Chapter 10 - Insolvency Law Flashcards
What are the three key purposes of administration?
To rescue the company as a going concern.
If not practical, achieve a better result for creditors as a whole than liquidation.
If neither is possible, realize company assets to pay preferential or secured creditors without causing unnecessary harm.
Q: What is the primary advantage of administration?
A: It provides a moratorium for the company to resolve financial difficulties, potentially avoiding liquidation.
Q: What happens if administration fails?
A: The administrator arranges for creditors’ voluntary liquidation.
Q: Who can appoint an administrator?
The company via an ordinary resolution.
The directors by majority decision.
One or more creditors.
Qualifying Floating Charge Holders (QFCH).
Q: What must a QFCH demonstrate to appoint an administrator?
A charge over substantially all of the company’s property.
The floating charge includes the power to appoint an administrator.
The QFCH must notify any other QFCHs.
Q: What notice must be given before appointing an administrator out of court?
Company/Directors: 5 days’ notice to any floating chargeholder.
QFCH: 2 days’ prior notice to any prior QFCH.
Q: What documents must be filed in court for an out-of-court appointment?
Notice of appointment.
Statutory declaration of lawfulness and enforceability.
Administrator’s statement of consent and purpose.
Q: When can a court appoint an administrator?
If the company is, or is likely to become, unable to pay its debts.
If an administration order is likely to achieve the purpose of administration.
Q: What must a floating charge holder demonstrate in court?
A: That their floating charge is qualifying and enforceable.
Q: Who can use the court route to appoint an administrator?
A: Any party with an interest in the company.
Q: What must the administrator do within 7 days of their appointment?
File notice of the appointment with the Registrar of Companies.
Require company officers and employees to provide a statement of affairs (must be submitted within 11 days of the request).
Q: By when must the administrator submit a statement of proposals?
A: Within 8 weeks of the appointment.
Q: To whom must the statement of proposals be submitted?
The Registrar.
The company’s creditors.
The company’s members.
Q: What additional action must the administrator take regarding creditors?
A: Seek creditor acceptance of their proposals using deemed consent procedures and invite creditors to form a committee.
Q: When is the administrator’s appointment terminated?
A: One year after the appointment unless extended by:
The court.
A prescribed majority of creditors (once only).
Q: What powers does the administrator assume during administration?
A: The administrator takes over powers previously held by directors and may do anything expedient for managing the company’s affairs, business, and property.
Q: Can an administrator remove or appoint directors?
A: Yes, the administrator has the power to remove or appoint directors.
Q: What meetings can an administrator call?
A: An administrator can call meetings of members or creditors.
Q: What can an administrator do regarding secured and unsecured creditors?
Make payments to secured or preferential creditors.
Make payments to unsecured creditors if it supports the administration process, with court permission.
Q: Can an administrator apply to court for guidance?
A: Yes, an administrator can apply to court for directions on their functions.
Q: What role does an administrator play in winding up the company?
A: They can present or defend a petition for the company’s winding-up.
Q: What happens during the moratorium period?
No resolutions or court orders to wind up the company are allowed.
Fixed charges or securities cannot be enforced without consent.
Legal proceedings against the company (including lease forfeiture) require consent from the administrator or court.
Q: How can assets subject to floating charges be handled?
A: The administrator can sell assets subject to floating charges and use the proceeds without chargee consent.
Q: How are assets on hire purchase (HP) or fixed charges managed?
A: The administrator can sell such assets with court approval, but proceeds must be used to pay the owner or chargee.
Q: What happens to the directors’ powers during administration?
A: Directors’ powers are suspended, though they remain in office. The administrator can remove or appoint directors.
Q: Are employees automatically dismissed in administration?
A: No, employees are not automatically dismissed, as the company remains their employer, but the administrator may terminate contracts of employment if necessary.
Q: Can transactions made at undervalue be challenged during administration?
A: Yes, such transactions can be avoided.
Q1: What are the three purposes of administration?
To rescue the company as a going concern.
If not practicable, to achieve a better result for creditors than a winding-up.
To realise assets to make a distribution to creditors when the above are not feasible.
Q2: What effect does administration have on creditor actions?
A: It creates a moratorium, preventing creditor enforcement actions without court or administrator consent.
Q3: Who can appoint an administrator? (Multiple choice) A) Shareholders by special resolution
B) Directors by majority decision
C) Creditors
D) Qualifying Floating Charge Holders (QFCH)
A) Shareholders by special resolution
B) Directors by majority decision
C) Creditors
D) Qualifying Floating Charge Holders (QFCH)
A: B, C, and D.
Q4: What is required for out-of-court appointment by directors?
A: 5 days’ notice to any floating charge holder.
Q5: Within how many days must an administrator file their appointment with the Registrar of Companies?
A: Within 7 days.
Q6: What must the administrator do within 8 weeks of appointment?
A: Submit a statement of proposals to the Registrar, creditors, and members.
Q7: What powers does an administrator have?
Remove or appoint directors.
Call meetings.
Make payments to creditors.
Apply to court for directions.
Q1: What is an administrative receiver?
A: A manager appointed by a floating charge holder with control over substantial parts of the company’s property.
Q2: What is the role of a fixed charge receiver?
A: To collect rent or sell property to repay the debt secured by a fixed charge.
Q3: Does a fixed charge receiver need to be an insolvency practitioner?
A: No, they can be property specialists like surveyors.
Q4: What happens to floating charges when a receiver is appointed?
A: Floating charges crystallise and become fixed charges.
Q1: What happens if an administrator fails to file their appointment within the required time?
A: It could result in non-compliance and penalties.
Q2: What is the consequence of administration for directors?
A: Their powers are suspended, but they remain in office.
Q3: How long does an administrator’s appointment typically last?
A: One year, unless extended by the court or creditors.
Q1: What is a Company Voluntary Arrangement (CVA)?
A: A CVA is an agreement between a company and its creditors on how its debts are to be repaid and in what proportions, allowing the company to continue trading.
Q2: Which Act introduced CVAs?
A: The Insolvency Act 1986.
