The Statement of Affairs could be the most important business document of 2021
As 2021 progresses and the number of company insolvencies begins to rise once again, the Statement of Affairs (SOA) will take on added importance.
So it’s important to know what it is, what’s in it and why it could be so important for your business.
What is a Statement of Affairs used for?
A statement of affairs is precisely that – a summary or snapshot of the financial affairs of a business at the moment it’s created.
It’s essential in any insolvency procedure because it lets any insolvency practitioner, creditors, shareholders or prospective buyers get a fuller picture of what assets a company owns set against their liabilities.
If this sounds similar to a balance sheet, it is but figures in an SOA can be approximate or estimated.
Assets can be but not limited to stock, vehicles, equipment, machinery, fixtures and fittings, intellectual property and copyright etc. Liabilities can be loans, personal guarantees or debts with a fixed or floating charge attached to them.
A copy of the SOA will be lodged with Companies House where it can be publicly available to interested parties.
Professional insolvency practitioners like Business Rescue Expert will use an SOA in a variety of ways:-
- In an administration, directors have to produce an SOA within 14 working days of the administrators appointment.
- In a CVA, it will be used in any proposals to creditors to help them decide how they’ll vote in accepting or rejecting the motion.
- In voluntary liquidations, the SOA is used to outline the overall financial position of the business.
- In compulsory liquidations, the liquidator can use the SOA to establish the overall value of assets that can be realised and distributed to creditors.
Who creates the Statement of Affairs?
It varies depending on which type of insolvency procedure is being followed.
In an administration, the company directors will be tasked with creating the document based on their intimate knowledge of the business. An SOA is also a legal document so failure to produce one could incur either a £5000 fine or a daily accruing penalty until one is produced.
For liquidations, the insolvency practitioner dealing with the case will prepare the SOA and will submit it to Companies House. Directors will also be expected to contribute information to the best of their knowledge.
Each company director is expected to sign a statement of truth validating the information contained within the SOA as accurate. Previously it had to be notarised but this is no longer the case although If it’s later found to be inaccurate or misleading then the consequences could be fines or even director disqualification for up to 15 years.
What’s in a Statement of Affairs?
The SOA will necessarily vary depending on the company and the purpose its being prepared for but will usually contain the following:
- Assets and liabilities inventory and valuations
- Creditors list including contact details and accurate amounts owed. Creditors will have the opportunity to amend these if they are considered inaccurate
- List of any securities attached to liabilities such as fixed or floating charges. Must include the date they were incurred and the value attached
- Up to date balance sheet and most recent copy of management accounts
- Complete list of current full time, part time and furloughed employees including salaries and start dates
- Summary of company’s VAT and PAYE liabilities
A Statement of Affairs is clearly a useful tool for insolvency practitioners but also for businesses too.
A regularly updated and accurate SOA can be a good early warning system for a business for any bubbling issues such as bad debts, unpaid arrears or can even signal if a business is heading toward insolvency before the official figures prove it.
We’ll arrange a free initial consultation where we can go through the issues facing your business and work out an efficient and effective solution – often before problems reach a critical stage.