6): The Termination of a solvent business, corporate solvency and personal bankruptcy Flashcards
Corporate insolvency: what is a company voluntary agreement? (CVA)
binding agreement between company and its creditors
company compromises its debts or agrees an arrangement for their discharge
How is a CVA approved?
needs at least 75% (by value) of the company’s creditors and
50% or more of unconnected creditors
Who is bound by a CVA?
every creditor of the company who had notice of it and was entitled to vote at the meeting
not binding on secured/preferential creditors unless they agreed to be bound
What can a small company achieve by filing a CVA at court?
a 28 day moratorium during which period, no creditor may take action against the company
What is administration?
collective process where a company may be organised or its assets realised under protection of a statutory moratorium
What is the purpose of the administrator?
rescue company as a going concern
OR
achieve a better result for company’s creditors as a whole than would be available if the company was wound up
OR
realising property to make a distribution to one or more secured/preferential creditors
what are the two routes to administration?
Court Order:
court must be satisfied the company is unable to pay its debts and the purpose of administration will be achieved
Out of Court Route:
quicker, cheaper and can be taken by company or directors (filing for admin) or QFC holder (appointing an administrator)
What are the benefits of administration?
Administration imposes statutory moratorium which lasts for 1 year and freezes creditors taking action on the company
the administrator’s duty is to all of the creditors
What is a fixed asset receivership?
not a collective process
initiated by a secured creditor
security doc must contain a fixed charge
receiver can be appointed over specific property
receiver appointed by holder of the fixed charge
What are the duties and powers of a receiver?
primary duty is to fixed charge holder
appointed with a view to selling the charged property or collecting rental income from it for the lender
What is Liquidation (winding up)?
not a rescue mechanism
involves appointment of liquidator who collects and distributes company assets
two main types of liquidation: compulsory and voluntary.
what is compulsory liquidation?
creditor will serve a statutory demand that remains unsatisfied for 21 days proving company cannot pay its debts
court will issue winding up order
What is voluntary liquidation?
Two main types:
member’s voluntary liquidation
creditor’s voluntary liquidation
What is a member’s voluntary liquidation?
directors swear a statutory declaration of solvency
members must pass special resolution that the company be wound up
only available where company is solvent
What is a creditors’ voluntary liquidation?
directors do not make statutory declaration of solvency
company must pass a special resolution that the company should be wound up
creditors are involved in appointment of liquidator and are entitled to reports on progress of liquidation
What are the two causes of action for personal insolvency?
Individual Voluntary Arrangement
Bankruptcy
What is an individual voluntary arrangement (IVA)?
debtor applies for moratorium (interim order)
debtor agrees to voluntary repayment plan
debtor may enter voluntary arrangement any time before bankruptcy petition by the debtor is pending
interim order lasts 14 days
What happens during the interim order during an IVA?
no bankruptcy petition may be presented or proceeded with
no landlord may exercise any right of forfeiture
no other proceedings/legal process can be commenced against debtor or their property without leave of the court
What is needed to pass a voluntary arrangement?
resolution must pass by at least 75% (in value) of the creditors in person/by proxy
resolution binds every unsecured creditor
not binding on preferential and secured creditors
How can creditors/joint creditors make a bankruptcy petition?
- creditor or joint creditors owed 5k (in aggregate) or more
debt is liquidated sum, payable now/certain future time/ unsecured
and debtor is unable to pay or has no reasonable prospect of doing so
(debtor failed to comply with statutory demand within 3 weeks and has no outstanding application to set aside statutory demand)
- creditor who is bound by an IVA where the debtor has not complied with can also make a petition
How can a debtor make a bankruptcy petition?
shows statement of affairs that they are unable to pay their debts
What is the process for making a bankruptcy orders?
made at court hearing and trustee in bankruptcy takes control of bankrupt’s assets
What happens to personal property during bankruptcy?
title to personal property vests in trustee in bankruptcy
items are sold to pay creditors
exception: tools of trade, everyday household items, clothing and furniture
What happens to the bankrupt’s home during bankruptcy?
title passes to the trustee’
court order required to sell the property if another person has legal/equitable interest or right of occupation
after 1 year order court order usually granted
How will the trustee in bankruptcy gather and increase the bankrupt’s assets?
disclaiming onerous contracts
setting aside transactions at an undervalue
setting aside preferences
setting aside transaction at an undervalue that defraud creditors
In what order will the assets of the bankrupt be discharged?
costs of bankruptcy
payment of preferential debts
payment of unsecured creditors
payment of postponed creditors (bankrupt’s spouse/civil partner)
What restrictions are placed on the bankrupt until they are discharged from bankruptcy?
cannot obtain credit of more than 500 GBP without disclosing bankruptcy
cannot act as a director
must disclose bankruptcy if trading under different name than that on bankruptcy order
cannot be involved in company management, promotion or formation without leave of court
cannot continue as partner in partnership
When is the bankrupt discharged from bankruptcy?
one year from the date on which bankruptcy commences
