Alternatives to Winding Up Flashcards

1
Q

IVA’s

3 Advantages

A

Individual continue in business work towards paying debt in more flexible way

Individual not penalised by bankruptcy laws such as restrictions on becoming a D

Creditors likely receive more under terms of IVA than if business wound up

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

IVAs

Usually - years?

Available to- 3 to help them reach ? And avoid?

A

5 years

Available to -
Individuals, sole traders and partnerships

To help them reach compromise with creditors with aim avoiding CLOSURE of business & perhaps BANKRUPTSY

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Once an individual or their IP submits a proposal to court for an INTERIM ORDER …

A

CREDITORS may no longer take action against the individual (a moratorium on actions)

CREDITORS MEETING must be held within 14 days of the order (to include proposals made by individual with regards to their debt)

Creditors may accept the proposals with 75% majority (by value of creditors present) vote

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Company Voluntary Arrangement.

  • who can apply?
  • it allows insolvent company to…
  • approved by?
A

Company / limited liability partnership can apply for if all D’s partners agree

Allows insolvent company to PAY CREDITORS over a FIXED PERIOD and continue trading

At least 75% (by value) of creditors who vote on it must approve it. A cva can’t be approved by deemed consent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Reconstruction - why would company reconstruct?

A

Problems liquidity
Take up new contracts/ exploit market opportunities to survive - prob when liquidity problems not attractive to ext investment

Company reconstruct to become more attractive to ext investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Reconstruction

Typical traits of company with liquidity problems?/ facing problems surviving

A

Accumulated losses

Share price - decline/ below nominal value

Debenture interest arrears

No payment ordinary dividends

Cumulative preference shares dividend arrears

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Reconstruction
Under various mechanisms of companies act 06 companies are able to…

By altering capital structure & removing some debt business able to…

A

Mechanism compliance act 06:

DEBENTURES- write off d int arrears
- replace existing D’s with lower interest D’s

DIVIDENDS- write off preference dividend arrears

WRITE OFF - amounts owing to creditors
- unpaid share capital

Paid up share capital which is in excess of requirements
…..

By altering capital structure:

1 reduce accumulated losses to point begin having profits available to :

2 begin paying DEBTS & DIVIDENDS in future

3 also frees up resources for INVESTMENT in future opportunities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Reconstruction

To do so companies must ask shareholders to…

Shareholders do this in exchange for

A

Surrender some/all their existing rights

S do so in exchange for

  • new rights
  • under new/reformed company
  • a share of new BENEFITs that could arise due to future investment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Reconstruction may be more appealing to shareholders than alternatives which would include: -3

A

To remain where they are with NO RETURN /GROWTH from their investment

To accept whatever return they’d be given in a LIQUIDATION

How well did you know this?
1
Not at all
2
3
4
5
Perfectly