A Statement of Affairs in liquidation is a document that provides an overview of the financial condition of a company that is in the process of being dissolved. It typically includes information about the company’s assets, liabilities, and the debts that it owes to its creditors.
The purpose of the Statement of Affairs is to help the liquidator, who is responsible for managing the liquidation process, understand the financial position of the company and identify any assets that can be sold to pay off its debts.
The SOA should be prepared by the directors of the company and should be as accurate and complete as possible. It should include details about the company’s assets, such as cash, property, and inventory, as well as information about its liabilities, including loans, mortgages, and other debts.
This should also include an estimation of the company’s outstanding debts and the likelihood of those debts being recovered. The information is then used by the liquidator to determine the best course of action for the liquidation process and to distribute the company’s remaining assets to its creditors.
What is a Statement of Affairs?
A Statement of Affairs or SOA as it is referred to is an important document within the insolvency process that provides an overview of the company assets and liabilities. This document is issued to creditors at a creditors meeting to help them understand the current standing of the company or individual at a given moment in time.
In many ways, the SOA is similar to a balance sheet, but while a balance sheet must be accurate and show the exact position of the company’s finances at the year end, the SOA uses estimated up-to date figures, and shows a real time snap shot of the business.
SAO’s are produced and prepared when a limited company is facing insolvency and the creditors need to know the position of the company. The SOA in insolvency will give an indication of what money is available to pay back creditors.
The document is usually complied by an insolvency practitioner or turnaround professional, people also refer to this as a directors statement as the assistance of the company directors have helped to complete it.
When is a Statement of Affairs Used?
This document is typically used and prepared in the following insolvency procedures:
- Administration
- Voluntary Liquidation
- Compulsory Liquidation
- Company Voluntary Arrangements.
If the company is to go into voluntary liquidation, the financial position will be outlined at a creditors meeting. When the case is administration, directors are expected to produce the document within 14 days to be included in the administrator’s proposals. In a CVA, the SOFA is also a section of the proposals to creditors. However, in the case of compulsory liquidation, the appointed IP has the responsibility of preparing the statement of affairs.
What Information is Included on the Statement of Affairs Form
The SOA is a crucial step in insolvency procedures, so completing it correctly is a must, and all the information has to be accurate and true.
Provide full details, precise dates and amounts requested. The document of statement of affairs and balance sheets should include:
- Company Asset valuations
- The most recent balance sheet and management accounts
- A complete list of employees (addresses, salaries, start dates etc), trade creditors, suppliers
- Details on VAT and PAYE position (amount owed/unpaid)
- Amounts owed to the bank (including any director/shareholder loans)
- Any existing debt
The statement of affairs previously had to be sworn before a solicitor or notary. However, it is now supported by a statement of truth. Whilst not as binding as a sworn statement, a statement of truth must still be taken seriously. Providing a statement without belief that the facts are true can result in director disqualification and other financial penalties later down the line.
Whilst the statement of affairs will often be prepared by an insolvency practitioner, whom you have instructed to assist with voluntary liquidation or another insolvency process, the content of the statement of affairs is the responsibility of the director signing the statement of truth. The insolvency practitioner can only prepare a statement of affairs based on the information you have provided to them. Therefore, it is important to be as thorough as possible with the information you provide.
Who Writes the Statement of Affairs?
That depends on the type of insolvency procedure that’s taking place. If the business is entering administration, then the company directors will be expected to create the document. If you are asked to produce the SOA, you must do so to the best of your ability. If you don’t, you could receive a £5,000 fine or a daily penalty charge that will accrue until the statement is produced.
In the case of liquidation, the insolvency practitioner administering the liquidation will prepare the statement of affairs before submitting it to Companies House. The company directors will be asked to provide information about the company’s assets and creditors but the liquidator will put the final document together.
The statement of affairs is also supported by a statement of truth, which must be signed by a company director. It is the responsibility of the nominated director to ensure that all the information contained within the SOA is accurate. If it’s found that the SOA is inaccurate, does not contain all the relevant information or is likely to misinform or mislead, there could be serious consequences for the company director. That could lead to a fine or even disqualification from acting as a director for a period of up to 15 years.
When Must the Directors Prepare the Statement of Affairs?
The Statement of Affairs must be completed no less than 14 days before the shareholders’ meeting at which the directors will propose the Creditors’ Voluntary Liquidation. The directors will also need to report on any material transactions that have taken place since the Statement of Affairs was prepared at the shareholders’ meeting.
Statement of Affairs in Liquidation
In case of voluntary liquidation, the company’s financial position will be outlined at a creditors/shareholders’ meeting. In the eventuality that the company is facing compulsory liquidation process, the Official Receiver, liquidator or the appointed Insolvency Practitioner will be in charge of preparing the Statement of Affairs at the beginning of the Winding Up.
Why is it Important that the Statement of Affairs Contains the Right Information?
For a number of reasons, it’s crucial that the Statement of Affairs is properly produced with the correct data. The first is that omitting any pertinent information will prevent the report from serving its intended goal of providing creditors and shareholders with a clear depiction of the company’s activities.
The SOA is a sworn document, which is the second justification. Since the directors are required to attest to its correctness, they could face substantial repercussions if there are any material omissions, inaccuracies, or misleading statements. The liquidator must submit the document to Companies House following the creditors’ meeting.
F.A.Q :
What is statement of affairs?
If the company is to go into voluntary liquidation, the financial position will be outlined at a statement of affairs at the creditors meeting. When the case is administration, directors are expected to produce the document within 14 days to be included in the administrator’s proposals.
How to prepare statement of affairs
The statement of affairs will often be prepared by an insolvency practitioner, whom you have instructed to assist with voluntary liquidation or another insolvency process, the content of the statement of affairs is the responsibility of the director signing the statement of truth. The insolvency practitioner can only prepare a statement of affairs based on the information you have provided to them. Therefore, it is important to be as thorough as possible with the information provide by the company directors.
Conclusion
The Statement of Affairs, which offers a thorough assessment of a company’s financial status, is a crucial document in the insolvency procedure, to sum up. The liquidator uses it to comprehend the firm’s possessions, obligations, and debts and to choose the best course of action for the liquidation process.
To make sure that the liquidator has a thorough grasp of the financial status of the firm and can make judgements about how to proceed with the liquidation. The Statement of Affairs assists the liquidator in making sure that the insolvency process is handled successfully and efficiently by giving a clear and accurate picture of the company’s financial affairs.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.