What is a Statement of Affairs in Insolvency?
A statement of affairs is a document created by an insolvency practitioner to sum up the financial situation of a company in a manner intelligble to creditors and shareholders.
In this article, we’ll explore more about how this document is created and used throughout the insolvency process.
What is a Statement of Affairs and how it is Prepared?
Also known as the Statement of Financial Affairs, the SOA document is essentially an up to date summary of the business situation. It will contain details of:
- company debts
- any liabilities
- creditors names, address and outstanding balances
- any securities, including floating charges over assets
These complex, detailed documents are made publicly available at Companies House once finished. They become important sources of information for anyone involved with the case including creditors, shareholders and potential buyers.
Statement of Truth
Previously, the SOA had to be signed before a solicitor or notary. Now the SOA must be simply accompanied by what is called a ‘statement of truth’, a legal document which states that the facts within the document are true.
Company directors will be required to sign the statement of truth, with the risk of directorial disqualification and other penalties in the future should they not act honestly.
As part of their remit, the insolvency practitioner associated with the case has a duty to investigate the actions of directors in the period preceding insolvency.
Typically the SOA is one of the key documents relied upon by the IP as a means of ascertaining how company funds were used in the period preceding insolvency, and whether the transactions were appropriate.
Where it is concluded this isn’t the case, directors may find themselves liable for wrongful or fraudulent trading.
How is the Statement of Affairs Used in Liquidation?
The key purpose of the statement of affairs in liquidation is to show the company’s position in a very transparent manner. Interested parties, chiefly creditors, will want to know how much money is available and therefore what payments are likely forthcoming.
Any valuations in the SOA will be listed with appropriate details about how the valuations were reached.
Also, if assets have been sold post insolvency, the document offers a clear audit trade of who to and for how much.