A statement of affairs is a snapshot of a company’s assets and liabilities, set out so that creditors and shareholders can see where it stands.
Who actually makes it out depends on the procedure, and it is worth getting right. In a creditors’ voluntary liquidation the directors make it out, under section 99 of the Insolvency Act 1986. In a compulsory liquidation the official receiver requires one from named people, usually the current and former officers. In an administration the administrator requires one, normally within 11 days of the notice. Bankruptcy and insolvent deceased estates have their own machinery again. The insolvency practitioner very often prepares the figures, but the statement belongs to the people who verify it.
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
- assets
- creditors names, address and outstanding balances
- any securities, including floating charges over assets
These detailed documents are filed at Companies House, where anyone can see them, apart from the separate schedules that list employees and consumer creditors, and any part the court has ordered must not be delivered. 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.
In a creditors’ voluntary liquidation, some or all of the company’s directors will have to sign the statement of truth. In a compulsory liquidation or an administration, the people required to submit the statement sign it instead. Directors risk disqualification, and anyone who signs risks other penalties in the future for a false statement or for not acting honestly.
Directors Investigation
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 face misfeasance claims, and the office-holder may challenge preferences or transactions at an undervalue. Separately, directors may be liable for wrongful or fraudulent trading if the tests for those are met.
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.
The SOA lists the assets at their book value and at their estimated realisable value.
The SOA shows the company’s position on a fixed date, so it does not record assets sold after the insolvency. The liquidator reports those sales later, in progress reports that include an account of money received and paid out.