The directors of a company undergoing a Creditors’ Voluntary Liquidation need to prepare a report called the Statement of Affairs. In England and Wales some or all of the directors must verify it by a statement of truth. The directors must send it to the company’s creditors within 7 days after the day the winding-up resolution is passed, and no later than the business day before the creditors’ decision date on the liquidator, whichever is earlier. They must also deliver it to the liquidator as soon as reasonably practicable after the liquidator is appointed.
Who Prepares the Statement of Affairs?
The directors make it out. That is section 99 of the Insolvency Act 1986, and it does not shift to the liquidator. In practice the insolvency practitioner assembles the figures from the company’s records, because they have the tools for it, but it remains the directors’ statement and the directors answer for it.
For a company registered in England and Wales, verification is by a statement of truth given by some or all of the directors; a Scottish company’s statement contains a statutory declaration instead. It is not sworn and it is not an affidavit; the statement of truth replaced the affidavit in April 2010. A director who signs it knowing the statement is false can face proceedings for contempt of court.
What Must the Statement of Affairs Include?
The Statement of Affairs must be prepared in a prescribed form. Its purpose is to enable the shareholders and creditors to have an understanding of the current financial position of the company. As such it must contain certain information, including (but not restricted to):
- Details of the assets and liabilities of the company;
- Details of the company’s creditors and their contact details; and
- Any security held over the company’s assets by its creditors and details of such securities.
It will also normally include a professional opinion about the amounts that could be realised from the sale of the company’s assets.
As the Statement of Affairs should also report on the company’s debts and liabilities, the company’s creditors should be able to get a good idea of the amounts that will be left to be distributed to them during the liquidation process. It should be noted that the costs of the liquidation itself are not reflected in the Statement of Affairs and these will be deducted before any distributions are made to creditors.
When Must the Directors Prepare the Statement of Affairs?
Several dates matter. Under rule 6.3 the statement must be made up to a date not more than 14 days before the date of the winding-up resolution — so it looks backwards from the resolution, and a figure older than that window will not do. Under section 99 the directors must then send it to the creditors within 7 days beginning with the day after the resolution is passed. Rule 6.14(7) adds a second deadline: the creditors must have it no later than the business day before the decision date on the liquidator’s nomination, if that comes first. They must also deliver it to the liquidator as soon as reasonably practicable after the appointment.
If the statement does not show the company’s affairs at the decision date, the directors must report to creditors on any material transactions between the date the statement was made and the decision date: in writing as soon as reasonably practicable under deemed consent, or at the meeting. Creditors are entitled to know what has moved.
Why is it Important that the Statement of Affairs Contains the Right Information?
It’s very important that the Statement of Affairs is prepared properly with the right information for several reasons. The first is that the purpose of the report is to give creditors and shareholders a clear representation of the company’s affairs, and this will not be achieved if it doesn’t contain all of the relevant information.
The second is that the directors verify it by a statement of truth. A statement a director knows to be false can lead to contempt proceedings. A material omission is a criminal offence unless the director proves there was no intent to defraud. Inaccuracies can also count against the directors when the liquidator reports on their conduct. Directors who fail without reasonable excuse to provide the statement at all commit an offence and are liable to a fine.
Once the creditors’ decision has been made, the liquidator files the Statement of Affairs at Companies House.
What Happens if the Directors don’t Prepare a Statement of Affairs?
If directors fail without reasonable excuse to make out and send a Statement of Affairs, they commit an offence and are liable to a fine. It will also be considered negatively when the liquidator prepares their report on the conduct of the directors and may lead to the directors being disqualified from acting in the role of a director for a period of up to 15 years.
Considering a Voluntary Liquidation?
If you’re considering a Creditors’ Voluntary Liquidation for your company and need more advice, please feel free to contact us for a no-obligation consultation. Call us on 0208 444 3400 or use the live chat function below.