Solvency Resolutions In New Zealand: Director Duties And Compliance

If you run a company in New Zealand (even a small one), there’ll be times when you need to formally confirm that your business can pay its debts.

That’s where solvency confirmations come in. In practice, these are usually documented through a directors’ certificate (sometimes supported by a board resolution) confirming the company meets the solvency test. They’re not just “paperwork for the file” - they’re closely tied to director duties under the Companies Act 1993, and getting them wrong can create serious risk for both your company and you personally as a director.

In this guide, we’ll break down what people commonly mean by “solvency resolutions”, when companies need solvency confirmations, what directors must consider before signing, and how to handle them properly as part of good governance (without getting buried in legal jargon).

What Is A Solvency Resolution (And Why Does It Matter)?

A “solvency resolution” isn’t a defined term in the Companies Act 1993. What the Act commonly requires (for certain transactions) is that directors sign a certificate stating they are satisfied, on reasonable grounds, that the company meets the solvency test - and many businesses also record the decision via board minutes or a written directors’ resolution.

In plain terms, the directors are confirming (based on proper consideration) that:

• the company can pay its debts as they fall due in the normal course of business (the “liquidity” limb), and
• the company’s assets are greater than its liabilities (the “balance sheet” limb).

These solvency confirmations matter because they often sit behind decisions that involve money leaving the company - like dividends, share buybacks, or other transactions that reduce the company’s assets.

From a compliance perspective, having the right certificate/resolution in place helps show:

• the directors turned their minds to solvency (rather than guessing),
• the company followed the process required by law, and
• there’s a record that can be relied on later (for example, if there’s a dispute, audit, or insolvency event).

For many small businesses, the risk isn’t that directors intentionally do the wrong thing - it’s that they make a decision quickly (often informally) and forget that the Companies Act expects a clear process and evidence.

When Do Companies Need Solvency Resolutions In NZ?

Solvency confirmations most commonly come up when your company does something that involves a distribution or otherwise shifts value out of the business - particularly where the Companies Act requires directors to sign a certificate that the solvency test is satisfied.

Some of the most common situations include:

1) Declaring A Dividend Or Other Distribution

If your company is paying a dividend to shareholders (or making another type of distribution), the Companies Act generally requires the directors to sign a certificate stating they are satisfied, on reasonable grounds, that the company will satisfy the solvency test immediately after the distribution is made.

This is one of the most common reasons businesses need solvency documents - especially when the company has had a strong year and shareholders want to take funds out.

2) Share Buybacks

Buying back shares can be a great tool for restructuring ownership (for example, where a founder is exiting or you’re consolidating shareholding).

But it’s also a transaction where company funds are used to purchase shares - so solvency is front and centre, and the Act can require directors to certify the company meets the solvency test in connection with the buyback.

In practice, this kind of transaction usually sits alongside the legal documents that govern the buyback and the company’s internal processes. If you’re heading down this path, it’s worth getting the documentation right, including a properly structured Share Buyback Agreement.

3) Providing Financial Assistance

“Financial assistance” is a broad concept. It can cover situations where the company helps someone buy shares in the company (for example, lending money, giving a guarantee, or providing security).

Depending on the structure, the Act can require specific approvals and a directors’ certificate linked to the solvency test. These transactions can create real risk if not done properly, so the solvency position and the approvals process matter a lot.

4) Major Restructures Or Ownership Changes

If you’re changing ownership or reorganising your cap table, solvency might not be the first thing you think about - but it often becomes relevant depending on the structure of the deal and whether funds are moving out of the company (or the company is taking on new obligations).

For example, a share sale is typically a transaction between shareholders (not the company), but directors still need to be careful about decisions around company payments, liabilities, and whether the company is taking on obligations as part of the transition. Documents like a Share Sale Agreement may form part of the overall picture, but the governance steps sit alongside it.

5) Other Decisions Where Solvency Is A Live Issue

Even if the Companies Act doesn’t require a formal solvency certificate for a particular decision, directors should still be thinking in solvency terms whenever the company is:

• taking on significant debt,
• agreeing to long-term payment obligations,
• settling disputes for a large sum, or
• entering agreements that could tip cashflow into the red.

In these situations, recording a board decision properly (and documenting the information you relied on) can be a smart risk-management move.

What Are Directors Actually Confirming When They Sign A Solvency Resolution?

This is the key question. Whether it’s called a “solvency resolution” internally or (more commonly) a directors’ certificate under the Act, it’s not just “we think it’s probably fine”. Directors are expected to make a real assessment on reasonable grounds.

Under the Companies Act, the solvency test involves two limbs. Directors should consider both - and the analysis should fit your business (a one-size-fits-all approach is where problems start).

The “Can We Pay Our Debts?” Limb (Liquidity)

This is a practical cashflow question. Directors should look at whether the company can pay debts as they fall due in the normal course of business.

That might involve reviewing:

• current bank balances and available facilities,
• cashflow forecasts for the coming months,
• upcoming tax obligations (for example GST or provisional tax - speak to your accountant for tax-specific advice),
• wages and other regular commitments,
• supplier terms and large invoices due soon, and
• any known upcoming risks (for example, a customer disputing an invoice or a contract ending).

If your company is seasonal or project-based (common for trades, construction, agencies, and consulting), liquidity is often the biggest solvency risk - not the balance sheet.

The “Do We Have More Assets Than Liabilities?” Limb (Balance Sheet)

This looks at the company’s overall position: are assets greater than liabilities?

Directors may consider:

• recent management accounts and financial statements,
• asset values (and whether they’re realistically recoverable),
• loan accounts and related-party liabilities, and
• contingent liabilities (like guarantees, unresolved disputes, or potential refunds).

For small businesses, a common “trap” is treating director/shareholder loans as informal and ignoring them. If the company owes money to a director (or the director owes money to the company), it should still be treated properly for solvency purposes.

Director Duties That Sit In The Background

Solvency confirmations don’t exist in a vacuum - they connect to core director obligations under the Companies Act, including duties to:

• act in good faith and in the best interests of the company,
• exercise care, diligence, and skill,
• avoid reckless trading (for example, carrying on business in a way likely to create substantial loss to creditors), and
• not incur obligations the company can’t reasonably perform when required.

That’s why signing a certificate/resolution without doing proper checks can be risky. If things go wrong later, the question often becomes: “What did you rely on when you made that decision?”

How To Prepare Solvency Resolutions Properly (A Practical Compliance Checklist)

Good governance doesn’t have to be complicated - but it does need to be consistent. Here’s a practical checklist you can use to approach solvency certificates/resolutions in a way that stacks up.

Step 1: Be Clear On What Transaction You’re Approving

Start by identifying the decision that requires solvency confirmation (for example, a dividend, buyback, or other distribution).

Then confirm:

• what money is leaving the company (and when),
• who is receiving it, and
• what approvals are required (board, shareholders, constitution).

This is also where your internal company rules matter. If your Company Constitution has special approval thresholds or decision-making rules, you need to follow them.

Step 2: Gather The Financial Information You’ll Rely On

A solvency certificate/resolution should be supported by real information, such as:

• bank statements and loan facility details,
• up-to-date management accounts,
• a 3–6 month cashflow forecast (or longer if appropriate),
• aged receivables and payables reports, and
• notes on any unusual risks or known upcoming obligations.

If your numbers are messy or out of date, it’s usually worth pausing and getting them cleaned up before you sign anything. Rushing is where directors get caught out.

Step 3: Hold A Proper Board Meeting (Or Use A Written Resolution)

Many small companies operate informally, especially where the directors are also the shareholders. But when you’re dealing with solvency confirmations, formalities matter.

You’ll generally either:

• hold a board meeting and record minutes, or
• use a written directors’ resolution signed by the directors.

Having a consistent format helps. Some businesses use a Directors Resolution Template so these decisions are documented clearly and stored properly.

Step 4: Document The Solvency Test Reasoning (Not Just The Conclusion)

A strong solvency certificate/resolution isn’t just a statement that “the company is solvent”. It should also reflect that directors considered relevant information.

This might include short references to:

• the financial reports reviewed,
• cashflow expectations and key assumptions, and
• any risks identified (and why directors are comfortable they’re manageable).

You don’t need pages of detail, but you do want a record that shows the directors applied their minds - especially if the company’s solvency is tight.

Step 5: Store It Properly (And Keep Related Approvals Together)

Keep the solvency document together with the rest of the transaction documents, such as:

• board minutes or written resolutions,
• shareholder approvals (if required),
• updated share registers (if shares are affected), and
• any agreements that implement the deal.

If the decision affects shareholders’ rights or ownership structure, you’ll often want your broader governance documents to align too, including a well-drafted Shareholders Agreement.

What Happens If You Get Solvency Resolutions Wrong?

It’s tempting to treat solvency documents as a “tick-the-box” step - but the consequences can be real.

Depending on what happened and why, risks may include:

• Transactions being challenged (for example, distributions made when the company shouldn’t have made them),
• Director liability exposure if directors didn’t properly assess solvency or breached their duties,
• Creditor disputes if the company can’t pay its bills after money has been taken out, and
• Governance breakdown that causes conflict between shareholders (especially in founder-run businesses).

It’s also worth remembering that solvency problems don’t always show up immediately. A business might feel “fine” today, then get hit by:

• a slow-paying major customer,
• a tax bill that’s larger than expected,
• a big refund request, or
• a dispute that becomes expensive to resolve.

That’s why forecasts and assumptions matter. If solvency is borderline, directors should be cautious and get tailored advice before approving any transaction that reduces the company’s assets.

How To Handle Solvency Concerns Early (Before It Becomes A Bigger Problem)

If you’re even slightly unsure about solvency, you’re not alone - lots of small businesses feel this pressure, particularly during growth phases, seasonal downturns, or after unexpected costs.

The key is to treat it as a practical business issue and address it early, rather than hoping it sorts itself out.

Common Early Warning Signs

It may be time to slow down and reassess before signing solvency certificates/resolutions if your company is:

• regularly paying bills late,
• relying on tax arrears to manage cashflow,
• using one creditor to pay another,
• unable to produce up-to-date financials, or
• taking on new obligations without checking whether cashflow supports them.

Practical Steps That Can Help

Depending on your situation, options might include:

• updating budgets and cashflow forecasts (and monitoring weekly),
• renegotiating payment terms with suppliers,
• tightening credit control and debtor collection processes,
• pausing distributions until the position improves, or
• reviewing guarantees and director risk exposure (especially where personal guarantees exist).

Where directors are giving guarantees or the business is taking on risk-heavy obligations, documentation can be important. For example, directors sometimes consider protections and formalities around a Deed of Guarantee and Indemnity in the right context (this is something you should get tailored advice on, because the details matter).

If you’re unsure whether your company documents and decision-making processes are keeping up with the business as it grows, a broader governance review can also help you spot issues early - many businesses do this as a proactive Legal Health Check.

Key Takeaways

• What many businesses call solvency resolutions are usually documented as a directors’ certificate (often supported by board minutes or a written directors’ resolution) confirming the company meets the solvency test under the Companies Act 1993.
• They commonly arise for transactions like dividends/distributions, share buybacks, and financial assistance steps where the Act requires directors to certify solvency (and follow specific approval processes).
• Directors should assess both limbs of the solvency test: cashflow (paying debts when due) and balance sheet solvency (assets exceed liabilities).
• A well-prepared solvency certificate/resolution should be supported by real financial information (management accounts, bank position, forecasts) and documented reasoning - not just a quick statement.
• Getting solvency documents wrong can increase the risk of director liability, creditor disputes, and challenges to company transactions.
• If solvency is tight or uncertain, it’s usually best to pause and get tailored legal advice before approving transactions that reduce company assets.

If you’d like help preparing directors’ certificates, reviewing director obligations, or getting your company governance documents in shape, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.