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Frequently asked questions (FAQ) relating to the statement of affairs

Should I be optimistic or pessimistic when preparing the Statement?

The correct answer is that it should be the most accurate realisable value. 

If the values are understated then creditors may raise queries as to why the recoverable values are so low compared to the book values.  If overstated then the Administrators and creditors may raise queries once the assets are sold as to why the value was too high.  Both of these scenarios also impact upon the perceived performance of the Administrators or Receivers – i.e. creditors may judge how well they have performed compared to what the directors expected could be achieved.

In reality it is recognised that it is a judgement call and therefore in most circumstances there will be some variance from the expected results.  Whilst labouring the point it is important that the rationale is documented so that if it later queried a full explanation can be provided over what was expected and why.

The Administrator has already realised some assets – should I use the amount realised?

The amount realised should be a good indication of the value of the assets and therefore may be appropriate to use in the Statement of Affairs. 

However, if you think that the value realised is significantly different to what you expect, consider putting in your expectations.  As a party who could have an action against the Administrator, Receiver or appointer as creditor or shareholder you need to ensure you do not compromise any claim you may have.

What assumption should be made over whether the business will be sold as a going concern or as a break up?

This comes down to your assessment of the likelihood of rescuing the business as a going concern.  Ensure you document the reasons for your assumptions.

How do I calculate the recoverability of assets where the value depends upon the performance of the administrators – e.g. stock, debtors.

Where you don’t have a formal valuation you will have to exercise your knowledge and experience of the impact of disposing of the assets under an insolvency scenario.  Consider obtaining formal valuations from surveyors, auctioneers, etc. where possible.

The key here is to ensure you document your assumptions so that if at a later stage someone challenges the valuation you can show that you exercised due care in preparing the SOA.

What is a floating charge?

This is where a party (often a bank or lender) holds an asset as security for the amount owed to them.  A floating charge is over assets that change in the normal course of business such as stock and trade debtors (however care should be taken where these are assigned as this is not a floating charge).

Charges must be registered at Companies House to be valid.

What is a fixed charge?

This is where a party (often a bank or lender) holds an asset as security for the amount owed to them.  A fixed charge is over a particular, identifiable asset such as business premises or a particular piece of equipment.  Usually HP assets would fall under this category.

There are likely to be retention of title (or Reservation of title) claims over stock – how should this be treated?

You will need to make an assessment as to how likely it is that the claim will be valid and the value of the stock in question.

For the items that you consider will be subject to a valid claim, the stock book value should be reduced and so should the amount owed to the creditor.  This will also reduce the amount realisable in respect of that class of assets.

Again ensure that the rationale is properly documented.

How do I calculate employee claims?

This may be difficult because it may not be known whether or not employees will be made redundant.  Individual calculations can be obtained from www.financialcrisis.co.uk/calculator.html.  However if there are many employees the amount may have to be estimated in bulk.

Again ensure that any assumptions are documented.

What about costs of the Administration/Receivership?

These should be excluded from the Statement of affairs.

Can the deadline for submission be extended?

The IP may use their discretion to extend the period required to submit a Statement of Affairs or a Statement of Concurrence.  If a party requires such an extension then they should set out the reasons why in writing to the IP who can then consider the request.  If the IP agrees the person completing the statement should ensure they get this agreement in writing with a revised deadline.

If the IP does not agree to an extension then they may apply for a fine to be levied for failure to comply with the obligations.

The person required to complete the statement can also apply to court for an extension should the IP refuse.

Extensions are usually only granted in exceptional circumstances.

What is the difference between a Statement of Affairs and an Estimated Outcome Statement?

The two phases are often used to refer to the same thing.  However, usually the Estimated Outcome Statement would be prepared by the Insolvency Practitioner to estimate to creditors (or other parties) what the likely outcome is whereas the Statement of Affairs is a formal document prepared by the directors of the business.

The main difference is that usually an Estimated Outcome Statement will include the costs of the process (fees and expenses) whereas the Statement of Affairs typically will not.  An Estimated Outcome Statement may also be used to illustrate different scenarios – e.g. liquidation compared to administration or best compared worst case.



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