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Chapter 10 - Insolvency law Flashcards

1
Q

What is the role of administration?

A

Rescue company as a going concern

If that fails, achieve better return for creditors than winding up

If neither, realise a company’s assets to make a distribution to 1+ preferential/secured creditors

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2
Q

How is an administrator appointed?

A

Director’s majority decision

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3
Q

How can the court appoint an administrator?

A

Must show company is unable to pay debts

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4
Q

How much notice needs to be given to a qualifying floating charge holder?

A

5 days

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5
Q

Can creditors apply to the court to appoint an administrator?

A

Yes

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6
Q

What are the duties of an administrator?

A

Must take control of company’s property and use powers to manage company in accordance with any proposals approved by creditors/court

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7
Q

What must an administrator do within 7 days of taking office?

A

File notice of appointment with registrar

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8
Q

How long do company officers and employees have to provide a statement of affairs?

A

11 days after request from administrator

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9
Q

What must an administrator do within 8 weeks of appointment?

A

Submit proposals for aim of achieving administration to registrar, creditors and members

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10
Q

Which party should administrators seek approval from regarding their proposals?

A

Creditors

Required to invite creditors to form a committee and ask for nominations

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11
Q

What powers does an administrator have?

A

Powers previously enjoyed by director

Can do anything necessary

Remove/appoint director

Call meetings of members/creditors

Apply to court for directions

Make payments to secured/unsecured creditors

Present/defend petition for company wind up

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12
Q

What can creditors/members do if they feel an administrator has acted in a way that has/will harmed them?

A

Apply to the court

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13
Q

When does a moratorium apply?

A

No resolution or court order to wind up company

No enforcement of fixed charges

No other legal proceedings

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14
Q

Can an administrator sell property subject to a floating charge?

A

Yes and without obtaining chargee’s consent

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15
Q

Can an administrator sell assets on hire purchase or subject to a fixed charge?

A

Yes with approval of court

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16
Q

What happens to a director’s powers during administration?

A

Powers suspended but remains in office

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17
Q

What happens to employees during administration?

A

Not automatically dismissed but can have contract terminated

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18
Q

What are the advantages of administration for the company?

A

Doesn’t necessarily cease to exist

Temporary relief from creditors

Breathing space to formulate rescue plan

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19
Q

What are the advantages of administration for members?

A

Continue to have shares

Business regenerated, enhancing value and restoring income

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20
Q

What are the advantages of administration for creditors?

A

Should obtain returns

Can apply to court for administration order

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21
Q

What are the 2 types of receiver?

A

Administrative

Fixed Charge

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22
Q

What is an administrative receiver?

A

Appointed by floating chargeholder

Power to:
- borrow
- take legal proceedings
- appoint pro advisers
- pay off creditors
-

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23
Q

Can holders of floating charges made after 15th September 2003 appoint administrative receivers?

A

No

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24
Q

What is a fixed charge receiver?

A

Appointed by holder of a fixed charge over land if borrower deafults

Collects rent/sells property

Owe a duty of care to borrower

25
What are the 2 kinds of Company Voluntary Arrangements (CVA)?
Composition of debts Scheme of arrangement
26
What is a composition of debts?
Company agrees to pay a limited proportion of total debt
27
What is a scheme of arrangement?
Company agrees to pay its debts over a defined period (usually 3-5 years)
28
What is the CVA process?
Ordinary resolution, calling for company to enter a CVA Creditor approval of CVA required If approved, becomes binding on all unsecured creditors Approval must be reported to court
29
How long does any creditor entitled to vote have to challenge the approval of CVA?
Within 28 days of court being notified of results of creditors/members meeting
30
On what ground must a Creditor challenge a CVA?
Unfair prejudice or irregularity
31
What happens once a CVA is approved?
Nominee acts as supervisor and implements CVA
32
What can directors of small companies do to get more breathing space?
Apply for a short moratorium Once prescribed docs have been submitted, moratorium of 28 days comes into effect, can be extended by 2 months
33
What must a company do to illustrate to existence of a moratorium?
Advertise and state on all business docs Notify registrar
34
What are the effects of a moratorium?
No winding up or other insolvency methods No security over company property Floating charge cannot crystallise Cannot hold a meeting without nominee/court consent Can only sell property with nominee/creditors committee approval Nominee must monitor company affairs
35
How can members wind up a company?
Ordinary resolution where articles provide Special resolution
36
When is winding up deemed to have commenced?
When resolution passed Must give notice in Gazette within 14 days
37
Is it a criminal offence to make a false declaration of insolvency?
Yes, punishable by fine or imprisonment
38
Who must a declaration be made by?
By all/majority of directors
39
What is the timescale for a declaration to be made?
Not be made more than 5 weeks before resolution wind up is passed and delivered to Registrar within 15 days of meeting
40
What is creditors' winding up?
Directors unable to make declaration of insolvency but want to wind up voluntarily Not initiated by creditors Liquidator nominated by directors
41
When must the date for the decision of creditors on nomination of liquidator be made?
3 working days following delivery of notice Within 14 days of resolution to wind company up
42
When must creditors be sent a statement of company's affairs?
Within 7 working days of decision to wind up
43
What are the disadvantages of creditor's winding up compared to voluntary winding up?
Expensive Time-consuming Complicated
44
When may a petition be brought up for compulsory winding up?
Company unable to pay debts Just and equitable, only if company is solvent
45
How can the BEIS trigger compulsory winding up?
Petition against a public company if trading certificate not acquired within 1 year of incorporation Following investigation
46
When is liquidation deemed to have commenced?
When petition was presented Once commenced, any disposition of property/transfer of shares deems liquidation void Any seizure of company assets after liquidation is void
47
What happens to employees after liquidation?
Automatically dismissed Liquidator assumes powers of directors
48
What happens to floating charges after liquidation?
Crystallises
49
What is the role of a liquidator?
Settle the list of contributories Collect and realise company assets Discharge company debts Redistribute any surplus to contributories
50
What happens once liquidation is complete?
Voluntary wind up - liquidator must prep account showing how wind up has been dealt with Compulsory wind up - liquidator goes back to court which makes an order for dissolving
51
What happens to charges not registered within 21 days?
Void against liquidators and creditors
52
What happens to a floating charge created before winding up?
Void/voidable if created within 12 months or 2 years if given to a connected person
53
What are the prescribed order in a compulsory winding up?
- Costs - getting assets - Preferential debts - employee related costs - Secondary preferential creitors - HMRC - Floating charges - Unsecured ordinary creditors - Deferred debts
54
How long is an administrator appointed for?
Terminated after 1 year unless extended by court or prescribed majority of creditors
55
What is the primary role of a receiver?
To realise the charged assets and pay off the appointing charge holder's debt
56
Do creditors play a part in a members’ voluntary liquidation
No
57
On a compulsory winding up of a company, who will the court usually appoint?
The official receiver
58
When do the ‘ring-fencing’ provisions apply?
Only when distributable funds >£10k

Law (13 decks)

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