Statement of Affairs and Deficiency/Surplus

Statement of Affairs

A Statement of Affairs (SOA) is a critically important document within the insolvency process that provides an overview of the company’s assets and liabilities.

A statement of affairs is a financial statement similar to the balance sheet that includes assets and liabilities. Just like the balance sheet, assets are on the right side and liabilities are on the left. Even though we call it a statement of affairs, it’s really two sets of data. One set is from the beginning of the year, and the other is prepared at the end. This shows the changes in assets and liabilities over the course of the period.

Recall that accounting is conducted in a double-entry system. Each transaction updates two accounts. For example, we debit cash and increase accounts payable for a loan. The statement of affairs does not present data this way. It’s a single entry system. True, there are assets and liabilities, but nowhere does the statement show dollars booked in offsetting accounts. The objective of the statement is to show opening and closing capital. It’s NOT intended to highlight the company’s total financial position.

One thing to note is that the statement of affairs is not part of the official financial statements. Values are most likely estimates, and as such, the accuracy of the statement could be doubtful. It doesn’t have the level of accuracy that the balance sheet would.

It gives gives the Insolvency Practitioner the opportunity to assess everything the company may own, as well as details of fixed or floating charges.

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, although potential buyers of the insolvency company will also find it useful.

What Information Should be Included on the Statement of Affairs Form?

The SOA is a crucial step in the insolvency procedure, 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:

• 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 debts

The Statement of Affairs may be used in the following cases of insolvency

Where is it Applicable

• Voluntary liquidation;
• Administration;
• Company Voluntary Arrangements;
• Compulsory liquidation.

In case of voluntary liquidation, the company’s financial position will be outlined at a creditors/shareholders’ meeting.

If the company enters into Administration, the Administrator will require the Directors to produce a Statement of Affairs to be contained within the Administrators’ Proposals; In a CVA, the SOA will also form a section of the Proposals to creditors.

In the eventuality that the company is facing compulsory liquidation, the Official Receiver, liquidator or the appointed Insolvency Practitioner will be in charge of preparing the Statement of Affairs.

What to do After you’ve Completed it?

As soon as the SOA has been completed and signed, it must be filed at Companies House by the Insolvency Practitioner, in order for it to become public record.

Key Differences between a Statement of Affairs and a Balance Sheet

A balance sheet is part of a financial statement, therefore it must be 100% accurate, containing no estimated figures and it has to show the company’s exact financial position.

Whilst the Statement of Affairs offers information on assets and liabilities, it doesn’t need to be correct to the penny but needs to show the best-estimated figures on the information available at the time.

Form of Statement of Affairs

Statement of Deficiency/Surplus

Prior to a company entering voluntary liquidation, alongside the statement of affairs, a pack of explanatory information will also be provided to creditors. This information will include a reconciliation of the position between the last set of published accounts and the statement of affairs, known as the deficiency account. Here we will look at how the deficiency account can be interpreted and how it can be used to explore whether wrongful trading has taken place on the part of the director.

Example of Statement of Affairs and the Deficiency Account

In 2005 the company earned a profit of Rs. 45,000 but thereafter it suffered trading losses totaling Rs. 58,400. The company also suffered a speculation loss of Rs. 5,000 during 2006. Excise authorities imposed penalty of Rs. 35,000 in 2007 for evasion of tax which was paid in 2008. From the foregoing information, prepare the Statement of Affairs and the Deficiency Account.