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SQE1_additional > BL - 6 - Termination and Insolvency > Flashcards

BL - 6 - Termination and Insolvency Flashcards

1
Q

When may an individual be insolvent?

A

When
(i) a debt is payable immediately or at some certain time in the future;
AND
(ii) the debtor appears either unable to pay it, or to have no reasonable prospect of paying it

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2
Q

What is the “inability to pay” for individuals?

A

(a) statutory demand has been served for a liquidated and unsecured sum of at least 5k, payable immediately, remains unpaid for three weeks and no application to set it aside
(b) statutory demand has been served for a liquidated and unsecured sum of at least 5k, payable in the future, remains unpaid for three weeks and no application to set it aside
(c) attempt to enforce judgment debt of at least 5k, but remains unsatisfied

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3
Q

What is a statutory demand?

A

It is a written demand for payment

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4
Q

What is a liquidated and unsecured sum?

A

An exact sum. It does not need to be calculated/assessed. It is not secured

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5
Q

What is bankruptcy?

A

It is a judicial process whereby most of the bankrupt’s assets pass to a trustee in bankruptcy and the bankrupt becomes subject to restrictions

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6
Q

What is a trustee in bankruptcy?

A

It is a qualified insolvency practitioner, who takes control of most of the bankrupt’s property

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7
Q

What is the core obligation of a trustee in bankruptcy as regards the bankrupt’s assets?

A

He must maximize the funds that will be available to the creditors

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8
Q

How does the bankruptcy process usually start?

A

With a creditor’s petition

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9
Q

How can the bankruptcy process start?

A

(a) creditor’s petition
(b) debtor’s application

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10
Q

What is a creditor’s petition?

A

It is a petition by a creditor owed a liquidated and unsecured sum of 5k or more if the debtor is unable to pay is debts.

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11
Q

What is a debtor’s application?

A

It is an online application for bankruptcy by the debtor himself

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12
Q

Who decides over a debtor’s application and within what time limit?

A

An adjudicator decides within 28 days

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13
Q

Who acts as trustee in bankruptcy?

A

The official receiver. This is an officer of the court

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14
Q

What must the bankrupt produce to the trustee in bankruptcy?

A

A statement of affairs, setting out his financial position

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15
Q

What happens to the bankrupt’s property upon a bankruptcy order?

A

The title to it is transferred to the the trustee with the exception of tools, vehicles and everyday items (e.g. clothes, furniture)

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16
Q

May tools, vehicles and everyday items be sold in a bankruptcy

A

Yes, if they are of high value. Then, the trustee of bankruptcy may insist that they bey replaced with cheaper items

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17
Q

Can the bankrupt keep his salary?

A

He can only keep what is needed for reasonable needs

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18
Q

What happens to the bankrupt’s home?

A

The interest in his home passes to the trustee in bankruptcy.

Where the bankrupt has sole legal and beneficial interest, a court order is not required to sell it.

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19
Q

What circumstances does the court consider in deciding whether to sell the bankrupt’s home?

A

Interest of creditors, spouses/civil partners and children.

However, after one year year, the creditors’ interests are paramount, unless there are exceptional circumstances

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20
Q

Can ownership of the bankrupt’s home return to the bankrupt?

A

Yes, after three years (unless alternative arrangements have been made)

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21
Q

What is onerous property?

A

It is any property of the bankrupt that is essentially a liability on resources, rather than an asset

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22
Q

What happens when the trustee of bankruptcy disclaims onerous property?

A

Liabilities will cease.

However, who suffers as a result of the disclaimer may claim as an unsecured creditor for what is owed to him

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23
Q

What is the time limit to disclaim onerous property?

A

28 days.

Thereafter, the trustee can no longer disclaim such property

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24
Q

What is a transaction at an undervalue?

A

It is a gift or sale where the consideration received is significantly less than the value of the property

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25
Q

What is the time limit to set aside transactions at an undervalue?

A

It is going back five years from the date of the petition.

If the transaction happened in the first two years, there are no additional pre-conditions.

If the transaction took place more than two years, it must be proved that the bankrupt was either insolvent at the time or became insolvent because of the transaction

26
Q

When will there be a presumption that the bankrupt was insolvent at the time of the transaction?

A

When the transaction was with an associate.

27
Q

Who qualifies as an associate?

A

(i) relatives
(ii) spouses/civil partners and their relatives
(iii) the spouses/civil partners of relatives and their relatives
(iv) business partners and employees/employers
(v) a company controlled by a person alone or with their associates (at least 33% of voting power)

28
Q

What is a preference?

A

It is an arrangement that places a creditor or guarantor in a better position than they would otherwise have been in the event of a bankruptcy (e.g. repaying them as a priority)

29
Q

When is a preference presumed?

A

When it is in favour of an associate.

30
Q

How long can preferences be investigated?

A

(a) for periods going back six months (any preference)
(b) for two years (if in favour of an associate)

31
Q

What is the key distinguishing factor between an undervalue and a preference?

A

The preference involves a creditor

32
Q

What are the requirements for successfully set aside a preference?

A
  • insolvency is proved
  • desire to prefer is proved (will be presumed for associates)
33
Q

What is a transaction defrauding creditors?

A

It is an undervalue transaction where there is an intention to put assets beyond the reach of someone

34
Q

What is the time limit to set aside a transaction defrauding creditors?

A

There is none

35
Q

What is an extortionate credit transaction?

A

It is a credit transaction entered into within three years of the relevant date, that involves grossly exorbitant payments or grossly contravenes ordinary principles of fair dealings

36
Q

How are the bankrupt’s assets distributed?

A

Secured creditors
Costs of bankruptcy
Preferential debts
Unsecured creditors
Postponed creditors (spouse/civil partner of the bankrupt)

37
Q

What are preferential debts?

A
  • wages for work carried out in the four months preceding the bankruptcy order up to max 800
  • accrued holiday pay
38
Q

What are the bankrupt’s restrictions?

A
  • disclose bankruptcy if obtaining credit exceeding 500
  • cannot act as director
    must disclose bankruptcy if trading under a different name
  • cannot be a partner
  • cannot be involved in company management, promotion or formation without leave of court
  • require leave of SRA to act as solicitor
39
Q

When are bankrupts discharged?

A

Usually after one year. Bankruptcy restriction orders/undertakings may continue to apply

40
Q

What is a bankruptcy restriction order/undertaking?

A

There are restrictions for a period between two to 15 years

41
Q

What is the difference between a bankruptcy restriction order and a bankruptcy restriction undertaking?

A

Order: by court
Undertaking: voluntary

42
Q

What alternatives to bankruptcy exist?

A

(a) Individual voluntary arrangement
(b) debt relief order
(c) debt respite scheme

43
Q

What is a debt respite scheme?

A

It gives breathing space for up to 60 days, during which no action may be taken against the debtor

44
Q

What is a debt relief order?

A

It is the write-off of debts by court order. The debtor is usually discharged and free of debt after one year

45
Q

What is the requirement for a debt relief order?

A

The debts must be low:
- unsecured liabilities below 30k
- gross assets don’t exceed 2k
- no car worth 2k or more
- no disposable income of more than 75/month
- no debt relief order in past six years
- no other insolvency proceedings

46
Q

What is an individual voluntary arrangement?

A

It is a binding agreement to settle between the debtor and unsecured creditors

47
Q

What are the requirements for an individual voluntary arrangement?

A

75% of the creditors in value, of which at least 50% are not associates, must agree.

48
Q

What is inability to pay (corporate insolvency)?

A

Four ways:
(a) statutory demand for a liquidated sum of 750 or more unsatisfied after 21 days
(b) unsuccessful attempt to enforce judgement debt
(c) company is unable to pay debts as they fall due
(d) company’s liabilities > assets

49
Q

What are the two winding-up options for a company?

A

(a) administration
(b) company voluntary arrangement

50
Q

What is liquidation?

A

A liquidator (insolvency practitioner) takes control to review past transactions, sell the company assets and distribute the proceeds to the creditors.

The company is dissolved at the end.

51
Q

What types of liquidation exist?

A

(a) compulsory liquidation
(b) creditors’ voluntary liquidation
(c) members’ voluntary liquidation

52
Q

What is compulsory liquidation?

A

It is liquidation commenced by a creditor presenting a “winding-up petition” when a company is insolvent

= corporate equivalent of a bankruptcy petition

53
Q

When a winding-up order is made by the court, who becomes the liquidator?

A

The official receiver (an officer of the court)

54
Q

What is a creditor’s voluntary liquidation?

A

It is an INSOLVENT company’s application for bankruptcy.

Requires special resolution

= corporate equivalent of debtor’s application for bankruptcy

55
Q

What is a members’ voluntary liquidation?

A

It is an application by a SOLVENT company.

Usually used for corporate re-structuring or for closing down a company.

Requires special resolution.

56
Q

When is a company dissolved as a result of liquidation?

A

Three months after the liquidator has submitted the final accounts and applied to be released.

57
Q

What will happen to floating charges upon insolvency?

A

If it is granted
(a) within two years in favour of a connected person; or
(b) 12 months in favour of an unconnected person,
it will be void, without the company receiving fresh consideration

58
Q

If a floating charge is granted to an unconnected person, the floating charge will be void if…

A

it was granted within 12 months
AND
the company was insolvent at the time it granted the floating charge

59
Q

Who is a connected person?

A
  • the director and his associates
  • an associate of the company
60
Q
A

SQE1_additional (14 decks)

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