What is a Statement of Affairs in corporate insolvency proceedings?

What’s the purpose of the SOA and who prepares it?

A Statement of Affairs (SOA) is a crucial document to be prepared during the initial phases of formal insolvency processes, such as Company Voluntary Arrangement (CVA), Administration, or Liquidation.

It offers a snapshot of the financial status of a struggling company, presenting creditors (those owed money) with a clear picture of potential funds. This helps them make informed decisions during an impending creditor vote.

Additionally, it serves as valuable information for shareholders, the Insolvency Practitioner, and potential buyers.

 

What should be in a Statement of Affairs?

The Statement of Affairs gives a comprehensive overview of the company’s finances during insolvency. This includes the company’s assets and liabilities, a roster of all creditors, and the balances in its bank accounts.

It might also contain information about ongoing legal actions, disputes, or other events affecting insolvency proceedings.

A standard Statement of Affairs usually includes these details:

• Liabilities – All of the company’s debts, encompassing outstanding loans, payables, unpaid tax bills, and other financial commitments.
• Book debts – The amounts owed to the company by its customers.
• Bank accounts – The amounts in the company’s bank accounts during insolvency.
• Realisation of assets – A professional assessment of the potential proceeds from selling company assets, along with information about any ongoing transactions related to them.
• Creditor summary – Information about all the company’s creditors, including their names, addresses, and the amounts owed to them.
• Securities – Information about any fixed or floating charges on company assets and their holders.
• Assets – Information about all company assets, covering tangible items like property, equipment, stock, and vehicles, as well as intangible assets such as intellectual property and goodwill, along with their estimated value.
• Creditor summary – Information about all the company’s creditors, providing names, addresses, and the amounts owed to each.
• Securities – Information about any fixed or floating charges on company assets, including their holders.
• Income and expenditure – Figures for a specific period leading up to insolvency, reflecting recent performance and cash flow.
• Contingent liabilities – Obligations that may arise depending on future events, yet remain uncertain, such as potential costs from legal claims.
• Balance sheet – A current balance sheet and any management accounts.

Based on this information, creditors and other concerned parties can obtain a precise view of the company’s finances, including the potential funds in case of liquidation. This enables them to decide whether to approve the company’s proposals and determine the most suitable course of action.

 

Who is responsible for making the Statement of Affairs?

When a company willingly undergoes insolvency procedures, the Statement of Affairs is typically prepared by either the company directors or an appointed Insolvency Practitioner. However, in the majority of cases, it is the Insolvency Practitioner who takes on this responsibility.

They will collect pertinent information with the assistance of the company directors and create the SOA, adhering to legal requirements that outline the necessary content, format, and submission deadlines.

The Insolvency Practitioner is obligated to verify all information, as any inaccuracies or omissions can significantly impact the insolvency process. Additionally, the company directors must sign a Statement of Truth, which accompanies the SOA.

After preparing the Statement of Affairs, the Insolvency Practitioner will distribute it to all creditors and shareholders of the company. Simultaneously, they register it at Companies House for public access.

 

A guide on how to use a Statement of Affairs in insolvency processes?

The precise purpose of the SOA varies depending on the specific formal insolvency procedure the company is entering:

1. Administration:

For Company Administration, the Statement of Affairs holds significance within the administrator’s proposals. It must be generated within 14 days of a company entering administration and sent to creditors. 

This allows them to make informed decisions when voting on the proposals.

2. Liquidation

In the case of Liquidation, the SOA is showcased during the creditors’ meeting. It provides creditors with an estimate of the anticipated proceeds from selling the company’s assets. Typically, creditors without a charge over business assets may receive only a modest percentage of the outstanding amount owed to them.

3. Company Voluntary Arrangement (CVA)

Within a Company Voluntary Arrangement, the SOA aids creditors in gaining a lucid understanding of the company’s financial status. This enables them to vote on whether to accept the CVA proposals

For instance, if the SOA reveals that the company possesses limited assets that can be realised, creditors may opt to support the CVA. This decision is influenced by the expectation of receiving a more favourable return compared to a scenario where the company undergoes liquidation.

 

Exploring the risks associated with the Statement of Affairs?

While company directors have the option to prepare the Statement of Affairs when opting for voluntary insolvency procedures, its intricacy suggests that using a licensed Insolvency Practitioner is advisable.

Skipping the preparation of a Statement of Affairs is not a choice. The Insolvency Practitioner (IP) will scrutinise your actions in the period before the company’s insolvency, and the absence of an SOA will adversely affect their perspective. Additionally, you may face a fine.

As a company director, it is essential to sign a Statement of Truth that accompanies the SOA. If the IP later discovers dishonest conduct, you may encounter penalties, including disqualification as a director or personal liability for company debts.

 

Read More:   

• Insolvency advice: a guide for limited company directors
• A guide to managing business debt
• What Is Limited Company Insolvency
• My business is failing: How can I save it
• Is it possible to remove or challenge a CCJ

 

How Vanguard Insolvency can help you?

If you’re concerned about your business’s insolvency and uncertain about your next steps, or if you need assistance in preparing the Statement of Affairs, our team of licensed Insolvency Practitioners is ready to help. 

Reach out to our experts for a free, same-day consultation or schedule a no-obligation meeting at one of our 100+ offices across the UK.