRIVATE company. Schedule 2 of the Companies Act includes Section 56 as well. Therefore a private company can bypass the requirement of a solvency certificate from auditors (Sec 56) with a unanimous resolution of shareholders.  However Sec.57 will be still applicable and the directors need to assess the solvency as per the guidelines given in the Section 57.

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