Buyback Solvency: A Personal Declaration, Not a Corporate One

Before a buyback under Section 68, the company must file a declaration of solvency in Form SH-9. The declaration is signed by at least two directors, one of whom must be the Managing Director, if any, and is verified by affidavit. It confirms that, after a full inquiry into the company's affairs, the signatories have formed the opinion that the company can meet its liabilities and will not be rendered insolvent within one year from the date of declaration.

This is not a routine CFO certification. The signing directors should receive and assess reliable solvency material, including cash flows, debt maturities, working-capital requirements, contingent liabilities, litigation, guarantees, capital commitments, covenant headroom, and downside assumptions.

Informed reliance on management and professional advice is appropriate, but the Board record should show real application of mind. A conclusion that merely repeats management's assurance may be difficult to defend if the company's financial position subsequently deteriorates within the relevant period.

A false declaration may expose the signing directors to personal consequences. Proposed legislative reform does not alter the law currently in force unless and until enacted and notified. Directors should sign only when the underlying analysis supports the statutory opinion.