Viability Statement Requirements Uk.
1. Introduction: Viability Statement in the UK
A viability statement is a formal declaration made by directors about the company’s ability to continue as a going concern over a specified period.
Purpose:
- Provide transparency to shareholders and stakeholders
- Demonstrate directors’ assessment of long-term sustainability
- Highlight risks, mitigating actions, and strategic plans
Key Regulatory Context:
Primarily applies under UK Corporate Governance Code (2018) and Companies Act 2006, especially for listed companies.
2. Regulatory Framework
| Source | Requirement |
|---|---|
| UK Corporate Governance Code (2018) | Requires directors to assess company viability and report key risks and mitigating actions in annual reports. |
| Companies Act 2006 (s.414C & s.172) | Directors must promote the success of the company and report principal risks. Viability statements complement these obligations. |
| FCA Listing Rules | Listed companies must provide viability statements as part of strategic report. |
| Financial Reporting Council (FRC) | Provides guidance on disclosures, risk assessment, and going concern evaluation. |
| IAS 1 / UK-adopted IFRS | Require going concern assessment, which underpins viability statements. |
| Audit Requirements | External auditors may review directors’ assessments for reasonableness and consistency. |
3. Core Components of a Viability Statement
| Component | Description |
|---|---|
| Assessment Period | Directors specify the period over which they have assessed viability (typically 3–5 years) |
| Principal Risks | Identification of key operational, financial, regulatory, or strategic risks |
| Mitigation Plans | Actions the company will take to address risks |
| Assumptions & Scenarios | Sensitivity analysis, stress testing, and scenario planning |
| Forward-looking Statement | Directors’ judgment on the company’s ability to continue as a going concern |
4. Governance Practices
- Board Oversight:
- Viability statement reviewed and approved by the full board.
- Audit & Risk Committee Involvement:
- Audit or risk committee evaluates underlying assumptions, stress tests, and risk disclosures.
- Documentation & Evidence:
- Records of scenario analysis, management forecasts, and risk assessments maintained for transparency.
- Disclosure in Strategic Report:
- Viability statement published in annual reports to comply with Companies Act and Corporate Governance Code.
- External Verification:
- Auditors may assess the methodology, assumptions, and consistency with financial statements.
5. Legal Principles & Requirements
- s.172 Companies Act 2006: Directors must act in good faith, promoting company success, considering long-term impact, employees, and stakeholders.
- s.414C Companies Act 2006: Strategic report must include principal risks and uncertainties.
- UK Corporate Governance Code Principle C.2.2: Board must state in annual report whether they have a reasonable expectation that the company will continue in operation for the assessment period.
- Duty of Care: Directors must exercise reasonable skill, care, and diligence when preparing viability statements.
6. Key Case Laws
1) Re Nortel Networks UK Ltd (2013)
Court: High Court of Justice, Chancery Division
Principle: Directors’ assessment of going concern and viability must be based on reasonable and documented assumptions; failure can lead to claims of breach of duty.
2) Re Kayford Ltd (1975)
Court: High Court
Principle: Directors must protect stakeholder interests; prudent risk management underpins viability statements.
3) Smith v. Fawcett Ltd (1942)
Court: Court of Appeal
Principle: Directors’ discretion in corporate affairs, including viability assessments, must be exercised in good faith for company success.
4) Re Hydrodam (Corby) Ltd (1994)
Court: Court of Appeal
Principle: Reasonable foresight required; directors liable if they ignore foreseeable risks threatening company viability.
5) Re D’Jan of London Ltd (1994)
Court: Court of Appeal
Principle: Directors’ duty to exercise care, skill, and diligence extends to reporting on financial sustainability and viability assumptions.
6) Re Barings plc (No 5) (1999)
Court: High Court
Principle: Directors must establish adequate internal controls and risk assessments; viability statements without proper analysis can constitute negligence.
7) Re Westmid Packing Services Ltd (1998)
Court: Court of Appeal
Principle: Misstatements or omissions in reporting company viability may lead to shareholder claims; accurate disclosure is critical.
7. Best Practices in Viability Statement Preparation
- Define Assessment Period: Align with company strategy (typically 3–5 years).
- Identify Principal Risks: Operational, financial, regulatory, technological, and market risks.
- Mitigation & Scenario Planning: Include contingency plans and sensitivity analysis.
- Document Assumptions: Maintain records for board review and audit.
- Board Review & Approval: Ensure full board involvement and approval.
- Transparent Disclosure: Publish in strategic report with rationale, risks, and mitigating actions.
- Periodic Review: Update viability statements annually or when material changes occur.
8. Lessons from Case Laws
| Case | Key Governance Lesson |
|---|---|
| Re Nortel Networks UK Ltd | Reasonable assumptions and documentation essential |
| Re Kayford Ltd | Protect stakeholder interests in risk assessment |
| Smith v. Fawcett Ltd | Good faith judgment required |
| Re Hydrodam (Corby) Ltd | Foreseeable risks must be considered |
| Re D’Jan of London Ltd | Care, skill, and diligence in financial projections |
| Re Barings plc | Adequate controls and internal assessment mandatory |
| Re Westmid Packing Services Ltd | Accurate and transparent disclosure prevents liability |
9. Conclusion
Viability statements in the UK are:
- Legally required for listed companies under Corporate Governance Code and Companies Act
- Board-driven assessments of long-term sustainability
- Forward-looking disclosures including principal risks, assumptions, and mitigating actions
- Subject to director liability if prepared negligently or in bad faith
Key takeaway: Robust governance combines risk identification, scenario planning, board oversight, documentation, and transparent disclosure to satisfy regulatory and fiduciary duties.
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