A statement of affairs is a financial document that provides a detailed snapshot of a business’s financial situation. It typically includes a list of assets, liabilities, and other relevant financial information.
While a statement of affairs can have other uses, in UK law, it is most commonly used to provide a concise summary of the corporate situation during insolvency events.
Once completed, the Statement of Affairs must 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, although potential buyers of the insolvency company will also find it useful.
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What is Included in a Statement of Affairs?
The SOA is a crucial step in insolvency procedures, so completing it correctly is necessary, and all the information must be accurate and true. You will need to provide full details, precise dates and amounts requested.
Here’s what a typical Statement of Affairs document will include:
Basic Company Details: For companies, it includes the registered name, address, company number, and the names of directors.
All assets owned by the individual or company. Assets are classified as either realisable or non-realisable. Realisable assets are those that can be converted into cash (e.g., property, vehicles, inventory, machinery, patents, investments, and cash in hand or in bank accounts). Non-realisable assets might include items that cannot be easily sold or are exempt from sale.
Liabilities: This part details all the debts owed at the date of insolvency, including secured debts (e.g., mortgages, charges over assets), preferential debts (such as certain taxes and employee-related debts), unsecured debts (e.g., loans, credit cards, trade creditors), and contingent liabilities (potential debts that depend on a future event).
Security Interests: Information on any assets that are subject to security interests (e.g., collateral for loans) and their estimated value.
Deficiency Account: A summary that reconciles the assets and liabilities, showing the net deficit that remains after all assets have been accounted for against the liabilities.
Book Debts: Details of any money owed to the insolvent entity by its customers or clients, if applicable.
List of Creditors: This is a detailed list of creditors, including the nature of their claims, the amount owed, and any security held by them.
Employees: Information on any outstanding payments due to employees, including wages, salaries, and redundancy payments.
Director’s Loan Account: For companies, details of any loans to or from directors.
Summary: A summary sheet that provides an overview of the total assets, claims, and the expected return to creditors.
How is a Statement of Affairs Presented in Liquidation?
During voluntary liquidation, the Statement of Affairs is presented at the initial creditors’ or shareholders’ meeting, which must be held within 14 days of the liquidator’s appointment[2]Trusted Source – GOV.UK – Rule 7.41 Statement of Affairs (company winding-up).
For compulsory liquidation, the SOA is submitted to the liquidator or the Official Receiver early in the process, often before the first meeting of creditors. Legally, directors must submit the SOA to the official receiver within 21 days of the winding-up order being made.
The official receiver will then present the SOA to creditors at the initial creditors’ meeting, which must be held within 12 weeks of the winding-up order.
What’s the Relevance of the SOA for the Investigations into Directors’ Conduct?
One key function of the statement of affairs is to provide a transparent audit trail so that insolvency practitioners can establish whether assets were sold in the period preceding liquidation.
The liquidator or official receiver will analyse the SOA and compare it with the company’s records and other available information. Discrepancies or irregularities may point to potential offences committed by the directors, such as:
Trading while insolvent
Fraudulent trading
Misfeasance or breach of fiduciary duties
Falsification of company records
Where this is found to be the case, it can lead to a director’s disqualification in some instances.
In the case of failure to submit the SOA without a reasonable excuse, the nominated person is liable to a one-off fine of £5,000 and/or a daily default fine set by the court (£500).
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FAQs on Statement of Affairs
Can a Statement of Affairs be amended once submitted?
Yes, if errors are found or if additional information comes to light after the initial submission, amendments can be made with the approval of the insolvency practitioner overseeing the process.
Who has access to the Statement of Affairs once it’s filed?
The Statement of Affairs, once filed at Companies House, becomes a public document. Creditors, shareholders, and potential buyers of the insolvent company can access this information.
What role does the Statement of Affairs play in director investigations?
The Statement of Affairs helps insolvency practitioners trace the company’s financial movements and asset disposals.
What impact does a Statement of Affairs have on employees of an insolvent company?
It highlights any owed wages, redundancy pay, or other entitlements as liabilities, prioritising them in the order of repayment in line with insolvency regulations.
Are contingent liabilities included in a Statement of Affairs?
Yes, contingent liabilities, or debts that might become due based on future events, are included, providing a fuller picture of potential financial obligations.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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