Solvency and Liquidity Assessment
Solvency Test (Section 4(1) of the Companies Act, 71 of 2008)
Current Solvency Assessment:
Are the company's total assets greater than its total liabilities as of [Date of Assessment]? (Yes/No)
Provide brief supporting commentary on the basis of this assessment (e.g., "Based on the latest audited financial statements," or "Based on management accounts as of [Date]").
Supporting Documentation: Provide a summary of the latest balance sheet, including key asset and liability categories. Attach detailed financial statements (e.g., Statement of Financial Position).
Specific Considerations:
Has the company adequately provided for all known and reasonably foreseeable contingent liabilities? (Yes/No)
Are assets valued appropriately and realistically, considering any potential impairments or market fluctuations? (Yes/No)
Liquidity Review (Section 4(1) of the Companies Act, 71 of 2008)
Short-Term Liquidity (Next 12 Months):
Can the company meet its debts as they become due in the ordinary course of business for the next 12 months from [Date of Assessment]? (Yes/No)
Provide brief supporting commentary on the basis of this assessment (e.g., "Supported by robust cash flow forecasts," or "Adequate working capital facility in place").
Supporting Documentation: Provide a summary of the current cash flow position and working capital analysis. Attach detailed cash flow forecasts.
Key Assumptions: Outline the primary assumptions underpinning the liquidity assessment (e.g., sales projections, collection periods, payment terms, access to credit facilities).
Key Indicators Reviewed:
Current Ratio: [Calculated Ratio] (Ideal: >2:1, but industry-specific)
Quick Ratio (Acid-Test Ratio): [Calculated Ratio] (Ideal: >1:1, but industry-specific)
Working Capital Position: [Amount] (Positive/Negative)
Available Credit Facilities: [Amount of undrawn facilities]
Cash Flow Forecasting and Scenario Analysis
Detailed Cash Flow Forecast Review:
Have detailed cash flow forecasts been prepared for at least the next 12 months, with a view to assessing the company's ability to meet its obligations? (Yes/No)
Are these forecasts based on reasonable and supportable assumptions? (Yes/No)
Scenario Analysis:
Best-Case Scenario: What is the projected cash position under optimistic market conditions and operational performance? (Brief summary/key takeaways)
Expected (Base) Case Scenario: What is the most likely projected cash position based on current business plans and market expectations? (Brief summary/key takeaways)
Worst-Case/Stress Scenario: What is the projected cash position under adverse market conditions, significant operational setbacks, or unforeseen events? (Brief summary/key takeaways)
Mitigation Strategies (for worst-case): What actions can the company take to mitigate liquidity risks identified in the worst-case scenario (e.g., access to emergency funding, cost-cutting measures, deferral of capital expenditure)? (Brief overview)
Governance and Documentation
Board Review and Documentation:
Board Discussion and Approval: Have the results of the solvency and liquidity assessments, including the cash flow forecasts and scenario analyses, been thoroughly discussed at a board meeting? (Yes/No)
Decision Recording: Are the board's discussions, considerations, and decisions regarding solvency and liquidity duly documented in the board minutes? (Yes/No)
Action Items: List any action items arising from the discussion, with assigned responsibilities and deadlines
Date of Board Meeting where this was discussed: [Date]
2. Solvency & Liquidity Declaration
I, [Director’s Name], in my capacity as a director of [Company Name], confirm that the company has undergone comprehensive solvency and liquidity assessments as of [Date].
Based on:
A diligent and thorough review of the company's financial position, including its latest financial statements and detailed management accounts as of [Date of Assessment];
Comprehensive cash flow forecasts for the next 12 months, incorporating best-case, expected, and worst-case scenarios;
Discussions and assessments undertaken with management and my fellow directors at the board meeting held on [Date of Board Meeting];
I am satisfied that as of [Date of Assessment]:
The assets of the company, fairly valued, equal or exceed the liabilities of the company.
The company will be able to pay its debts as they become due in the ordinary course of business for a period of 12 months after the date on which this declaration is made.
This assessment has been conducted in compliance with the requirements of Section 4 of the Companies Act, No. 71 of 2008.
Evidence supporting this assessment, including financial statements, cash flow forecasts, and board minutes, is attached for reference.
Signed:
[Director Name & Signature]
Date: [Current Date]
Solvency and Liquidity Assessment and Declaration
