A Statement of Affairs is a document within the insolvency process that provides an overview of the company assets and liabilities, this document is usually completed by directors with the assistance of their accountant.
SOA’s are one of the most important documents when looking into corporate insolvency. Once completed, the Statement of Affairs has to be filed at Companies House by the Insolvency Practitioner. It’s intended first and foremost as a source of information for company creditors and shareholders, all received a copy of the SOA.
When is a Statement of Affairs Used?
This document is typically used in the following insolvency procedures:
- 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 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.
Directors Investigations During Liquidation
One of the key functions of the statement of affairs is to provide a clear audit trail so that insolvency practitioners’ can assess whether assets has been sold in the period preceding liquidation. Where this is found to be the case it can lead to director’s disqualification in some instances.
Due to the nature of these complex documents, it’s always preferential to have a licenced insolvency practitioner such as ourselves put them together for you. Correct valuation of all assets by acccredited third parties is a must and will be diligently investigation during any liquidation process.
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 reason is that the Statement of Affairs is a sworn document. The directors have to swear to its accuracy, so if there’s material omissions, inaccuracies, or it’s misleading, the directors can be held liable with serious consequences. After the creditors’ meeting, the liquidator needs to file the Statement of Affairs with Companies House.
For more information, call us today is you are worried about your businesses financial standing and need assistance.