How to read a statement of affairs

When a company enters an insolvency process, its directors must set out what it owns and what it owes. That document is the statement of affairs. It is filed at Companies House and it is the single most informative document about a failed company: a balance sheet drawn up at the end, with every class of creditor named and the shortfall to each.

When one is made

• In a creditors’ voluntary liquidation, the directors prepare the statement of affairs, verified by a statement of truth, and it is put to the creditors and delivered to the liquidator, who files it at Companies House.
• In an administration, the administrator requires a statement of affairs from the company’s officers and files it with their proposals.
• In a compulsory liquidation, the Official Receiver may require one from the directors.

In the filing history it is labelled as a statement of affairs. Older ones were filed on the numbered forms of the previous insolvency rules; since April 2017 they carry the current form references. Many are scanned paper, with handwriting on the signature page.

What it lists

The summary page sets out, in order of who is paid first:

• Assets, each with a book value (what the accounts carried it at) and an estimated realisable value (what the directors expect it to fetch): property, plant, vehicles, stock, book debts, cash, and money owed by connected companies or by the directors themselves. An overdrawn director’s loan account appears here, as an asset of the company.
• Assets subject to fixed charges, with the secured creditor’s debt set against them and any shortfall carried down to the unsecured creditors.
• Preferential creditors: employees’ arrears of wages and holiday pay within the statutory limits; then, for insolvencies starting on or after 1 December 2020, HM Revenue and Customs as a secondary preferential creditor, paid only after those, for VAT, PAYE income tax, employees’ National Insurance, student loan deductions and construction industry scheme deductions.
• The prescribed part: a slice of the assets subject to a floating charge that is set aside for unsecured creditors before the floating charge holder is paid.
• Floating charge holders, typically a bank or an asset-based lender.
• Unsecured creditors: trade creditors, HMRC for corporation tax and employer’s National Insurance, landlords, employees’ claims beyond the preferential limits, directors’ loan accounts in credit, and connected companies.
• The estimated deficiency to unsecured creditors, then the share capital, then the deficiency to shareholders.

The schedules behind the summary list each creditor by name, with the amount claimed. In a voluntary liquidation the directors also give a short account of why the company failed.

How to read it

• Compare book value with estimated realisation. Stock carried at £200,000 and expected to fetch £15,000 tells you something about the stock, or about the accounts.
• Find HMRC, in both the preferential and the unsecured lines. The size of the tax debt relative to trade creditors shows who was being paid in the final months.
• Find the directors and connected companies, on both sides. A director owed money is an unsecured creditor like any other; a director who owes money is a debtor the liquidator will pursue.
• Read the date. The statement is “as at” a day near the start of the process; set it against the last filed accounts and against the person’s appointment dates.
• Treat the figures as the directors’ estimates. The liquidator’s later progress reports and final account show what was in fact realised and what each class of creditor received, which is often less.

In a report

A Check the Director report reads the statement of affairs of every insolvent company the person was an officer of, scanned or typed. It quotes the figures it relies on with the page they came from, and where the statement shows a deficiency to creditors that include HMRC or employees, criterion F03 is met and the report says so, with the amounts. For scanned statements read by optical character recognition, each figure carries its recognition confidence, and where the page image was read directly the report says that too. What it does not do is characterise the failure: it states what the statement states. See the statement of affairs in the sample report.

This guide describes the public record in general terms, for England and Wales unless it says otherwise. It is not legal advice.