Bankruptcy of companies or LLPs Flashcards
Is negotiation with creditors usually enforceable?
Negotiation may be unenforceable due to lack of consideration.
What is receivership?
A process where a creditor with a fixed charge appoints a receiver to sell assets and pay off obligations. Receiver’s duties are to the secured creditor only.
Does receivership usually lead to insolvency?
Yes, it often leads to insolvency as the business usually collapses without its key assets.
What is a restructuring plan?
A court-sanctioned plan allowing a company to restructure its debts if approved by creditors owed at least 75% of the unsecured debt.
What is administration?
A procedure where an administrator runs, reorganizes, or sells the company. The court must believe it will benefit creditors more than liquidation.
How can a company enter administration?
Through a formal court hearing or by filing papers with the court (in-court or out-of-court route).
What is a Company Voluntary Agreement (CVA)?
Similar to an IVA but for companies. Directors propose a CVA and appoint an IP. Requires 75% or more of unsecured creditors to agree for implementation.
What is a moratorium in insolvency?
A court order halting most creditor actions, giving the company breathing space. Directors remain in charge while an insolvency practitioner (monitor) oversees.
What is liquidation/winding-up?
The process of selling a company’s assets to pay off debts. The company ceases to exist after liquidation.
What is Voluntary Liquidation?
Liquidation initiated by the members or directors of a company.
What is Members Voluntary Liquidation (MVL)?
A type of voluntary liquidation for solvent companies where members and directors control the process. A resolution must be passed by shareholders within 5 weeks.
What is Creditors Voluntary Liquidation (CVL)?
Initiated by directors when the company is insolvent. The process is then taken over by creditors. Directors resolve insolvency and pass a special resolution to start liquidation.
What is Compulsory Liquidation?
Initiated by a creditor petitioning the court when a company is unable to pay its debts. The court schedules a hearing and appoints a liquidator to sell assets and pay debts.
In what order are creditors paid in liquidation?
- Expenses of winding up; 2. Secured creditors (from proceeds of secured assets); 3. Preferential creditors (e.g., employees, HMRC); 4. Floating charge creditors; 5. Unsecured creditors; 6. Shareholders.
What happens if a fixed charge holder is paid more than their debt?
Any surplus from the sale of the asset is available for other creditors.
