9.1 Insolvency Procedures Flashcards
What insolvency procedure protects goodwill
Administration
What is Ds statutory declaration for MVL
C will repay debts within X period
How many ways to prove insolvency for compulsory liquidation
Four
Sixth stage in IP
Floating charge creditors
895 - 901 CA on what
Scheme of arrangement
When can fixed charge holder appoint receiver
In circumstances set out in security doc
What does a company voluntary arrangement do
Imposes fixed timetable to repay, or if rescue impossible, to achieve better asset realisation on winding up
Where are the statutory grounds for compulsory liquidation
122 IA
What do all kinds of liquidation lead to
Dissolution
What must the BS show for MVL
That assets exceed liabilities
What must Ds confirm in a report for CVA
It has RP of being (i) approved by 75% of all creditors, representing more than 50% unconnected and (ii) successfully implemented
What is an ‘unconnected creditor’ for the purposes of a CVA
Not D/CP/significant creditor
What is the prescribed part
A percentage taken out for unsecured creditors
What is a FCR the receiver of
Only of property charged
When are there disclosure requirements for insolvency and what are they
If goes into A, must publicise and put on stationery
Negative of pre-pack A
Poor recovery for creditors as buyer will cherry pick
Two kinds of receivers
Fixed charge and administrative
Member resolutions required for MVL
SR for MV + OR to appoint L
What kind of liquidation is out of court
Members and creditors voluntary
What procedure applies to scheme of arrangement - how is the arrangement put into place
Sanctioned by the court
Which is not an officer of the court - A or L
L
Third in insolvency priority
Other costs of L
When does the appointment of A terminate automatically
After 1 year
1 - 7 IA on what
Company voluntary arrangement
When will a company voluntary arrangement be used
If company trying to trade out of difficulty
What is the procedure for compulsory liquidation
Petition to court on statutory ground
What is taken off the cash distributed to FC creditors in insolvency
Costs of preserving/realising fixed charge assets
Procedure for MVL
Ds statutory declaration + Ms paid in full
What is the only forma insolvency arrangement available if company does not have 100% agreement to e.g. extend maturity date on loans
Scheme of arrangement
Example of preferential debts
Wages owed to employees
What kind of liquidation requires court
Compulsory
When can QFCH appoint A
Schedule B1 para 14 IA and if charging doc states so applies
What are the duties of liquidator
De facto agent of C
Two usual grounds of compulsory liquidation
Insolvency or just and equitable
What is the benefit of a CVA over an SoA
No court involvement, so cheaper
Why might a members voluntary liquidation be used
Commercial/tax reasons
Is there a moratorium whilst in AR
No
What formal arrangement requires court sanction
Scheme of arrangement
Why must Ds be able to recognise insolvency situation
They can be personally liable (under IA), BoD (172(3) CA) and be disqualified (CDDA)
How do fixed and floating charge creditors rank
In order of creation, if properly registered
What is a consensual agreement
Adjust terms of debt to be beneficial to debtor
Who is at the very bottom in the list of priority in insolvency of company
Ms
What is liquidation
Sale of assets piecemeal
Where are the powers of AR
In debenture + Schedule 1 IA
What is a QFCH
Qualifying floating charge - can appoint A
What powers does FCR have
As in security doc + LPA ‘25
Two ways to appoint an administrator
Out of court or by court order
What is the period in which a creditor can challenge a CVA
28 days
Why is liquidation normally after A
No moratorium in liquidation + L limited powers to keep trading
What is a moratorium
Creditors cannot exercise rights/remedies
Three people who can appoint A out of court
Ds, Ms and QFCH
How do you document a consensual agreement
In restructuring agreement w/ contractual force
Particular power of A in Schedule 1 IA
Power to carry on business
What is a pre-pack administration
Business sale organised prior to A formally being appointed
When can A pay dividend to unsecured creditors
Court permission, or if paying to secured - comes out of prescribed part
Two formal insolvency arrangements under statute
Scheme of arrangement and company voluntary arrangement
Where are the powers of A
Schedule 1 IA ‘86
Is CVA under CA or IA
IA
First to consider in insolvency priority
Costs of preserving/realising fixed charge assets
What insolvency procedure imposes a moratorium
Administration
What is the order of priority in insolvency subject to
Subordination agreements and proper registration
When can an AR be appointed
QFCH created before 15/09/2003 + terms confer right
Why is CVA alone unlikely to guarantee success
It is usually part of wider restructuring - it is insufficient in itself, as it just imposes a new timetable to repay the same debts
When might an interim moratorium be used
If notice of intention to appoint A filed at court
Does a moratorium restrict the rights of QFCH to appoint A
No
Why does M’s nomination of L for CVL not really count
Ds must ask creditors within 14 days to approve/nominate their own - this takes precedence
What formal arrangement under statute binds all creditors
Scheme of arrangement
What are the powers of liquidator
Extensive, including claw back provisions and distributing assets
Three people who can appoint A by court order
C, D an M
What percentage of creditors have to agree to company voluntary arrangement (NV)
75% of all, and more than 50% unconnected
Three kinds of liquidation
Compulsory, voluntary members, and voluntary creditors
What M resolution to approve CVA
OR
What creditors need to agree for scheme of arrangement
3/4 in value and majority in number
How can appointment of A be extended
By creditors for up to 1 year, and court for any further time
Member resolutions required for CVL
SR for CVL + OR to nominate L
Where are the four ways to prove insolvency for compulsory liquidation
123
Why is recovery less in liquidation than for A
Sale of assets piecemeal rather than sale as going concern
What is the final stage in IP
Shareholders
Why is a CVA cheaper than SoA
No court involvement
What are the duties of A
Agent of C and officer of court
Who usually applies for compulsory liquidation and why
Unsecured, as QFCH can appoint A + FC can enforce
Who usually appoints an administrator out of court
QFCH or Ds
Is A still officer of court even if appointed out of court
Yes
Is scheme of arrangement under CA or IA
CA
What is a benefit of pre=pack A
Preserves goodwill
What happens if security is insufficient for secured creditors debt owed - can they take out of PPF?
Cannot take out of prescribed part fund
What key power does an LPA receiver not have
Power of sale
Fourth in IP
Preferential debts
Second in insolvency priority
Fixed charge creditors
Relevant date for QFCH to appoint AR
Before 15/09/2003
Seventh stage in IP
Unsecured creditors (ADD PRESCRIBED PART BACK IN)
Why is an AR preferable
Only owes duty to the appointer
What is the downside of CVA over SoA
CVA only binds unsecured, unless secured are unanimous in consenting
How do you work out how many p/£1 owed unsecured creditors get
Left/owed x 100
Who has the effective control of CVL
Creditors
What is the downside of a consensual agreement
Unlikely to reach agreement w/ all creditors
How are creditors paid in liquidation
Proportionate to claim
Who can pay dividend - A/L, usually?
L, not A
What is the stage after unsecured creditors in IP
Interest on unsecured debts
What is the first step in CVA
Ds formulate written proposal + nominate LIP as ‘supervisor’
When does MVL convert into CVL
If company becomes unable to pay debts within period in D’s statutory declaration
What formal arrangement do Ms have to approve and how
CVA - by OR
What happens if no creditor challenges CVA
Binding and LIP will implement
Why might company need to go into administration before company voluntary arrangement
To stop creditors taking hostile action between CVA notice + procedure
What are the 3 objectives to administration
Rescue going concern, achieve better result for Cs, and realise property to distribute
What the insolvency procedure where the business continues trading and is sold as a going concern
Administration
Which formal arrangement imposes a fixed timetable to repay, or aims to achieve better asset realisation on winding up
Company voluntary arrangement
What kind of insolvency procedure is a contract based compromise - is not formal insolvency
Consensual agreement
Fifth stage in IP
MINUS the prescribed part (to be added back in later)
Who usually decides time to appoint A, and who usually appoints - why
QFCH time, Ds appoint - protects QFCH reputation
Why is a FCR not an LPA ‘25 receiver
Further powers
Why can QFCH essentially override any decision on choice of A
Interim period for court appointment + 5 days’ notice if out of court
Under which kind of liquidation is the company solvent
Members voluntary liquidation
