11 - BL - Insolvency corp. Liquidation

Question 1

Receivership
What is Receivership?

Answer 1

Receivership is an individual enforcement procedure which benefits only the appointing creditor.

Question 2

Receivership
Who can appoint a Receiver?

Answer 2

Fixed charge holders.

It will be a condition of the debenture that a receiver can be appointed.

Question 3

Liquidation
What is the aim of Liquidation?

Answer 3

A company’s business is wound up and its assets transferred to creditors and (if there is a surplus of assets over liabilities) to its members.

Question 4

Liquidation
What are the two types of liquidation?

Answer 4

1. Compulsory liquidation
2. Voluntary liquidation – which is further subdivided into:

• Members’ voluntary liquidation
• Creditors’ voluntary liquidation.

Question 5

When is a company dissolved by liquidation? (Timeline)

Answer 5

3 months after the liquidator files notice at coy House.

Question 6

Liquidation
Compulsory liquidation is a court based procedure, what are the grounds for a compulsory liquidation?

Answer 6

• the company is unable to pay its debts;

AND

• it is just and equitable for the company to be wound up.

Question 7

Liquidation
Compulsory liquidation what is the process for compulsory liquidation?

Answer 7

• applicant presents a winding up petition to the court
• if court agrees, will appoint Official receiver

Question 8

Liquidation
Compulsory liquidation who can apply?

Answer 8

• creditor
• the company
• administrator
• supervisor of CVA

Question 9

Liquidation
Compulsory liquidation in what circumstances will a company be found to be unable to pay its debts?

Answer 9

• cash flow test
• balance sheet test
• failure to pay a statutory demand for over £750 (coy has 21 days to pay)
• judgement debts go unpaid

Question 10

Liquidation
Compulsory liquidation how are coy assets protected?

Answer 10

• transfers of property and shares are void after the presentation of the winding up petition without court order

Question 11

Liquidation
Compulsory liquidation what happens on the court making a winding up order?

Answer 11

• Moratorium
• all employees are dismissed
• Directors lose their powers

Question 12

Liquidation
What types of company can use a members’ voluntary winding up liquidation?

Answer 12

Solvent companies.

Question 13

Liquidation
What is the process for a MVL?

Answer 13

• Directors swear a declaration of solvency containing a statement of the company’s assets and liabilities as at the latest practicable date before making the declaration.
• The members must then pass a special resolution to place the company into MVL and
• an ordinary resolution to appoint a liquidator.
• The winding up commences when the special resolution is passed (s 84(1) and s 86 IA 1986).
• All debts must be paid in 12 months
• if liquidator thinks debts can’t be paid will convey MVL into CVL

Question 14

Liquidation
What are the consequences of a director knowingly making a false statement of solvency?

Answer 14

• fine or
• imprisonment (s 89(4) IA 1986).

If the debts are not actually paid in full within 12 months it will be presumed that the director did not have reasonable grounds for his opinion.

Question 15

Liquidation
What is the process for a Creditors Voluntary winding up Liquidation??

Answer 15

• Shareholders pass a special resolution to place the company into a CVL and
• an ordinary resolution to appoint a nominated liquidator.
• Within 14 days of the special resolution being passed the company must ask the company’s creditors to either approve the nominated liquidator or put forward their own choice of liquidator. (Where the creditors’ choice of liquidator differs from that of the company’s shareholders, the creditors’ nomination will take precedence).
• The directors must also draw up a statement of the company’s affairs (setting out the company’s assets and liabilities) and send it to the company’s creditors.

Question 16

Liquidation
What is the role of the liquidator?

Answer 16

To realise the assets.

They can undo certain transactions aimed at shifting the assets out of the company.

Question 17

What is the statutory order of priority?

Answer 17

• Liquidator’s fees
• fixed charge creditor (out of the proceeds of selling assets subject to the fixed charge).
• Other costs and expenses of the liquidation.
• Preferential creditors
• Creation of the prescribed part fund (if available) for unsecured creditors.
• Amount due to creditors with floating charges.
• Unsecured/trade creditors (including payment of the prescribed part).
• Interest owed to unsecured creditors.
• Shareholders.

Question 18

Who are Preferential creditors (the first tier and then the secondary tier).

Answer 18

• employees for remuneration due in the 4 months before the ‘relevant date’ (generally the date of the winding up resolution or petition) but subject to a maximum of £800 per employee plus accrued holiday pay, and for certain contributions owing to an occupational pension scheme.
• HMRC (indirect and employment taxes)

Question 19

How is the prescribed part fund calculated

Answer 19

• 50% of the first £10k
• 20% thereafter to a max fund of £600k for FC before 06.04.2020 & £800k after

Shares amount unsecured creditors.