Chapter 10 - Insolvency law Flashcards
What is the role of administration?
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
How is an administrator appointed?
Director’s majority decision
How can the court appoint an administrator?
Must show company is unable to pay debts
How much notice needs to be given to a qualifying floating charge holder?
5 days
Can creditors apply to the court to appoint an administrator?
Yes
What are the duties of an administrator?
Must take control of company’s property and use powers to manage company in accordance with any proposals approved by creditors/court
What must an administrator do within 7 days of taking office?
File notice of appointment with registrar
How long do company officers and employees have to provide a statement of affairs?
11 days after request from administrator
What must an administrator do within 8 weeks of appointment?
Submit proposals for aim of achieving administration to registrar, creditors and members
Which party should administrators seek approval from regarding their proposals?
Creditors
Required to invite creditors to form a committee and ask for nominations
What powers does an administrator have?
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
What can creditors/members do if they feel an administrator has acted in a way that has/will harmed them?
Apply to the court
When does a moratorium apply?
No resolution or court order to wind up company
No enforcement of fixed charges
No other legal proceedings
Can an administrator sell property subject to a floating charge?
Yes and without obtaining chargee’s consent
Can an administrator sell assets on hire purchase or subject to a fixed charge?
Yes with approval of court
What happens to a director’s powers during administration?
Powers suspended but remains in office
What happens to employees during administration?
Not automatically dismissed but can have contract terminated
What are the advantages of administration for the company?
Doesn’t necessarily cease to exist
Temporary relief from creditors
Breathing space to formulate rescue plan
What are the advantages of administration for members?
Continue to have shares
Business regenerated, enhancing value and restoring income
What are the advantages of administration for creditors?
Should obtain returns
Can apply to court for administration order
What are the 2 types of receiver?
Administrative
Fixed Charge
What is an administrative receiver?
Appointed by floating chargeholder
Power to:
- borrow
- take legal proceedings
- appoint pro advisers
- pay off creditors
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Can holders of floating charges made after 15th September 2003 appoint administrative receivers?
No
What is a fixed charge receiver?
Appointed by holder of a fixed charge over land if borrower deafults
Collects rent/sells property
Owe a duty of care to borrower
What are the 2 kinds of Company Voluntary Arrangements (CVA)?
Composition of debts
Scheme of arrangement
What is a composition of debts?
Company agrees to pay a limited proportion of total debt
What is a scheme of arrangement?
Company agrees to pay its debts over a defined period (usually 3-5 years)
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
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
On what ground must a Creditor challenge a CVA?
Unfair prejudice or irregularity
What happens once a CVA is approved?
Nominee acts as supervisor and implements CVA
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
What must a company do to illustrate to existence of a moratorium?
Advertise and state on all business docs
Notify registrar
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
How can members wind up a company?
Ordinary resolution where articles provide
Special resolution
When is winding up deemed to have commenced?
When resolution passed
Must give notice in Gazette within 14 days
Is it a criminal offence to make a false declaration of insolvency?
Yes, punishable by fine or imprisonment
Who must a declaration be made by?
By all/majority of directors
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
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
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
When must creditors be sent a statement of company’s affairs?
Within 7 working days of decision to wind up
What are the disadvantages of creditor’s winding up compared to voluntary winding up?
Expensive
Time-consuming
Complicated
When may a petition be brought up for compulsory winding up?
Company unable to pay debts
Just and equitable, only if company is solvent
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
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
What happens to employees after liquidation?
Automatically dismissed
Liquidator assumes powers of directors
What happens to floating charges after liquidation?
Crystallises
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
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
What happens to charges not registered within 21 days?
Void against liquidators and creditors
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
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
How long is an administrator appointed for?
Terminated after 1 year unless extended by court or prescribed majority of creditors
What is the primary role of a receiver?
To realise the charged assets and pay off the appointing charge holder’s debt
Do creditors play a part in a members’ voluntary liquidation
No
On a compulsory winding up of a company, who will the court usually appoint?
The official receiver
When do the ‘ring-fencing’ provisions apply?
Only when distributable funds >£10k
