BL - Insolvency Corp CVA Flashcards
What are the four insolvency tests?
- The Cash Flow test: An inability to pay debts as they fall due
- The Balance sheet test: The company’s liabilities are greater than its assets
- Failure to comply with a statutory demand for a debt of over £750
- Failure to satisfy enforcement of a judgment debt
Insolvency:
What are informal agreements?
A company can negotiate informally with its creditors. These are contractually binding agreements which are not regulated by IA 1986 or CIGA 2020.
The difficulty is in getting all of the creditors to agree.
What is a Pre-insolvency moratorium?
A period during which creditors are unable to take action to enforce their debts.
What creditor actions are prevented Pre-insolvency moratorium?
- no creditor can enforce its security against the company’s assets;
- stay of legal proceedings against the company and a bar on bringing new proceedings against it;
- no winding up procedures can be commenced in respect of the company (unless commenced by the directors) and no shareholder resolution can be passed to wind up the company (unless approved by the directors); and
- no administration procedure can be commenced in respect of the company (other than by the directors).
What is the process for a Pre-insolvency moratorium for a company?
documents filed at court including
- A statement that the company is, or is likely to become, unable to pay its debts as they fall due.
- A statement from a licensed insolvency practitioner (usually an accountant) stating that it is likely that a moratorium will result in the rescue of the company. The Monitor has a supervisory function during the pre-insolvency moratorium.
How long does a Pre-insolvency moratorium last for?
- 28 days
- can be extended to a further 28 days by the directors.
- can be extended further with agreement of majority of creditors or court order
- up to a year
What is required to extend the Pre-insolvency moratorium?
- consent of a requisite majority of creditors and/or
- court order.
The maximum period is one year subject to a court order to extend further.
Which debts aren’t covered by a Pre-insolvency moratorium?
- The monitor’s remuneration or expenses;
- Goods and services supplied during the moratorium;
- Rent in respect of a period during the moratorium;
- Wages or salary or redundancy payments; and
- Loans under a contract involving financial services. This means that a company remains liable to pay all sums due to a bank which made a loan to it before it obtained the moratorium.
Must debts that fall due during or after the moratorium by reason of an obligation incurred during the moratorium be paid during a Pre-insolvency moratorium?
Yes - moratorium debts must still be paid
CVA
Do the directors remain in post under a CVA?
Yes - although they are supervised by an insolvency practitioner
CVA
Who can initiate a CVA?
- Directors, 🎩
- administrators or liquidator 💦
CVA
What is required for the approval of a CVA?
- 75% in value of unsecured creditors (BUT must include 50% of unconnected creditors by value voting in favour).
- Ordinary Resolution of shareholders (but creditors vote will prevail even if SH vote against)
CVA
Who is bound by a CVA?
Binds all unsecured creditors
CVA
What are the advantages of a CVA?
Not court sanctioned so quicker and less costly
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What is the process for a CVA?
- directors submit the proposals and a statement of the company’s affairs to the nominee.
- The nominee considers the proposals and, within 28 days, must report to court on whether to call a meeting of company and creditors.
- reported to court but not approved by court
- Nominee gives 14 days’ notice of meeting to creditors.
- A meeting of the members must take place within 5 days of the creditors’ decision.
- Voting
- Nominee reports to the court that the CVA has been approved
- Nominee will normally supervise the CVA
