BL 2 Flashcards
Two main ways a company can be financed
- EQUITY finance
selling shares (in return for money or property) - DEBT finance
borrowing money
(bank loan/from shareholders etc)
3 ways shares can change hands
- Allotment
- Transfer (or transmission)
- Buy back
What is allotment of shares?
Company enters contract to create new shares
Give to existing shareholder or new shareholder in return for some consideration (usually payment)
Will issue share certificate and reflect shareholding on register of members
nb number of shares INCREASES
What is a share transfer?
Shareholder gives or sells shares to another or new shareholder
nb number of shares stays same
(but transferor’s percentage decreases and transferee’s inc)
What is share buyback?
Company buys back some of its shares from one or more shareholders
reverse of allotment - reabsorbs shares so total number of shares decreases
(shares company buys back are cancelled)
Difference between share allotment and shares being issued?
Allotment = once have unconditional RIGHT to be on register of members
(bcos shares transferred, paid for and board resolution to register transfer)
Issued = once name of shareholder has been ENTERED on register
Three questions to ask when working out which procedure needed to allot shares?
- Any constitutional restrictions on allotment?
- Directors got authority to allot shares?
- Any pre-emption rights?
(CAP - constitution, authority, pre-emption)
(good cos part of it is if there’s a cap
If a company wants to ALLOT shares, what do you need to check and potentially do in terms of CONSTITUTIONAL restrictions?
(for pre and post CA)
What is the name of the thing to remove lo.
- Companies incorporated before 1 Oct 2009
- check if they updated articles since that date
- if not, shareholder ORDINARY resolution to remove ASC
(Authorised share capital = upper limit on number shares company can have)
- All other companies
- CA 2006 model articles no ASC clause
- check articles in case contains
- if does, change articles to remove restriction by ORDINARY resolution
(EXCEPTION to rule on special res for articles)
Explain whether directors will have AUTHORITY to allot in private companies with one class of shares?
Explain the different possible positions and what may need to do.
(nb one class = no preference shares)
Private with one class:
- Incorp under CA (1 Oct 2009):
- No shareholder permission required
- Board resolution - Pre CA:
- Board no automatic authority
- ORDINARY resolution to activate s550 of Companies Act - Amended articles to restrict allotment by Ds:
- special resolution
When will directors need to be given authority to allot shares?
PUBLIC companies
Private companies more than one class of shares before/after allotment
(also
- priv companies: with
- one class of shares pre CA (pre 1 Oct 2009) (via ordinary res to activate)
- p companies with articles restricting allotment) - special res to amend
BUT diff procedure for public and more than one to give authority
If directors don’t have general authority to allot, what must happen?
Give specifics.
(s 551)
(ie public companies/private more than one class)
ORDINARY resolution authorising directors to allot
Resolution must state:
- max number of shares can allot under it
- date authority expires
, which must not be over 5 years from date resolution passed
Alternatively, could include authority to allot in articles of assoc from incorporation.
must state:
- max no shares
- when expires, must not be more than 5 years from INCORPORATION
(so only worth doing if whilst incorporating)
Even though ordinary, need to file with CH - since amending articles
Ordinary even though articles.
Max time shareholder authority to allot shares lasts and how to extend?
5 years
Ordinary resolution for further period not exceeding 5 years
(and stating date expires/max number)
Summarise how shares can be alloted in both types of companies
- Private post CA 2006 one class - board resolution
- Plus and private more than one class:
articles may authorise
if not, shareholder ordinary to allot
What are pre-emption rights? (s561)
Rights of first refusal over shares which are being allotted
Means company cannot allot equity securities (ordinary shares)
without first offering to existing ordinary shareholders on same or more favourable terms
Offer in proportion to their existing shareholdings
e.g. own 55% shares - offer 55% of NEW shares being allotted
Formalities for offering shares in accordance with pre-emption rights?
Deadline to accept?
State deadline to accept
- must be at least 14 days
Can’t withdraw offer until deadline
Can only offer shares to buyers after this / if shareholders not taken up
Exceptions to pre-emption rights
don’t need to offer to SH if:
- consideration for allotment is wholly or PARTLY non-cash
- preference shares
- bonus shares
(done well this year have bonus in forms of shares) - employee share scheme
How can a company EXCLUDE pre-emption rights via articles?
Can remove via special resolution
Either by excluding generally or dis-apply in relation to particular allotments
(disapply special resolution too - sep queue card)
(check articles before advising to dis-apply or advise they can remove via special resolution)
E.g. may tailor so:
SHs have 21 instead of 14 days to consider
or so SH have rights if non-cash
Explain what means to dis-apply vs exclude pre-emption rights and why would want to use it?
Dis-apply = relates to specific allotment
Exclusion = which relates to all and is in articles
For both:
- Special resolution
so don’t have to wait for all shareholders to respond
How can private companies with one class of shares disapply pre-emption rights?
Special resolution only
How can public or private with MORE than ONE class dis-apply pre-emption rights
IF already given general authority to allot shares
How long will it last?
special resolution.
This will last as long as director’s were given authority to allot for.
(e.g. 5 years)
I suppose not loads of point in it lasting longer than the time authority to allot lasts because that is what will need it for.
PUBLIC or priv more than ONE class
How to dis-apply pre-emption rights if
- General authority to allot
- Specific authority to allot
- General
* special resolution.
* will last as long as Ds authority to allot.
(was on prev card) - specific:
* also special resolution
BUT
* dis-application must be recommended by Ds before proposing special res
- Ds must prepare written statement stating:
- reasons for recommending;
- amount purchaser will pay; and
- directors’ justification for that amount
give shareholders along with notification for GM or with the written resolution
criminal offence to include misleading, false or deceptive material
Why does it make sense to give general authority to allot?
Separately, why does it make sense to exclude pre-emtpion rights?
- Pre-emption rights can be excluded by special resolution alone
(instead of Ds written statement)
- Offer each s/h in proportion to existing shareholders
Convoluted process and unnecessary one at that if all agree to allot
When must a buyer pay for shares?
Under model articles: before receive them
if MA excluded: must be partly paid and remainder when contractually obliged or company wound up
When would shares be issued at a premium?
How would this be recorded in accounts?
When market value significantly higher than nominal value.
Separate share premium account on company’s balance sheet.
Filing requirements after allotment of shares
- any CAP resolutions (even if ordinary) to CH in 15 days
(5 letters in allot) - SH01 in 1 month (01 - 1)
- Prepare share certs - 2 months
- Register of members / PSC if required - 2 months
Obligations on shareholder who is transferring their shares?
(at law and - potentially - under articles)
None / pre-emption rights don’t apply
But check articles - can impact remaining SH’s ability to block resolutions etc
E.g.:
- may say need to offer to existing shareholders first
Can articles prevent a shareholder from selling their shares / a particular purchaser buying shares?
Consider what model articles say and beneficial/legal owner.
No
But under MA, board discretion whether to add to register
If never register, new shareholder will only be beneficial owner
(transferor = legal)
Between transfer and registration:
only legal owner can attend GM and receive dividends
HOWEVER :
- at GM vote in accordance with transferee (beneficial’s) interests
- pay dividends
What must transferor and transferee do on share transfer?
(documents and any payments)
Transferor:
- complete and sign stock transfer form and give to transferee
- give transferee share certificate
Transferee:
- sale price over £1k and not a gift, pay stamp duty
- send share cert and stock transfer form to company
What must company do on share transfer, including documents/filing/deadlines?
- send new shareholder new share certificate in their name within 2 months
- enter their name on register of members within 2 months
- notify registrar of change in ownership when files annual confirmation statement (Cs01)
What is transmission of shares and its effect?
- shareholder dies, automatically pass to PRs
- shareholder bankrupt, automatically vest in trustee in bankruptcy
Effect:
- don’t become shareholders but entitled to dividends
- can choose to be registered as shareholders (subject to company agreeing) and sell
- or sell in capacity as PR/trustee
Explain what a company’s share capital is?
Money provided by shareholders in return for shares
Explain what maintenance of share capital is?
Share capital fund (money shareholders have put in in return for shares) cannot be reduced
(cos creditors use this fund for debts)
(there are exceptions)
Effect of maintenance of share capital principle?
(ie rules surrounding share capital)
- can’t return paid-up share capital to shareholders or reduce the amount they owe if not paid all yet
- can’t pay dividends out of capital
- company shouldn’t purchase own shares
(there are defo exceptions)
Exceptions to rules surrounding maintenance of share capital?
- share buyback if:
a) correct procedure followed
b) after court order if unfairly prejudiced minority shareholder - can return capital to shareholders AFTER payment of its debts in a winding up
Why would company buy back own shares?
- shareholder can’t find a purchaser
- not enough shareholders would support special resolution to transfer (if articles required)
Resolutions for share buyback out of profits
Ordinary resolution authorising the contract
Effect of a company share buyback?
Who is it bad for?
Shares are cancelled
And since company pays for shares, financially worse off
Means:
- Less profits available for dividends (bcos spending money on shares)
- Less capital for any creditors if can’t pay debts
- Less capital for shareholders (after payment of debts) if wound up
issues for directors if company buyback shares
how to justify?
duty best interests / duty care skill attention
since financially worse off (pay for it and shares cancelled)
usually justify in long-term interests if disgruntled shareholder
but hard to justify if just cos no one wants to buy
company buyback: what must u check?
Must check if:
- permitted by articles
- shares fully paid
- amount of available profits
what are distributable profits?
accumulated realised profits less accumulated realised losses
what must happen after completion of share buyback and in what time period?
including what must be kept?
inc what form number?
(same for out of capital or not)
Cancel shares
Update register of members and if required PSC register
Within 28 days of completion file with Registrar:
- purchase of own shares - SH03
- notice of cancellation
Keep:
- minutes
- written resolutions
- copy of contract
^ at registered office for 10 years
when must company pay for shares - share buyback
at time of purchase
Is shareholder allowed to vote on company buy back of their shares?
No
- written resolution: can’t vote
- GM: can vote but resolution not passed if their votes made the diff so they should not vote
What must company consider in terms of financing buyback of shares?
- does it have enough distributable profits?
- even if is, consider if will be used for anything else? - if not enough cash, can pay via capital
- check articles
- must have exhausted profits
- and there are conditions (sep queue card)
buyback not out of capital - role of board and shareholders
Board:
- approve draft contract and decide how to finance
Shareholders:
- OR
Board:
- resolve to enter contract
- one or 2 Ds authorised to execute
how long before GM keep share buyback contract available
15 days
Buyback out of capital - in what circumstances can comapny do this?
- public companies not allowed
- private only if:
1. articles don’t forbid
2. priv only if exhausted distributable profits
Procedure for share buyback out of capital?
(up to resolution)
(as well as OR to approve contract / other conditions where not out of capital)
- prep accounts no earlier than 3 months before the s of
s - BM to approve contract / finance / approve s of s and report
- contract available to members (15 days or with WR)
- director’s statement of solvency
- no earlier than 1 week before GM
- that will remain solvent for 1 year following buyback -
auditors report
- D’s report not appear unreasonable - copy D’s and auditor’s statements attached to WR or at GM
- special resolution
(in addition to ordinary resolution to approve buyback contract)
- that shareholder can’t vote if WR and invalid if makes diff in GM
Risks with directors statement of solvency
If company buyback, statement that solvent and will be for year following buyback
If then becomes insolvent, seller of shares and directors may be required to contribute to losses
Directors may face criminal sanctions if statement unreasonable
London Gazette requirements for sharebuyback capital
How long?
What must include?
What else must they do aside from L G to notify?
within 7 days SR passed
London Gazette, stating:
- SH approved payment out of capital
- amount used
- date of SR
- where D/A’s statements avail to inspect
- right of creditors to apply for order preventing buyback within 5 weeks of SR passed
ALSO:
- publish equivalent notice in appropriate national newspaper; OR
- notice to each creditor
how long does board have to pay for share buyback out of capital?
5 - 7 weeks of special resolution
so got a 2 week window by time given notice to creditors
bcos only if no creditors object within 5 weeks to notice can board pass resolution
How long does company have to prepare accounts before buyback share capital?
No earlier than 3 months before directors prepare statement of solvency
(to check available profits / confirm fully paid)
i.e. don’t prepare 4 months before statement, you could prepare 2 months before - makes sense. more accurate reflection.
what must be done before board meeting for capital buyback?
- company’s articles to see if limit on power to buy back shares
- no earlier than 3 months before statement solvency, prepare accounts to check :
a) available profits
b) shares fully paid
What must be done at board meeting for buyback out of capital?
- decide method of finance
- approve statement of solvency and auditors report
- approve terms of purchase
make contract or memorandum available to members
(circulate with WR or available at registered office 15 days before GM)
SS and AR signed no earlier than 1 wk before GM/passing of WR
What docs need to be kept and filed and for how long after GM/WR if approved buyback out of capital?
Include filing.
File SoS and AR at CH before or at same time as Gazette
Gazette 7 days
File SR within 15 days of GM/WR
Keep SS and AR at registered officer 5 weeks from SR
(same as other share buyback requirements)
how long creditors and dissenting members right to object last re buyback shares
5 weeks after SR
how do shareholders make money
- inc in value of company
(eg if got for £1 and company worth £100k, then if company becomes worth £150k, will be worth £1.50 - dividends
if have available profits (ie AR profits less AR losses), company CAN pay them to shareholders
- directors decide whether to recommend and shareholders ordinary resolution to approve
Two types of debt finance
- Loans
- usually from bank or owners/directors/shareholders
- eg bank overdraft - Debt securities
- IOUs
- issued by company to investor in return for cash payment
Both have to be repaid
(different to securities)
What must COMPANY check/potentially do before borrowing?
- authorised under constitution
- nothing to prevent in MA for private companies
- pre Oct 2009: check memorandum
May need special resolution to change articles/memorandum and remove restrictions
- Ds must have authority
(no issues under MAs)
What must PARTNERSHIP check/potentially do before borrowing?
no restrictions in their own partnership agreement
(dont appear to be any PA 1890)
unanimous consent to amend PA
Three main types of loan
- overdraft facility
- term loans
- revolving credit facilities
what is an overdraft facility?
disadvantages?
is it secured?
contract between business and bank
temporary loan to cover business expenses when no other money available
bank may demand payment immediately without notice (aka uncommitted facility)
business will pay fee and bank charge interest
usually unsecured
how will interest be charged on bank overdraft loan?
base rate
generally on compound basis i.e. unpaid interest added to capital (ie amount borrowed) and then interest charged on whole amount
this is implied into contracts unless agree otherwise
What is a term loan?
When is interest paid?
What often used for?
borrows fixed amount, usually from a bank, for a specified period (ie term), at the end of which it must all be repaid.
pay interest at regular intervals
—I—-I—-I—-
Typically used to purchase assets eg machinery
Different categories of term loans and revolving credit facilities ?
Secured or unsecured - usually secured
Bilateral or syndicated
bilateral = two parties
syndicated = multiple lenders - usually where high risk so not just one lender that carries risk
When can businesses take out the money from a term loan and what they should consider?
in one go
or in instalments
instalments means reduced interest payments
(seems diff to revolving where can reborrow and borrow throughout the period - more flexible)
Advantages of term loans compared to overdraft?
greater certainty re when pay back
borrower has greater control - bank can only request repayment under terms
What are revolving credit facilities? When is interest payable on it?
Bank agrees to make a maximum amount available throughout an agreed period
Can borrow and repay during the period
Interest at regular intervals (same as term)
—I—-I—-I–
Can reborrow amounts already repaid (that is why REvolving)
Can businesses reborrow amounts already repaid under
A) revolving credit facilities and
B) term loans?
A) yes - as long as doesn’t exceed overall maximum figure
B) no
(disadvantage of term loans)
Reborrow begings with R so does revolving
advantages and what type of businesses are revolving credit facilities good for?
can reduce interest payable by reducing borrowings
those whose income NOT evenly distributed throughout the year
(because can borrow when low and repay within that term)
Flexibility to draw and repeay - which limits interest payable
disadvantages revolving credit facilities and term loans ?
expensive to negotiate
If funds needed for single acquisiton, use term loan
^ since can access funds when it is ready and loan repayable according to agreed repayment schedule
What type of loans is facility agreement used for?
Revolving credit facility
Term loans
Initial clauses in facililty agreements
- amount of loan
- currency 💰
- type of loan (term or revolving)
-
availability period to take loan
(for revolving, this will be entire length of facility)
What must bank do once loan agreement signed for term loan and revolving credit facilities?
Provide with loan money when business requests
When can bank request repayment for the 3 diff types of loans?
Overdraft - whenever and no notice
Revolving credit facilities and term loans - in accordance with terms.
Typically:
1.Bullet payment = in one go 🥊
2. Amortisation = equal instalments over term o…o….o
3. Ballon = unequal instalments and last is largest o…O…O
Revolving repayments will be towards end
Term will be more evenly spread
How will interest rates apply on loans?
- parties agree
- may be fixed or variable
- lenders will want default interest for missed payment but penalty clause so can cause probs
What covenants will usually be in facility agreement and who between?
(i.e. contract for loans)
Bank and business
- Limitation of dividends
(so don’t exceed certain amount) -
Minimum capital requirements
(current assets exceed liabilities) - No disposal of assets w/o consent
- No change type or nature of business w/o consent
- No further security over assets
- Provision of info on business
e.g. accounts
What covenants may be implied into facility agreements?
(loans)
maybe by trade usage
- eg bank’s right to charge interest
court limited power imply
- just if so obvs goes w/o saying
- can’t be inconsistent with express term
What are ‘events of default’ in facility agreements?
Terms which if breach, lender may terminate agreement
e.g. failure to pay sum due
What are debentures?
Who can enter?
(NOT a separate form of debt finance - its a type of debt finance)
Usually loan agreement that is registered at CH
Which gives lender security over borrowers ASSETS in return for loan
Companies and LLPs only
(so it’s like a registered secured loan)
Secured vs unsecured debts?
Lender with security can claim secured assets of company
If business insolvent, better position that unsecured creditors who generally don’t have rights of priority over business’s assets
Unsecured debts pro rata reduced if insufficient funds to pay all business debts
What is riskier for investor - equity or debt finance?
Debt finance less risky for investor
- loans are a liability so paid before dividends
- often secured over property
- may be personal director guarantees
^ means more likely repay if insolvent
Equity finance riskier for investor
- will lose capital value of shares if insolvent
- no guaranteed right to dividends
Difference between repayment of capital for equity vs debt finance
equity
- don’t repay shareholder’s capital (ie initial investment into company) unless wound up - although may sell shares to make money
debt
- must repay, sometimes on demand
(nb i checked and debt loan is a form of capital)
Difference between restrictions of sale for shareholders vs lenders
Shareholders
- transfers restricted by articles which usually restrict freedom to sell
- under MA, directors can refuse to register
Lender
- can sell its debenture to a TP if wishes (if want repayment of capital earlier than repayment date agreed)
- company cannot restrict right to sell, regardless of articles
debt vs equity finance - how do lenders vs shareholders get income / capital?
Lenders:
- capital value generally remains same (ie value of loan)
- get money from interest payments (income)
Shareholders:
- dividend (income)
- often invest in hope shares increase in value - i.e. capital appreciation
^ rather than relying on income by way of dividend income
how must company pay interest on loans? what if it doesn’t?
according to terms of agreement
even if no profits available, must use capital
if doesn’t, lender may be able to appoint receiver or administrator to enforce terms of the debenture
What is more flexible - debt or equity finance - and why?
Debt
Equity governed tightly by CA 2006
Whereas debt = contract law
Tax treatment of income payments made to shareholders vs lenders?
Which is more tax efficient?
Dividends NOT deductible expense
pay after corporation tax
INTEREST on debentures trading expense since incurred for purposes of trade
(debt better for tax because cost to business is interest, which is tax deductible)
(unlike shares where cost for business is the returns company paid to shareholders - which is not tax deductible)
tbf seems fair because otherwise would just pay yousrelf loads of dividends and no tax would ever get paid lol
If company already has high levels of debt (high ‘gearing’) what may be the only financing option available?
(nb it is specific form of a type of finance)
Equity
By fresh issue of shares
Why would a lender require security in return for loan?
(i.e. security over assets in return for loan)
Because if fail to repay loan as agreed, lender can seize assets, sell them and pay self out of proceeds.
So lowers risk of not being repaid.
Advantages and disadvantages for business wishing to grant security in return for loan?
:) Lender usually allows to borrow at lower rate
:( must accept restrictions on use of assets given as security
Definition of security under
CA
LPA
Insolvency Act
CA 2006 = charge used as umbrella term for most types of security. specifically states that this inc mortgages.
LPA 1925 = mortgage umbrella term for security, defined as charge or lien over PROPERTY
Insolvency Act = any mortgage, charge, lien or other security
(check which legislation you are using at outset since varies)
Registration requirements for charges for sole traders, partnerships
can only be granted fixed charges
and must be registered at Land Registry if over land
When will COMPANY / Directors have/not have authority to grant security loans?
If they do not, what will be required?
CA 2006 / MA =
- no restrictions for private companies
- directors have authority to enter security contract on company’s behalf
(unless amended articles)
Pre 1 Oct 2009 - check that company’s memorandum
If there are restrictions:
- special resolution to amend articles.
What should a LENDER check before offering a loan in return for security with a company?
check no restrictions on company and Ds authority by:
- articles, companies CH records and requesting relevant board resolutions
- sufficient value in property for loan
- charges registered at CH and Land Registry / Intellectual Property Office if apt
- winding-up search by telephone at Companies Court to check no insolvency
3 main types of security for loans and which is highest form and their key features?
(for llp/company)
- mortgages
(highest form)
- legal ownership transferred to lender
- right to immediate possession and sale - fixed charges
- separate over each asset
- keep in good condition and permission to dispose
- right of sale and to proceeds before others
- can have multiple over one asset
- not legal - floating charges
- equitable over whole class of assets (ie stock)
- assets constantly changing
- don’t need permission to deal with unless crystallizes
When does floating charge crystallise and what does that mean?
Automatically crystallises - i.e. turns into a fixed charge over particular assets
Chargor (company) then can’t deal with w/o consent
- if:
- receivership
(charging doc may say when receiver can be appointed, no need to be insolvent) - liquidation
- ceases to trade; or
- any other event specified in charge document
(eg failure to pay)
Disadvantages of floating charges (compared to fixed) for lender)?
- Fixed = priority over sale proceeds
(floating gets any remainder) - company could sell stock and not replace, so wouldn’t have a charge over anything
- preferential creditors take priority
- liquidator/administrator can apply to remove floating charge
what is a lien? 🔑
does it give u right to sell?
form of security
gives creditor right to physical possession of debtor’s goods or assets until they have paid debts
no right to sell
eg right to retain van until repairs paid for
(keep the keys)
what is a personal guarantee?
directors give for loan so if lender can’t recover loan in full from company/LLP may take from their personal assets
what is a pledge (type of security)?
asset physically delivered by debtor to creditor to act as security
right of sale if sufficient notice given
what is retention of title?
(form of security)
on sale of goods, buyer doesn’t get full title to goods until pay full price to seller.
if buyer defaults, goods repossessed by seller.
What are the key terms in a charging document?
(ie contract for secured loan)
- Security
- form (fixed/floating/lien etc)
- over what assets - Representations and warranties
- re the assets
eg warrants that free from other charges - Covenants
- ensure value of assets maintained - Enforcement
- circumstances where security enforceable
-lender’s powers e.g. sale
How can a company authorise debentures and potential issues which may arise?
(i.e. secured, registered loans)
Debentures = loan agreement registered at CH, which gives security over assets (companies/LLPs only)
- Board resolution usually enough to authroise both the borrowing and grant of security
- May be issued with directors counting in quorum - eg giving personal guarantee - check articles and get shareholder decision either suspending (OR) or amend articles (SR)
Do you have to register a charge at CH? Why would you?
Voluntary
But if don’t, may become void against other creditors/liquidators/administerators
Lose priority and treated same as unsecured creditors
But company still liable to repay
Once company has formally entered agreement for a charge,
- who should register it?
- by when?
- how? (including formalities)
Company or any person ‘interested’, including company and CHARGEHOLDER
With CH
21 days
Statement of particulars (form MR01), fee and copy of the agreement
(mr charge)
After charge has been registered, what must Registrar provide and to who?
Certificate of registration, to person who delivered the application
What documents regarding a registered charge will be available for public inspection?
Form MR01 and copy of charging document (eg contract)
If charge has been registered, what must be kept available for inspection, where and implications of not doing?
Form MR01 and copy of charging document
Registered office
Criminal offence, but charge remains valid
Implications of late or inaccurate delivery of documents relating to charge at CH? Any saving grace?
(re-cap: 21 days to register)
Charge is void against TPs
Treated as if unsecured
Court can (rare):
A) extend 21 days if
- accidental; or
- would not prejudice shareholders/other creditors
BUT any other charges registered in mean time would have priority
B) allow rectification or replacement document if incorrect details/doc
What should borrower do when repay registered charge?
Is this compulsory?
sign and complete MR04
registrar will put statement of satisfaction on file
no but good practice
If lender releases registered charge or allows to sell, who must do what?
person with interest in registration of charge (eg director)
sign completed MR04
Register statement at CH that released/no longer belongs
May need to remove from LR too
Order of priority of charges?
If registered:
- Fixed charge or mortgage priority floating of same asset, even if floating was created first
- Multiple fixed or mortgage over same asset, priority in order of date of CREATION (not registration - but assuming were registered in 21 days)
- Multiple floating charges over same asset, date of creation (not registration - but only if both are properly registered)
- If floating charge has negative pledge, same priority levels as fixed charge / if fixed has actual knowledge, will rank behind
- If fixed charge not registered on time, ranked below floating charge holders (even if floating charge created later)
BUT creditors can enter agreement between themselves to alter priority (ie subordination)
(consolidate task 3 unit 5 helps if stuck)
What is subordination and what formalities?
(relates to loans)
Creditors can enter agreement between selves to alter priority
Agreement = deed of priority
e.g. holder of fixed charge allowed bank priority for floating charge because bank not grant without and borrower needs to continue trade
What is a negative pledge clause?
(relates to floating charges)
Clause
Prohibits company from creating later charges with priority (eg fixed/mortgage)
to floating charge without permission
Future lenders with actual knowledge of the clause will not have priority.
How is negative pledge clause disclosed / when will subsequent lenders have notice and risks for them?
(re-cap: notice is required for them to not have priority)
MR01 and clause included in copy of charging document (CH)
Can’t argue had constructive knowledge because was on MR01
Need to have searched CH docs and seen charging doc - then they will have actual knowledge and no priority
Subsequent charge holder may also be liable for** tort of inducing breach **of contract
So should contain covenant that there are no earlier charges subject to negative pledge clause - then otherwise company borrower in breach and can terminate
how can company execute a deed?
- affixing its seal, (if MA I think) signed by at least one authorised person in presence of a witness who attests; or
- signatures of two authorised people (direct/secretary); or
- director in presence of a witness who attests
*if *
contrasts with contracts - no need for witness if seal or 2 signatures if authorised - can be entered into using company seal or on behalf of company by person acting under its express or implied authority - director or could be another employee who enters into contracts as part of role
punishment for not following accounting standards?
disciplinary action
not legally binding !
What is income for a business?
(sounds silly but imp!)
The profits that it earns from trading or offering its services
eg fees for legal services
What are expenses for a business?
Items business paid for and which will benefit from for a short time
e.g. gas, stock bought for resale
What are assets for a business?
What business owns or has right to own
Usually longer-term benefit that expenses
eg business premises if own them, machinery, money owed to business
What are liabilities for a business?
What business owes
e.g. amount unpaid on loans
Which account indicates how well a business is performing financially and what is it made up of?
Final account, which is made up of:
A) the profit and loss account
B) the balance sheet
What does a profit and loss account show and how?
Day-to-day profitability by:
Income - Expenses = Profit
Does not consider assets or liabilities
income = e.g. legal fees. expenses = short-term eg gas.
(would not say CR/DR - just one section for income and one for expenses. see one note for pic)
What does balance sheet show and how?
What business is WORTH, by:
Assets - Liability = Net worth
SPLIT INTO TWO SECTIONS:
- assets and liabilities covered within them:
- Employment of capital - i.e. where £ is
assets - liabilities owed to THIRD PARTIES
e.g. in bank account/premises
Structured as:
FIXED ASSETS
CURRENT ASSETS
LESS CURRENT LIABILITIES
NET CURRENT ASSETS
LESS LONG-TERM LIABILITIES
NET ASSETS - Capital employed i.e. where £ came from
OPENING BALANCE (members initial contribution)
NET PROFIT (cos that is free to spend)
DRAWINGS - in (brackets) - money owner taken out
When are final accounts prepared?
Annually - end of accounting period
What is trial balance?
Contains ALL (!) DR and CR entries for ALL ledgers
(income, expenses, assets, liabilities)
(info from here used for profit/loss and balance sheet)
So like an overall total
Prepare before final accounts
Imp - should be EQUAL
(bcos it is double entry bookkeeping - for every DR entry there should be a CR entry)
E.g.
DR. CR Capital £15,000 Cash £13,450 Wages £750 Rent £800 Profit costs. £600 Debtors (Mrs Jones) £600
** £15,600. £15,600**
^ so it ends the same in DR and CR because (i thinK) it has spent X amount and that is where it has come from.
What is a trading account?
Explain its relation to profit loss account,
For businesses which buy and sell GOODS
(not professional services)
Shows gross profit by:
income from selling goods - cost of buying the goods = gross profit
Then transfer this gross profit to profit loss account
(means don’t need to transfer all the individual sales of goods)
How are assets and liabilities sub-divided on balance sheet?
Explain the the sub-categories.
Assets
- fixed and current
(fixed = used in business to help run eg machinery)
(current = short-term eg debts/cash)
Liabilities:
- current and long-term
Current = repayable 12 months or less (e.g. invoice)
Long-term = over 12 months (e.g. bank loan)
Fixed assets first then current.
Current liabilities first then long-term liabilities.
Difference between net current assets and net assets
Net current assets = current assets minus current liability
shows business’s liquidity
(ie how easy should be to convert its assets to cash)
Net assets = fixed AND current assets minus short AND long-term liabilities
(will be same amount owed to owner as capital)
Why do adjustments need to be made to profit/loss and balance sheet before final accounts?
(reminder: info for balance sheet and profit and loss account comes from trial balance)
must be done on ACCRUAL basis
meaning inc all expenses relating to that accounting period, even if not received bill yet
what adjustments are commonly made before final accounts finalised?
long im afraid
(adjustments are made to p/l and balance sheet)
DONT GO BACK THROUGH TEXTBOOK NOW I AM CERTAIN IT IS ALL RIGHT
- Add unpaid bills (company needs to pay) 🧾
- expense (p/l)
- current liability (balance) - Prepayments (i.e. paid in advance - eg use in next f/y) 💶
- reduce expenses (p/l)
- current asset (balance) - WIP (i.e. done work but not billed)
- income (p/l)
- current asset (balance) - Closing stock
- i.e. unsold stock
- current asset (balance) - Bad and doubtful debts
(doubt will pay)
- expense: “provision for doubtful debts” (p/l)
- write off (balance sheet) - Depreciated in value
- % deprecation as expense (p/l) - Sold fixed asset for cash
- reduce fixed assets and inc cash figure (balance)
- if sold for more than recorded value, profit (p/l)
- if sold for less, reduce net profit (p/l)
diff types of accounts prepared for businesses?
- trial balance
- profit / loss and balance sheet
- final accounts
(done in that order)
considerations when analysing a company’s accounts to help understand its context?
- date of balance sheet
(e.g. seasonal uplift in sales) - if valued recently or not
depreciated?
closing stock - could it be damaged so acc worth less? - bank overdraft = current liability
(makes it look less profitable than is) - any exceptional items?
eg major investment this f/y
does profitability mean business can pay its debts? why?
no
does not show that may not have received payment
also balance sheet may reveal high amount of debt and no cash in bank
or maybe used profit to buy expensive machinery
What is liquidity and what is low / high liquidity?
How easily and quickly asset can be converted into cash
(e.g. expensive property no use to business if needs cash next week)
Current assets are high liquidity so important that have enough of them.
Cash is most liquid current asset
Debts (owed to you) liquid.
Stock not as liquid because may be difficult to sell.
What type of businesses uses an appropriation account and what does this show?
Partnerships and LLPs
Shows how net profit divided between partners
(in acc with PA 1890 or agreement)
Separate to current account.
Net profit. £5000
Appropriations. MBM. SB
Interest on Cap. £70. £30
Salary. £5k. -
Profits £12,00.0 £12,000
Accounts for an LLP and Partnership
- Profit and loss account
- contains appropriation account - Current account
- add the net profits which entitled to
- then deduct drawings from
- usually separate current account for each partner, so keep capital contributions sep, then know how much interest each entitled to. - Balance sheet
- separate capital and current acc balances for each partner
How do partners in a partnership or LLP share profits?
- in accordance partnership agreement
- if PA - equal shares
- sometimes receive:
A) salary to reflect work carry out
B) interest on capital contributions
^ not separate from profit - just ways of receiving certain amount of profits before remainder divided
Do partnerships/LLPs tend to use separate current and capital accounts? What to show?
Yes for each partner
Showing
- contributed capital
- profit owed
- drawings (from account)
To easily identify interest owed on capital
What does (and does not) the balance sheet in LLP/Partnership show?
Shows balances of each partner’s capital and current account seperately in “capital employed” section
Doesn’t include full details of salaries/interest
What happens if a partner leaves or joins part-way through an accounting period in terms of accounting for net profits?
(inc what type of accounts prepared)
2 appropriation accounts prepared:
- shows allocation of profit earned before membership change
(eg. split equally between 3 partners from April - Aug) - shows how allocated profit after change
(e.g. split equally between 4 partners from Sep - Nov)
Final accounts - do they contain different info for LLPs/partnerships/companies?
No - all show the same information in their final accounts
What account is capital recorded for companies?
(not asking which sheet!)
Share capital account
- records all shareholders contributions rather than one for each
( contrast to partnerships/LLPs where capital kept in capital account for each contributor)
if premium, the premium shown separately in share premium account
Two values shares issued at?
Par value - pay £1 for ordinary £1 share (nominal value)
Or pay premium to reflect that company is profitable and worth more than £1 nominal value
How is capital paid by shareholders reflected in balance sheet for companies?
(how are ordinary and preference shares shown? any headings)
Separate section showing contributions usually headed ‘capital and reserves’
Ordinary and preference shares shown seperately
Any premium paid shown separatley under “share premium account”
e.g.
**EXTRACT BALANCE SHEET FOR Y LTD **
Net assets
Capital and reserves
- preference shares
- ordinary shares
- share premium account
If a premium been paid on shares (ie more than nominal), how will this be shown on accounts?
(any diff account used?)
Premium shown separately in share premium account
(NB the amount in share premium account shown on balance sheet)
Will it be reflected on accounts if shares are bought back by company?
Issued share capital reduced (bcos as if those shares are cancelled)
Will accounts be impacted if shareholders sell shares to a third party?
No - will not be reflected on accounts
What is different in entries to profit/loss account for companies compared to sole traders?
Directors salary = company expense
Partnership/ST = not an expense
^ just a way of distributing the profits cos SLP.
What are companies net profits used for?
- to pay tax;
- pay dividends; and/or
- retained within company
(unlike partnership/sole trader - where no dividends but distribute partners/sole trader)
Is tax shown in accounts of sole traders/partnerships?
No - because don’t pay corporation tax
When do companies need to pay corporation tax and impact on accounts?
- most companies: 9 months AFTER end of accounting period
(9 letters in companies)
- means not yet paid tax when doing accounts
- so they have to do profit/loss so shows profit
BEFORE and AFTER tax
P/L account of X Company Ltd
Net Profit before tax £45k
Tax £5
Post Tax Profit: £40k
How will tax due to HMRC appear on balance sheet for companies?
Current liability
(under ‘provision for tax’)
Once paid
- provision for tax disappears; and
- cash decreases in current assets
How will dividends be recorded on accounts?
dividends themselves will not be included as an ITEM on the profit and loss account
but must be paid out of profits
so once paid, cash figure will be reduced
(really confused on this)
(i actually get this - so deduct profits/cash figure, but don’t reduce as a specific loss. it just disppears ! with no real explanation ! just gone !)
Companies retained profit (after tax):
- what is it known as?
- what used for
aka profit and loss reserve
- not part of capital
- payable to shareholders if deciders decide to recommend dividends
Explain preference shares
i think:
gives some form of enhanced right, could be:
- guaranteed right to dividends, if they are available
can be cumulative or non cumulative
- cumulative means if miss a year, get them the next year - even if means ordinary shareholders get nothing
- non-cumulative - miss a year cos not distributable then tough
when is ordinary resolution instead of special not required to change articles?
grant authority to allot
(nb special eg for disapplying pre-emption rights)
if allotting preference AND ordinary shares (eg to one shareholder at same time), do you treat them differently?
Yes
- e.g. if offering ordinary shares and preference, would need to offer to shareholders (pre-emption) in relation to the ordinary
____ resolution where concerned with preference shares and why?
Model articles don’t reference preference shares so would need to alter articles for preference shares via special resolution
Main distinguishing feature between company and unincorporated businesses balance sheet?
(company split into reserves and cap split into cap and current acc for each p)
CAPITAL AND RESERVES = companies
split into:
- share capital (of shareholders)
- reserves (sep card)
CAPITAL EMPLOYED = partnership/sole trader
split into
**- capital account
- current account **
^ for each partner
What does ‘reserves’ section of COMPANY balance sheet show?
Amount company ‘owes’ to its shareholders
i.e. if company wound up, after payment of debts, the amounts which would be left for shareholders would receive
What are the main different types of reserves for a company (just their names and main difference)?
- REVENUE RESERVES
- permitted to distribute to shareholders
(inc profit and loss reserve) - CAPITAL RESERVES
- cannot distribute to shareholders via dividends
What are capital reserves and example?
Not available to distribute to shareholders - make up long-term capital of company
E.g. share premium account - even if charged at premium, the extra amount is capital, not profit.
^ money paid for shares i.e. capital
Explain revenue reserves and the main one?
Reserves which can be paid to shareholders
(eg via dividends - even if don’t)
Profit and loss reserve
- any remaining profits from the year, after pay tax and any dividends
Often label in accounts to show why retained
e.g.
“debenture redemption reserve” - intend to use to pay off debenture in future
What are consolidated accounts and who must prepare them?
(parents like to consolidate)
Parent companies prepare
Shows financial positions of ALL companies in group - and therefore company as whole
Do subsidiaries of parent companies have to produce own accounts?
Yes - in addition to parent company preparing consolidated accounts
Buzz words for accounting records which companies must maintain?
Who in company must approve?
Adequate accounting records
Directors approve if TRUE and FAIR view
What are companies accounts REGULATED by?
Statute
UK and international accounting standards
(UK GAAP)
(IASB)
To ensure prepared in uniform way
_____ accounts of PUBLIC companies must be put before _____ at _____
Final
Members
General meeting
Even if a company is exempt from auditing requirements, when could it be required to audit accounts?
Shareholder with 10% or more nominal issued share capital requires it
Companies Act requires companies to prepare either of which two types of accounts ?
- Companies Act Individual Accounts
or
- International Accounting Standards Individual Accounts
Companies Act ‘Individual Accounts’ (ie if not international) must include?
Profit and loss account
Balance sheet
Profit loss account for Companies Act Individual Accounts:
How should it be set out / what must it include?
- separate money made from trading from other items
- group expenses together
(e.g. ‘Administration Expenses’) - show corporation tax liability at end
Balance sheet for Companies Act Individual Accounts:
How should it be set out / what must it include?
(so this is how will see it on Comp House usually)
- ‘assets’
(rather than employment of capital as for sole/partn) - liabilities:
a) amounts falling due in one year; and
b) more than one year
(rather than current and long-term liabilities) - leave provision for tax
- total assets less current liabilities
(so before long-term liabilities)
Other term for company balance sheet
statement of financial position
If Companies Act requires international format for companies accounts, what would this look like?
IFRS just sets out minimum info that needs providing
Profit loss account:
( vsimilar to UK) but
turnover labelled ‘revenue’
Balance sheet)
(v similar) but:
different terminology
eg. non-current assets and non-current liabilities instead of fixed assets and l-t liabilities
If shares issued at a premium, does this change the nominal value?
No - keep nominal value the same and add a premium.
Receive both amounts.
Say if had
Will the money shareholders paid for shares (i.e. capital - I think) count as ‘assets’?
Yes defo
(remember balance sheet includes capital employed or in some formats, just assets)
When allotting shares, in a private limited company, what will happen to the net asset value in the balance sheet?
NET ASSET VALUE will go up by the sale price of the share being sold multiplied by the total number of shares being sold.
When a private limited company borrows money from a commercial lender, what will happen to the net asset value in the balance sheet?
The net asset value will go down by the amount of interest and fees being charged on the loan (if any).
(when borrows, receives cash so current assets increase - but takes on corresponding liability)
what are dividends paid out of?
profits only (not assets)
profits are calculated across company’s lifetime, not just that year, and indicated by profit loss reserve (after losses deducted)
what type of assets lenders likely to want to have security over?
usually land and buildings are company’s highest value asset and most stable form of security
If failed to register charge within 21 days what happens
- void against TPs
- if court extended registration period, only have priority from date of registration
- entitled only to money left over
- if court to extend, void so unsecured
issue with allotting preference shares as the company when u want moniez
provide only a fixed return on the investment;
so the investor would not share, beyond the fixed entitlement, in the income profits and net asset growth of the company.
difficult
think this means u still only get the same amount as would if allot nominal??????????
What is the test for corporate insolvency?
imp
-
stat demand bill of £750 not paid or arranged to within 21 days of service;
(nb would often petition for administration not liquidation) - Court order/decree/judgment unpaid;
- ‘Cash flow test’
unable to pay debts as fall due
could prove by:
- current assets exceed current liabilities
- available financial info
- failure to pay undisputed invoice as evidence - ‘Balance sheet test’
- liabilities exceed assets - Convince court it is just and equitable to wind up
- likely still need to prove unable pay debts.
NB: cash flow and balance sheet tests often overlap and also not exact cos company’s debtors may pay the company soon so court takes into account all evidence
cash flow and balance sheet - financial info required hard to get hold of - public info usually outdated
Possible outcomes for insolvent company which:
1. All creditors can commence?
2. Only secured creditors can commence?
All creditors:
- CVA
(company voluntary agreement) - Administration
- Liquidation
SECURED creditors only - depending on terms of security:
- Appoint LPA receiver
- Appoint administrator out of court; or
- Security created before 15 September 2003, appoint administrative receiver.
What is liquidation? And what’s it also known as?
Explain process in brief/what liquidators do
(aka winding up)
- Stops trading and ceases to exist
- Assets sold
Once proceedings begin:
- Director’s powers cease and liquidators take over running of company
- liquidators review past transactions and may challenge them
- then distribute assets in correct order
- Company will be dissolved at Companies House within a few months
What are the 3 types of liquidation? Briefly explain each.
CL - clair lin
CVL - clar vic lin
- Compulsory liquidation
(usually following insolvency proceedings by a TP) - Creditors voluntary liquidation (CVL)
(commenced by insolvent company, usually due to pressure from creditors) - Members voluntary liquidation
(commenced by solvent company because wishes to cease trading or is dormant and wants to end affairs in orderly manner)
How is compulsory liquidation instigated?
TP - aka petitioner (usually a creditor)
Presents winding up petition at court
Est at least one ground for compulsory liquidation
(usually unable to pay debts)
How do creditors obtain info necessary to bring a winding up petition?
(for compulsory liquidation)
Last filed accounts (but often too old)
Company may admit in correspondence
Usually issue statutory demand and if remains unpaid after 21 days, issue winding up petition
Or may obtain a judgment (may not be for insolvency) - as if don’t pay, demonstrates inability to pay debts
When will petitioner be prevented from bringing winding up petition / what could company argue?
- genuine and substantial dispute re the money owed
- if judgment against company already obtained, difficult to argue unless judgment set aside)
- even if set aside, court can can wind up if still think not able to pay debts
- that able to pay debt within reasonable period of time
- court may adjourn hearing
If court orders company should be wound up, who is appointed?
Official Receiver becomes company’s liquidator
(OR is public sector)
OR can appoint private insolvency practitioner
- depending on case / creditors’ wishes
- company must have enough to pay insolvency practitioner’s fees
Explain creditors voluntary liquidation
(inc why they may do it)
clue: who actually commences it?
Initiated by the company
Shareholders and directors agree
Then creditors take over
Even though voluntary, often pressured by creditors
And also because of fears of misfeasance and fraudulent or wrongful trading if continue trading then goes into liqudiation
If company is doing MVL (members voluntary liquidation), but then goes insolvent, what must it do?
CVL (creditors voluntary liquidation)
bcos can only do MVL if solvent
(would usually just use MVL if retiring/dormant etc)
2 requirements before members voluntary liquidation can take place?
- Solvent
- Directors swear statutory declaration. that company is solcent
All the S’s. Solvent. Stat dec.
What happens to directors in compulsory vs voluntary liquidation?
Both - director’s powers terminated / liquidator takes over running
Compulsory - director’s appointment terminated
What are liquidator’s main powers?
And also what must they do?
(liquid eyeliner gives power to)
- Carry on the company’s business
- Commence and defend litigation on company’s behalf
- Investigate past transactions
- Investigate director’s past behaviour
- Collect and distribute assets
(eg sell to raise money for creditors or distribute to creditors) - Doing all necessary to facilitate winding up of company
And they must prepare final accounts
After that, apply to be released
Sounds quite nice?
After liquidator’s work has been done, what happens?
(inc timeframe)
Liquidator applies to be released
Registrar dissolves company 3 months later !!
(3 months remember AB saying that)
Duty of liquidators/administrators?
To maximise assets available to creditors
How can liquidators/administrators maximise profits available to creditors?
(inc the key potential ones)
Bringing claims on company’s behalf, with any awarded money payable to creditors.
Main claims can bring:
- Avoidance of certain floating charges
- Transactions at an undervalue
- Extortionate credit transactions
(Chuck in Pari) - Preferences
(gloss v stick on GG) - Transactions defrauding creditors
(Gossip Girl episode)
ATE PT
main ones = transactions at an undervalue, preferences and void floating charges
SEE TABLE ENGAGE TASK!!!!
Liquidators/administrators can bring claim re floating charges.
When would a charge be automatically void for this purpose?
Floating charge granted without company receiving FRESH consideration in return
then AUTOMATICALLY void
- 2 years ending with onset (connected)
- 12 months otherwise
(lots of 2s and 2 words floating charge)
Connected - don’t need to show insolvent at time or as a result.
e.g.
no fresh consideration if grant security of charge AFTER receive loan
In detail - when will a floating charge be automatically void for liquidation purposes?
12 months / 2 years - floating charge is 2 words
- UNCONNECTED:
- relevant time = 12 months before onset insolvency
- insolv at time or as a result - CONNECTED:
- relevant time = 2 years ending with the onset of insolvency;
- dm if insolvent at time or as a result
Onset insolvency means:
- compulsory: date winding up petition presented
- voluntary: date company formally enters liquidation
- administration: company files notice intention to appoint administrator
e.g.
director’s husband - doesn’t matter whether insolvent before / when gave
Who is ‘connected person’ to a company for purposes of claims liquidator/administrator can bring?
- director or shadow director
- close relative or business associate of of director or shadow director
- Associate of the company - ie company in same group OR company controlled by same director
(nothing to do with shareholders)
(not usually banks etc)
Process for liquidator/administrator to follow re avoidance of certain floating charges?
- write to charge holder saying believe invalid 👨💻
- if charge holder tries to enforce the charge, seek injunction on basis charge is invalid ✋🤣
Explain what a preference claim is and when it can be brought in summary? (liquidation)
Inc examples..
Gave ‘‘preference’ to someone else at relevant time (before onset)
Put in better position if company became insolvent than would have been otherwise
Eg
- creditor paid before others
- unsecured creditors given security
WHEN can liquidator/administrator bring preference claim?
(inc time frames, what liquidator needs to show etc)
Connected = 2 years
Unconnected = 6m
BOTH (no presumption)
insolvent at time or as result
^ liq/admin must prove
e.g. court proceedings, balance sheet, correspondence
Must DESIRE, not just intend, prefer.
When is the ‘onset of insolvency’?
- compulsory: date winding up petition presented
- voluntary: date formally enters liquidation
- administration: company files notice intention to appoint administrator - or actually enters, if earlier
when will there be the required ‘desire’ to prefer for liquidator to claim preference is void?
will it ever be inferred?
must be desire not intent
intent offering only to get a loan which need to survive
is it necessary? was there pressure on them?
eg desire if personal guarantee
INFERRED if connected but can rebut.
Will there be presumption of insolvency for PREFERENCE claims?
NO
must show via financial info like balance sheet and correspendence
Unlike floating charges and undervalue.
i would PREFER if PREFERENCES were the same !
but there is a presumed desire to prefer
what happens if successful preference claim by administrator/liquidator?
usually RESTORE company’s position
court may order:
- release security given BY company
- return property transferred; or
- pay sale proceeds of property forming part of the transaction to the company
(eg if they sold the property which the company gave them, the company gets those sale proceeds)
When will there be transaction at an undervalue?
(inc timeframe)
U2 made apple gift or at least signif lower than value of hte album. I can only presume were insolvent so nothing not lose. Although they may rebut that.
- made gift; or 🎁
- consideration SIGNIFICANTLY lower than value ⬇️
2 years before onset of insolvency.
Must have been insolvent at time or become insolvent as a result.
Insolvency presumed connected but rebuttable.
Defence to transactions at an undervalue on insolvency?
- Entered in good faith
- With view to carrying on the company; and
- Reasonable grounds believing it would benefit the company
(eg could not find buyer who would purchase at full price) u2 i wouldnt buy at full price
Explain when liquidator/administrator can bring claim for extortionate credit transactions?
made in 3 years ending on day went into administration or liquidation
must be grossly ridiculous payments or grossly contradicts ordinary principles on fair dealing
V DIFFICULT TO PROVE cos gross bit
What are transactions defrauding creditors?
Transactions at an undervalue WHICH are made to either:
- put assets beyond reach of someone who would make claim against it
- prejudice interests of such person in relation to claim they might make
NB applies the same for bankruptcy and corporate insolvency
Who can bring claim for transactions defrauding creditors?
Creditors or liquidators/administrators
Can you challenge a claim for transactions defrauding creditors?
Only at discretion of court
What may court order for transactions defrauding creditors?
- return property which transaction was about
- discharge security given by company as part of transaction
Why would you bring a claim for transactions defrauding creditors instead of transactions at an undervalue?
Time limit expired
- bcos no time limit for defrauding creditors
But hard to prove the longer time has passed
Once fixed charge holders asset is sold on liquidation, in what order do proceeds of sale go?
What happens if there is a shortfall?
- Fixed charge holder
- surplus of what fixed charge holder entitled to, paid to liquidator
if shortfall,
fixed charge holder joins pool of unsecured creditors for remaining debt
What is ‘proving the debt’?
Liquidator sends forms to all potential creditors and asks them to detail the debts owed
Assess the claims and may approve/reject claims
Small claims for under £1,000 are pretty much admitted automatically
In what order are assets distributed on liquidation OR administration?
(ie once sold all assets and collected as much as can)
(imp!*)
- pay fixed charge holders
(will do this whilst selling assets) - pay winding up expenses
- inc liquidator’s own fees - preferential debts
- rank and abate equally - Floating charge holders
- in order of priority - Unsecured creditors
- rank and abate equally
(See seperate queue card for rank and abate equally)
Most common type of preferential debt?
Requirements and conditions surrounding this.
Employee’s wages
Up to 4 months before winding up order
Maximum of £800 per employee
(sad)
(double 4 is 8)
Employee’s accrued holiday is also preferential debt.
Who ranks behind employees as a preferential debtor?
What can they claim?
HMRC for payment of taxes which that company COLLECTS on
NOT all the taxes that company owes
E.g. VAT and PAYE - is preferential
But not for corporation tax
Explain what ring fencing is/who benefits?
Statutory procedure during liquidation
Requires portion of money available for FLOATING charge holders (secured)
to be set aside for UNSECURED creditors
floating ring 🛟 omg that literally is a flaoting ring
Ring fencing - how much must be set aside?
-
50% of first £10,000 received from property subject to floating charges; and
(so 5k) (half is a lot) - 20% of all other remaining money
(25k run all together if add 50/20.) (10k max run for me lol) (is that remotely helfouL)
Up to limit of £800k
(or 600k if charge created before 6 April 2020)
What are the main alternatives to liquidation?
- Administration
- Company voluntary agreements
- Schemes of arrangement
- not strictly insolvency as can enter even if solvent
- expensive and long
- for larger companies usually - Restructuring plans
- Free-standing moratorium
- Informal agreements with creditors
(we mainly do administration and CVA)
are informal agreements with creditors binding?
risk that creditors may still issue petition instead of going ahead w agreement
so not good practice esp if acting for debtor
NB: not apply to IVAs and CVAs etc / other ones where states on queue cards that binding
What is administration?
Administrator appointed to
run company and make necessary changes to improve financial performance
Or get in position where can be sold as going concern
Big big advantage of administration?
Get a statutory moratorium
(Nb not same as moratorium procedure)
baso breathing space from creditors taking action
can’t:
- bring winding-up petition
- enforce a judgment
- continue or commence legal claim
against company w/o administrator’s consent
Purpose of administrators, including primary objective?
Act in interests all creditors
- Primary objective - rescue company as a going concern
(ie financially stable / continue business into future)
- If not poss, achieve better result for creditors than if company were wound up
- if that’s not poss either, must realise (sell) property to pay ONE OR MORE secured or preferential creditors
Two ways of commencing administration?
- Court route
- court order following filing application and a hearing at court - Out-of-court route
- company, its directors, qualifying charge holder or or even unsecured creditors filing certain docs at court
The ‘court route’ to administration - when will court grant order?
- must be satisfied that one of the purposes of administrator reasonably likely to be achieved
(ie going concern, put creditors in better position or sell property)
(similar to insolvency - CL - must prove ground insolvency)
If granted right to appoint administrator via court route, what must company do next?
(and by when)
Inform anyone who would be entitled to appoint administrator
e.g. certain QFloatingCH
As soon as reasonably practicable
sry u though toculd beat to it !! 🤪
Procedure under out of court route for appointing administrator?
(clue; inc who informed)
Serve notice of intention of administration on:
- Court; and
- Any QFloating CH; and
- Any lender who is entitled to appoint administrative procedure
AND
Director file statutory declaration at court that company is unable to pay debts and NOT in liquidation
Means CANNOT use if winding up petition already been presented
(checked all of this)
When does moratorium does it begin if out of court route used?
Soon as notice of intention for administration filed with all applicable parties
(i.e. court/QFloatingCH/lender who is entitled)
Who is classed as a qualifying floating charge holder?
What does this allow them to do?
Requirements to be QFCH?
Qualifying if charge document:
- empowers holder to appoint administrator without petititioning court;
AND
- charge doc relates to the whole or substantially WHOLE of the company’s property / or does when added to other security of same lender
AND
- floating charge is enforceable by holder
(eg if late payment)
Rights of qualifying floating charge holders in ADMINISTRATION?
What if multiple have that same right?
Can use out-of-court route to appoint administrator
(but not a receiver)
If there is another with the right WHO HAS PRIORITY, must notify to give opportunity to appoint
Who do administrators and administrative receivers owe duties to?
Administrators - all creditors
Receivers (eg LPA receiver) - only to the party who appointed them
Administrative receivers - primary to party who appointed, secondary duties to others
QFCH - what procedure must be followed for out-of-court appointment of administrator?
When does administration begin?
kind of similar to Ds out of court admin
File notice of appointment at court.
Notice must include statutory declaration that:
- is a QFCH;
- Enforceable; and
- Complies Insolvency Act
Begins once that doc filed.
Who can administrators put proposals to and when will they be passed?
CREDITORS
^ can request more info and amendments to proposals
Proposals must be approved by
- majority in value of creditors, present and voting
But those who vote against must not be over 50% in value of UNCONNECTED creditors
eg - read this:
- 51% of shareholders voted in favour
- but of the 49% who voted against, 51% are unconnected
What happens to director when administration order made?
Power ceases
But remains in office
Administrator controls company’s assets but does not own them
admin carries out creditor-approved proposals
Administrator’s statutory powers?
- Appoint and remove directors; 🫵 👋
- Pay creditors, but if they are unsecured only with court’s permissions; 💰
- Calling meeting with creditors or shareholders;
- Dealing with property subject to fixed charge; 🤝
- Dealing with property subject to floating charge; 🤝
- Investigating transactions and applying to set aside or challenge
- Commencing wrongful trading or fraudulent trading proceedings against directors
And anything necessary for management of affairs
How does administration end?
- ends automatically after one year
so as well as exec year. we have admin year !
- can apply to extend
- can apply to reduce
(eg objective achieved or creditor doesn’t think can achieve) - creditor can apply to court
and may then present winding-up petition if wish
What is pre-pack administration?
Advantages and disadvantages?
Administrator sells assets and business straight away
Sale already agreed, and often sell to management of insolvent company
perfectly legal !
:) saves jobs.
:( Unsecured creditors not consulted and often don’t get much.
What is a CVA?
What’s usually agreed?
Company voluntary agreement
binding
creditors + company usually
liq/admin can enter
usually agree to wait before receive what owed
or accept part payment of debt
When are CVAs usually used and advantages?
Company’s business is fundamentally fine but short-term cash flow issues
Aims to prevent liquidation
:) cheap and simple
:) creditors likely paid more under CVA than liquidation/administration
Who must approve what contents of CompanyVA and by how much?
Inc who decides if they are ____
Proposals approved by:
- 75%+ in value creditors; AND
- 50%+ non-connected creditors
chair (usually IP) decides if connected.
secured can only vote on any part of debt owed to them which is unsecured
CVA does not impact rights of secured AND preferential unless agree to it doing
(makes sense since p sure secured can just sell the asset themselves independently)
Is CVA binding? on who/what?
Yes
On all unsecured creditors
But not for future debts
But doesn’t impact secured and preferential creditors unless they agree to it
Might be a good idea for company to use what in relation to a CVA?
Moratorium created by CIGA 2020 - gives space to enter into CVA
Role of insolvency practitioner in CVA process?
- decide if connected
- supervise arrangement
- monitor implementation
Explainwhat a restructuring plan (under CIGA 2020) is?
inc who between
Court-supervised
‘Compromise’ or ‘agreement’ between company and all of its creditors (unsecured and secured) and shareholders
Conditions apply for restructuring plan under CIGA 2020?
How to apply?
insolvency NOT required
likely encounter financial difficulty
Directors:
- prep restructuring plan 📈 and
- apply court for permission to call meeting between shareholders and creditors
(in theory creditors/SHs can do this too)
Procedure for restructuring plan under CIGA 2020?
2 court hearings ✌️
- creditors able to make representations at first one
- second one court decide whether to sanction the proposed plan
In between the hearings:
- creditor and SH meetings held
- split into classes
- each class approved if 75% by value of that class
Unlike schemes of arrangement - requires overall majority.
Key provision in restructuring plan which makes it stand out?
cross-class cram down provision
Court can ‘cram down’ a dissenting class of creditors so can’t block otherwise viable plans via sanctioning a plan
Court only sanction if satisfied dissenters would be no worse off by court sanctioning
What is moratorium procedure under CIGA 2020?
(diff to the other moratorium re no claims against company etc)
Company protected from PRE-moratorium debts
But must pay debts incurred DURING moratorium in full
Company directors remain in control but insolvency practitioner oversees it / can terminate
Requirements of moratorium under CIGA 2020?
- unable to pay debts or likely to become unable to pay debts
- not entered a moratorium in past 12 months
- not a bank
- English companies only
- no outstanding petitions against them
Moratorium under CIGA 2020 - procedure for obtaining?
Company can’t declare on its own - need insolvency practitioner (a monitor) involved
Directors remain in control - the ‘monitor’ oversees
- Directors file docs at court
- Proposed monitor confirm likely result rescue as going concern
M for moratorium. M for monitor.
How long does moratorium under CIGA 2020 last?
20 business days
Commencing business day AFTER obtained
(will be obtained on date docs filed or court order)
Directors can extend:
- further 20 bus days by filing other docs
- up to one year if creditors impacted by it agree
monitor can terminate in certain circumstances
Does moratorium under CIGA 2020 apply to all debts?
No doesn’t apply to employees wages or salaries
Or monitor’s renumeration or expenses
Or goods / services supplied during moratorium
Explain when receiver may be appointed and 2 types.
Secured creditors
If charging doc allows (eg if miss payment)
Receiver can deal with (usually sell)
- LPA receiver
- fixed only
(think of it as property is a fixed asset) - Administrative receiver
- floating only
- generally only charges on or after sept 2003 (administrators after this)
Explain when LPA receivers can be appointed?
Inc what happens when receiver receives incorrect amount of money …..
fixed charge holders only
in charge doc
can sell the secured property to repay
If not fully repaid, unsecured for remainder
If get more, surplus for unsecured creditors
don’t need to be insolvency pract
When can administrative receivers be appointed and who by?
Floating charge holders who have charge over ALL company’s assets
Only for floating charges created before 15 Sept 2003 (after that - follow administration route)
Enforceable in accordance with the loan agreement
eg failure to make payment
What does an appointed administrative receiver do?
proceeds used for?
Runs company and sells the charged assets
Proceeds used to pay own costs and pay relevant floating charge holder
In theory, will then resign.
(but liq often follows)
When will the Gazette get involved during liquidation ?
Petition advertised
1. CL - once submitted
(even if not granted)
2. CVL/MVL = once SR to liquidate passed
Then again
1. CL: Order advertised by OR once appointed
2. CVL - liquidator advertise once shareholder resolution to wind up passed
2. MVL - appointment advertised once liquidator nominated
what resolution for MVL / CVL?
special for both to liquidate
Once petition submitted, even if not approved, company cannot do what?
sell or dispose of any assets
When can alternative liquidator be appointed in compulsory vs voluntary?
NB creditors voluntary is technicaly voluntary on part off Ds but directors usually pressured into entering
Compulsory
- If majority of creditors agree
Voluntary
- Majority creditors agree and resolution passed
(resolution of creditors not shareholders i think)
CVL - after SR passed - what must directors do and by when?
See notes if want full break down of diff procedures
Within 7 days resolution passed:
- make statement as to affairs of company
- send it to creditors
- seek nomination for creditors on appointment of liquidator
Creditors must hold virtual meeting to consent on liquidator
Will sole trader/partnership be personal or corporate insolvent?
personal
When is an individual classed as personally insolvent?
- not enough money to pay a debt which is due now
- debt payable in future but no reasonable prospect they will be able to pay
3 ways a creditor can prove an individual is insolvent?
- stat demand.
5k or more. if not within 21 days either
paid; or
applied court set aside - stat demand re future liability debt 5k or more.
in 21 days, do they:
- show reasonable prospect of being able to pay when due; or
- apply court to set aside - obtain court judgment for debt of 5k or more and attempting to enforce without success
any of these satisfied, PRESUMED insolvent.
IF NOT OWED 5K CAN JOIN TOGETHER WITH OTHER CREDITORS
Options for insolvent person, before any proceedings commence?
- talk to creditors to reach agreement
- if doesn’t work, can apply for **own bankruptcy **
- enter Individual Voluntary Arrangement (IVA) or debt relief order
- Debt Respite Scheme
What is bankruptcy/what happens?
Individuals only
Debtor’s assets pass to trustee in bankruptcy
Who uses to pay as many of their debts as poss
Debtor restricted on spendings
How long does a trustee in bankrupt last?
What happens after discharged?
Usually one year
Then bankrupt free from almost all their debts, even if not paid all debts in full
How do student loans apply in bankruptcy?
must repay even after bankrupt discharged
makes sense
sory l housemat
2 ways that bankruptcy can begin?
- creditor presenting petition at court
- online application by debtor
when can creditor bring bankruptcy petition / what conditions?
at court if owed 5k or more
or if owed less, other creditors may join together
must be owed a liquidated (fixed) sum - not a sum that court would need to assess
must show debtor unable to pay or little prospect (can show by other queue card re stat demand etc)
Creditor petitioning for bankruptcy:
- apply which court?
- pay what?
- arrange for what?
- petition to debtor’s local county court
- pay deposit for court fee and trustee
- arrange for personal service of petition
i.e. agent who hands to debtor and wit statement that done so - if debtor avoids agent, can seek court order for substituted form of service (eg posting it)
process for debtor to apply to bring bankruptcy proceedings against self?
what must adjudicator do - and in what timeframe?
(inc practical)
apply online
pay application fee and deposit for official receiver
adjudicator must make or refuse within 28 days
- unless required further info, then 42 days
Who acts as trustee in bankruptcy?
Official Receiver
CREDITORS can appoint a private one if debtor has enough assets
what actions will OR acting as trustee in bankruptcy take?
take steps to protect debtor’s property
dispose or sell any perishables / property depreciating in value
where required, realise assets and use proceeds to pay creditors
investigate affairs and set aside/challenge transactions
(part of realisation process)
When does debtor’s estate vest in trustee in bankruptcy?
Automatically when bankruptcy order is made
Note: their WHOLE estate will vest
What is IPA / IPO in context of bankruptcy?
spend salary on IPA.
if receive salary beyond necessary to SUSTAIN self and fam
trustee can require to enter income payments agreement (IPA)
where some of salary pays off debts
If disagree on sum to pay, can apply to court to decide via IPO (income payments order)
Exception to the bankrupt being entitled to keep their everyday/essential property/tools of trade?
if ones got are too expensive, trustee in bankruptcy can sell and re-buy cheaper alternative
e.g. sell my macbook and get an acer x
is bankrupt’s home fair game?
what happens to bankrupt’s interest? can they be evicted?
what happens after one year?
yes their interest in home passes to trustee
can’t evict straight away - need court order to sell
will consider all circumstances
eg children / spouse / conduct / creditors
after 1 year, interests of creditors overtake interests of others, unless exceptional circumstances - so trustee likely to get an order for sale
what happens ____ yrs after bankruptcy order in relation to bankrupt’s home?
3 yrs
ownership reverts back to bankrupt, unless trustee has:
- sold property
- already applies order for sale, or possession or charging order
- entered agreement with bankrupt re the home
(eg keep interest in exch for payment)
Primary duty of trustee in bankruptcy
And powers of trustee?
To creditors
Main powers:
1. apply set aside transactions at undervalue
2. apply set aside transactions defrauding creditors
3. apply to set aside preferences
4. disclaim onerous property
5. avoid extortionate credit transactions
all same as insolvency except disclaim onerous property instead of floating charges w/o fresh cnsideration
Explain what happens when trustee in bankruptcy disclaim onerous property?
Any rights of those affected by disclaiming?
Examples of onerous property?
ends all bankrupts rights and liabilities in relation to it
if anyone suffer loss as a result (eg money would have earned on the contract), may be unsecured creditor in bankruptcy - can make formal claim
Criteria for transactions at an undervalue in bankruptcy?
(clue: time, diff rules for diff people, what must show)
Can investigate 5 yrs
(UV = gift or sub less consid)
If 2 years or less, don’t need to show insolvent as a result or at time
If over 2 years ago, then do - unless they are an ASSOCIATE
Associate - even if over 2 yrs ago - rebuttable presumption insolv
i.e. close relative or business associate
Explain preference in bankruptcy?
same as insolv except intended
2 yrs or 6m if associate
creditor, surety or guarantor
better position than otherwise
INTENDED to (not desired)
Presumed intent if connected
Insolvent at time or as a result
(regardless connected)
eg repay loan to bestie before bank
Conditions, inc time limits, for trustee in bankruptcy to challenge a preference?
Can only challenge preferences made
- 6 months before; or
- 2 yrs before if in favour of associate
(ie before bankruptcy petition presented)
And must have been insolvent at time or became insolvent as a result
time limit for extortionate credit transactions in relation to bankruptcy?
same as insolvency!
chuck is individual too x
any credit obtained 3 yrs before bankruptcy order
terms must be extortionate
v rare and no reported case law
what happens in bankruptcy where secured creditors have sold their charged assets and there is
a) some remaining
b) some still owed
?
same as insolvency
remaining:
- give to trustee in bankruptcy
owed:
- join unsecured creditors re the remainder
eg
premises valued at £675,000
bank loan secured for 750k
only secured for £675k and remainder £75k is unsecured
Order for distribution of assets in bankruptcy?
How will they rank within that?
imp
- Costs of bankruptcy
(inc trustee’s fees) - Preferential debts
- Unsecured creditors
- Postponed creditors i.e. debtor’s spouse
Within each category, rank and abate equally if not enough
When will bankruptcy order NOT be discharged after one year
suspended cos uncooperative or dishonest
but usually deal w that behaviour by BRO or BRU
Examples of preferential debts in bankruptcy?
(2 main ones)
- Wages/salaries of employees for work carried out in 4 months before bankruptcy petition
Up to max of £800, PLUS holiday pay owed
- HMRC - secondary preferential
(eg PAYE/VAT but not income tax)
^ same as corp insolvency
What restrictions are a bankrupt person subject to?
(just names of them and try to blurt)
- Business restrictions
- Personal restrictions
- (sometimes) BROs and undertakings
What business restrictions are there on a bankrupt individual?
Can’t:
- take loan of MORE than £500 without disclosing bankruptcy
- be a director
- form, manage or promote a company
- trade under diff name than the one bankruptcy order made against, unless disclose to anyone trade with that bankrupt
- continue in partnership, unless partnership agreement varies the PA
Personal restrictions on a bankrupt individual?
- can’t get credit of MORE THAN £500 without disclosing bankruptcy to lender
- so can’t have credit card or normal current account with overdraft
- can’t practice as solicitor without leave of SRA
When will there be additional bankruptcy restriction imposed on an individual?
Seen to be culpable due to recklessness, dishonesty or negligence
BRO or BRU
How long do BRUs and BROs last?
2 - 15 years
same length of time as director disqualification
What are 2 main types of additional bankruptcy orders which can be made - explain difference/similarities?
Effect?
(2-15/culpable cos reckless etc)
BRO - bankruptcy restriction order: court
BRU - bankruptcy restriction undertaking - agreement w/o need for court - bankrupt agrees to it
Baso the same.
Means can’t:
- credit over £500 w/o disclosing
- be a director, insolvency practitioner or MP
Alternatives to bankruptcy proceedings?
- IVAs
- Negotation with creditors
- Debt relief orders
Should also consider debt respite scheme
What are IVAs?
Who can seek?
(insolvency)
Like a CVA but for individuals
Binding agreement between unsecured creditors
Agree how much each will receive from bankrupt
Bankrupt or their trustee can seek
What third party must be involved in IVAs and what will there role be?
They will only act if ____
Insolvency practitioner - act as ‘nominee’
Formulate proposals
Implement proposals - then become ‘supervisor’
Will only act if sufficient assets for the agreement
What is the IVA procedure?
- debtor apply to court for moratorium
- nominee prepares report for court re whether debtor put forward reasonable proposals
- approved if:
A) 75% or more creditors in value; and
B) at least 50% of those in value aren’t associates
(nominee decides if associates)
Literally same as CVA
Who is entitled to vote and who will be bound by IVA?
All unsecured creditors can vote and bound
Not binding on preferential or secured unless agree
Binds all unsecured regardless of if attended
When could creditors change mind on an agreed IVA?
What would happen?
debtor doesn’t comply
or discover provided false or misleading info
eg entered transaction at undervalue
insolvency practitioner (ie ‘supervisor’) would then petition for bankruptcy
as cannot apply set aside transactions like trustee in bankruptcy can
Advantages of IVA for creditor and debtor?
Debtor:
- avoids bad publicity / stigma / restrictions of bruptcy
Creditor:
- maybe higher likelihood of getting money than bankruptcy
- cheaper and more straightforward
BUT creditor consider if debtor can be trusted to comply
What is the Straightforward Consumer IVA protocol?
Voluntary
Credit card controllers should comply with Protocol in relation to consumer credit card debts
Is an IVA on standard terms, inc fees for insolvency practitioners and levels of returns for creditors
What is the debt respite scheme, inc 2 types and how long lasts?
(respite sounds nce and what is)
breathing space via legal protection from creditors
pauses enforcement action,
contact from creditors, freezes interest on debts
- standard breathing space
- 60 days - mental health crisis breathing space
- receiving MH treatment
- as long as MH issues last PLUS 30 days
How can one obtain debt respite scheme protection and what conditions apply?
- apply to FCA-approved debt adviser
- must be satisfied can’t pay debts when due
- not:
1.undischarged bankrupt
2. in IVA
3. subject to debt relief order
4. not had breathing space order in last year
calculate 1/3 of something how ?
(criminal)
x 0.33333
how to work out rank and abate equally
all creditors in that category share available money between them
don’t get equal amounts
but receive same percentage of outstanding debt owed
(assets) divided by (liabilities) = ____
(however many £ owed) x ____ = amount owed
e.g.
Company insolvent. Has £150k assets and 325k liabilities. 5 unsecured creditors.
£150k divided by £325k = 0.46
^ for each pound owed they get that
£30,000 x 0.46 = £13,800
(lower number divided by higher if there is not enough £ for them)
Main D’s duties on insolvency
- duty to act in best interests of company for benefit of members switches to creditors
- if on border of insolvency, not definitive, depends severity difficulties
links to wrongful trading
- if knew going into liquidation, must take every step to minimise loss to creditors
- exercise reasonable care skill and diligence
will director’s be liable to pay if company goes insolvent?
no cos SLP unless:
- provided personal guarantee
- wrongful trading and ordered personal contribution
(ie if insolvent, trade in way to make things worse)
example wrongful trading
excessive pay directors
continued trade when ought known probs shouldn’t
what is book value?
what do if sell for less than book value in accounts?
figure recorded in accounts
if sold for more, record as profit
if sold for less, record as reduction net profit
are shareholders unsecured creditors?
No
shareholders will be the last group to be repaid. They aren’t classified as secured, preferential or unsecured creditors. Shareholders will only receive proceeds if any amount remains after all other creditors have been paid.
examples unsecured creditors
unsecured loan
HMRC for corporation tax
trade creditors
imp - employees remaining unpaid wages
(after they have received their £800)
if company insolvent who should bring wrongful trading claim?
liquidator
- they can assign the right to a creditor
When is debt relief order available?
Who do u apply to?
individual bankrupts
via approved debt adviser
NOT available if:
- unsecured liabilities over 30k
- gross assets over 2k 🤢🤮
(that’s why i put 2 lol) - car worth 2k or more (unless adapted cos disabled) 🚗🚗
(that’s why i put 2 cards lol) - disposable income over £75 per month 💰
- had DRO in last 6 years ❻
- subject to other formal insolvency procedure 👔
- owns own home 🏡
effect of debt relief order
relief from enforcement action for one year
but same restrictions during the year as any other bankrupt
- may extend 15 yrs if culpable/dishonest
if situ improves, must repay creditors
