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Law > 6. Company Finance and Insolvency > Flashcards

6. Company Finance and Insolvency Flashcards

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1
Q

Preference shares have ____ dividends, voting rights which are ______ restricted, are _______ restricted from general meetings, and in the event of liquidation they rank ____ ordinary shares

A

Preference shares have fixed dividends, voting rights which are usually restricted, are usually restricted from general meetings, and in the event of liquidation they rank above ordinary shares

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2
Q

What are the two requirements for the alteration of rights for a class of shares?

A
  1. The articles must allow for variation

2. Agreement of more than 75% of that class of shareholder is usually required

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3
Q

Define issued/allotted capital

A

The nominal value of shares currently in issue

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4
Q

Define called up capital

A

The amount of money requested by the company in payment for shares issued

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5
Q

Define paid up capital

A

The amount of money received by the company for shares issued

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6
Q

Define equity share capital

A

The issued share capital excluding any part of it that carries any right to participate beyond a specified amount in a distribution

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7
Q

Do ltd companies require authority for the allotment of new shares?

A

No, unless directed by their articles of association

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8
Q

For a plc, directors can allot new shares but require authority, derived either from _____ or ________

A

The articles or by passing an ordinary resolution

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9
Q

Allotments are subject to what two rules?

A
  1. Where shares are issued wholly for cash, pre-emption rights are granted
  2. A ltd company may exclude/did apply pre-emption rights by special resolution
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10
Q

Ltd companies can accept ___, ______ or ____ as payment for shares

A plc can only issue shares in exchange for ______ or ________

A

Money, goods, services

Money, goods

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11
Q

Why can’t shares be issued at a discount?

A

As the shareholder is liable to the company for the unpaid amount plus interest

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12
Q

What four things can share premium reserve not be used for?

A
  1. To pay up new shares allotted as fully paid bonus shares
  2. To write off expenses incurred on the issue of those shares and any commission paid on those shares
  3. To allow the repurchase of debentures at a premium
  4. To facilitate a Permissible Capital Payment in private companies
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13
Q

Can share premium be distributed as a dividend?

A

No

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14
Q

If a company refuses to register shares, it must provide notice of the refusal to the proposed transferee with reasoning within _____ months

A

Two

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15
Q

How might a plc reduce share capital?

A
  1. Special resolution

2. Confirmation by court

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16
Q

How might a private company reduce share capital?

A
  1. Special resolution

2. Solvency statement

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17
Q

A company is generally prohibited from buying its own shares, except in which four occasions?

A
  1. Purchase of shares in accordance with CA 2006
  2. Acquisition of shares in a permitted reduction of capital
  3. Purchase of shares in complying with a court order
  4. Forfeiture or surrender of shares in accordance with CA 2006
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18
Q

Are private companies prohibited from giving financial assistance for the acquisition of their shares?

A

No

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19
Q

The maximum dividend amount for a ltd company is ________ less ______

The maximum dividend amount for a plc is ________ less ______ less ________

A

The maximum dividend amount for a ltd company is accumulated realised profits less accumulated realised losses

The maximum dividend amount for a plc is accumulated realised profits less accumulated realised losses less accumulated unrealised losses

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20
Q

A plc may only make a distribution given what?

A

Given its net assets are not less than the aggregate of it’s called up share capital and undistributable reserves

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21
Q

Debentures, in strict legal terms, are known as what?

A

A written acknowledgment of indebtedness

22
Q

A debenture holder is a ____ of the company, _______ vote, and interest must be paid to them when it is ______

A

A debenture holder is a creditor of the company, cannot vote, and interest must be paid to them when it is due

23
Q

Debenture holders must be paid ______ shareholders are paid

A

Before

24
Q

Define fixed charges

Define floating charges

A

Fixed charges: attached to specific assets upon creation, which cannot be disposed of. If the company defaults on a loan, the charge holder is permitted to sell the asset and recover monies owed

Floating charges: hovers over classes of assets only. Upon a ‘crystallising event’, the charge attaches itself to the remaining assets within the charged class. Holders of floating charges rank behind fixed charge holders, the liquidator and other secured creditors

25
Q

Should a floating charge holder wish to prevent themselves being overtaken by a subsequent fixed charge over the same asset, they can create a what?

A

Negative Pledge Clause (NPC)

26
Q

Charges must be registered with the registrar within _______ days of their creation, else they become void, rendering the debt unsecured

A

21

27
Q

Charges are effective from the date of creation, not registration. True or false?

A

True

28
Q

A company must keep a _____ of all charges, including names of chargees, amount of charge and a short description of property charges

A

Register

29
Q

What is the purpose of administration?

A

To save the company from liquidation by taking the company out of the hands of directors and placing it in the hands of an administrator

30
Q

What are the three aims of an administrator?

A
  1. To rescue the company as a going concern
  2. Achieve a better result for creditors as a whole than under a winding up
  3. Then realise the company’s assets to make a distribution to one or more preferential or secured creditors
31
Q

When applying to court for an administrator, what two things must be shown?

A
  1. The company is or is likely to be unable to pay its debts
  2. An administration order is reasonably likely to achieve the purpose of administration, e.g. avoiding an insolvent liquidation
32
Q

A company can appoint an administrator out of court given what two factors?

A
  1. So long as there are no pending petitions presented against it
  2. It is not already in liquidation/administration
33
Q

If adopting an out of court administration approach, the company or its directors must give _____ days prior notice to any Qualifying Floating Charge Holder (QFCH)

A

Five

34
Q

An administrator must file notice of his appointment at Companies House within ____ days of appointment

An administrator must submit a statement of proposals within ____ weeks of appointment

An administrator must hold a creditors’ meeting within ____ weeks of appointment

An administrator is terminated after _____ year of appointment

A

Seven

Eight

Ten

One

35
Q

What six powers does an administrator have?

A
  1. Remove or appoint a director
  2. Call a meeting of creditors or members
  3. Apply to court for directions
  4. Make payments to secured or preferential creditors
  5. Make payments to unsecured creditors
  6. Present or defend a petition for the winding up of the company
36
Q

What is a Company Voluntary Arrangement (CVA)?

A

An alternative compromise agreement to administration, which may take the form of a ‘composition of debts’ where a company’s debts are repaid over an extended period of time

37
Q

_____ approval of a CVA is required

A

Creditor

38
Q

What three ways may bring a company’s life to an end?

A
  1. Members’ voluntary liquidation
  2. Creditors’ voluntary liquidation
  3. Compulsory liquidation
39
Q

What five procedures must take place for a members’ voluntary liquidation?

A
  1. Directors make a sworn statutory declaration of solvency, delivered to registrar within 15 days
  2. Ordinary or special resolution passed marking commencement of winding up process
  3. Liquidator appointed
  4. Liquidator convenes meeting within three months from commencement of the winding up to report his transactions
  5. Final meeting for completion of liquidation
40
Q

When directors wish to voluntarily wind up a company, but cannot make a statement of solvency, then a ______ _____ _______ is used

A

Creditors voluntary liquidation

41
Q

What is the most common ground for calling a compulsory liquidation?

A

Inability of company to pay its debts

42
Q

Any creditor that demands payment of a debt of at least ____ that is not paid within 21 days will be able to petition the courts for a compulsory winding up

A

£750

43
Q

During a compulsory liquidation, which four charges or transactions entered into or debts incurred by a company may be invalidated?

A
  1. Charges not registered within 21 days
  2. Transactions at an undervalue in the two years previous to liquidation or administration
  3. Preferences given six months before the commencement of liquidation for an unconnected person or two years for a connected person
  4. Floating charges created within 12 months prior to winding up
44
Q

What is the order of payment of a company’s debts upon wind up? (8)

A
  1. Costs and expenses of liquidation
  2. Secured creditors holding fixed charges
  3. Preferential creditors
  4. Secured creditors holding floating charges
  5. Ordinary unsecured creditors
  6. Deferred debts
  7. Members’ capital
  8. Any surplus is returned to members in line with the articles of association
45
Q

Define receivership

A

The process by which a company’s charged assets are realised and then sold in order to pay off the secured creditor who holds the charges

46
Q

What is the equivalent of winding up for a sole trader or partnership?

A

Bankruptcy

47
Q

Creditors can petition for bankruptcy if they are owed a debt or share of a debt exceeding ______

A petition will require the creditor to demonstrate that they served a _______ demand on the debtor that has not been paid, and that they attempted to enforce a _____ order which has not been satisfied

A

£5,000

Statutory, judgement

48
Q

What is the term for a debtor served with a bankruptcy order?

What three restrictions does such a person have?

A

Undischarged bankrupt

  1. Cannot be a director of a company
  2. Cannot borrow more than £500 without telling the lender about their bankruptcy
  3. Cannot practise as a chartered accountant
49
Q

What property of a bankrupted individual is not automatically vested in the trustee in bankruptcy?

A
  1. Tools of their trade
  2. Clothing and household items necessary for domestic needs
  3. Property held by the bankrupt on trust for another
  4. Certain tenancies protected under legislation
50
Q

An individual can avoid bankruptcy by entering into a what?

Define this

A

Individual Voluntary Arrangement (IVA)

A binding agreement between creditors and the individual debtor which allows the debtor to pay reduced amounts towards the total debt

51
Q

Give an advantage for individuals and creditors of an IVA

A

Individual:

  1. Sole trader can continue to trade and operate a normal bank account
  2. Flexible proposals can be created
  3. Some restrictions of bankruptcy do not apply
  4. Details of IVAs are not published in the press

Creditors:

  1. Greater debt recovery is possible compared to bankruptcy
  2. The costs of an IVA are much lower than bankruptcy

Law (9 decks)

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