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Corporate Law > Chapter 19 - Winding Up & Company Dissolution > Flashcards

Chapter 19 - Winding Up & Company Dissolution Flashcards

1
Q

What are the two types of winding up?

A

1) Voluntary winding up (special resolution of the members)

2) Compulsory winding up (court order)

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2
Q

What is meant by parri passu?

A

Funds are distributed rateably among creditors.

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3
Q

On what 2 grounds may the court make a winding up order?

A
  • the company cannot pay its debts

- the court thinks it just and equitable that the company be wound up.

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4
Q

What is a retention of title clause?

A

A clause in a contract between a seller and buyer, stating that the ownership of the goods shall not pass to the buyer until payment is recieved.

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5
Q

Can a supplier rely on a retention of title clause in a supply contract to claim from a liquidator the proceeds of resale of goods it has supplied to the company but not been paid for?

A

Only if the goods have not been changed in some way (e.g. if they have been mixed with other materials into a new product.

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6
Q

Is property impressed with a trust available to a liquidator for distribution?

A

No, as the property is not owned by the company.

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7
Q

What is the statutory order of distribution on a winding up?

A

1) Fixed charges
2) Retention of title clauses
3) Expenses of liquidation
4) Preferential debts pari passu
5) Debts secured by floating charges put in place before 15 Sep 2003
6) Prescribed part of the proceeds for post-2003 floating charges (for secured creditors)
7) Debts secured by floating charges post-Sep 2003.
8) Ordinary unsecured creditors pari passu
9) Deferred creditors
10) Members

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8
Q

How is the “prescribed part” calculated?

A
  • 50% of the first £10,000
  • 20% of any assets exceeding £10,000
  • not exceeding £600,000
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9
Q

When does a company cease to exist?

A

By removal of its name from the register at Companies House

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10
Q

Identify 9 situations resulting in the removal of the name of a company from the register.

A
  • striking off the register if the company has ceased business
  • automatically, 3 months after a compulsory winding uo
  • automatically, three months after an application of the liquidator
  • on completion of administration
  • by order of the court
  • pursuant to an act of parliament.
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11
Q

Why might it be appropriate for a company to be restored to the register?

A

To enable legal procedures against the company, for example for damages for death or personal injury to be brought.

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12
Q

What is the effect of a court order for restoration?

A

The company is deemed to have continued in existence as if it had not been struck off.

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13
Q

What is the effect of a court order for restoration?

A

The company is deemed to have continued in existence as if it had not been struck off.

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14
Q

What is a prohibited name for the purpose of IA 1986 s 216?

A

A name so similar to the name by which an insolvent company was known as to suggest an association with the insolvent company.

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15
Q

What are the consequences of a contravention of s 216?

A

A person contravening s 216 may be criminally liable and may be imprisoned or fined or both.

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16
Q

To what situation is the term Phoenix syndrome applied?

A

The setting up of a company with a similar name and running essentially the same business as an insolvent company, thereby exploiting the privileges of limited liability.

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17
Q

What are the 4 challengable pre-liquidation transactions?

A

1 Transactions at an undervalue (s 238 IA)
2 Preferences (s 239)
3 Invalid floating charges (245)
4 Extortionate credit transactions (244)

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18
Q

What is a TUV?

A

A transaction at an undervalue i.e. where:

  • the company receives no consideration (a gift)
  • the company enters a transaction at significantly less than moneys-worth
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19
Q

Which section of law is relevant to TUVs?

A

S 238 IA

20
Q

What is the relevant time for the purposes of a liquidator challenging a TUV?

A
  • within 2 years prior to insolvency

- the company must have been unable to pay its debts at the time

21
Q

Is it always necessary for a liquidator to establish that the company was insolvent at the time the TUV was entered into or became insolvent as a result of entering into the TUV?

A

It is the responsibility of the connected person to prove that the time of the TUV was outside that of the insolvency period

22
Q

What is the statutory defence available to a company that has otherwise entered into a challengable TUV?

A
  • good faith can be proven
  • the TUV was carried out for the purpose of carrying on business
  • reasonable grounds existed for believing the TUV would benefit the company.
23
Q

Which section of law covers preferences?

A

s 239 IA

24
Q

What 2 factors must be proven to prove a factual preference?

A

1 Person dimension

2 Effect dimension

25
Q

To whom must a preference have been given for it to be challengable?

A

A creditor, surety or guarantor of the company

26
Q

What is the “effect” dimension of a preference?

A

The preference must have put that person in a better position in the event of insolvent liquidation.

27
Q

What are the relevant times for the purposes of s 239 and why is there more than one time period?

A

1 Temporal dimension - the preference must have been given within 2 years for a connected person, six months for others.
2 Financial dimension - the company must have been insolvent at the time of the grant or have become insolvent as a result of the grant.

28
Q

Explain the concept of “desire” in relation to s 239.

A

The company must have been influenced by a desire to put the person in a better position in the event of the company going into insolvent liquidation

29
Q

What are the consequences of a preference?

A

The liquidator may apply for such order as the court thinks fit to restore the company to the pre-preference position.

30
Q

Which section if law governs avoidance of certain floating charges?

A

IA S 245

31
Q

Does a liquidator apply to the court to challenge a floating charge under IA s 245?

A

No application to the court is required.

32
Q

What are the relevant times for the purpose of s 245 and why are they not the same as for s 239?

A

1 Temporal dimension: the preference must have been given within 2 years for a connected person, 12 months for others
2 Financial dimension - the company must have been insolvent at the time of the grant of have become insolvent as a result of the grant

33
Q

Which section of law governs extortionate credit transactions?

A

S 244 IA

34
Q

When is a transaction considered extortionate?

A
  • the terms are such as to require grossly exorbitant payments
  • it otherwise grossly contravened ordinary principles of fair dealing
35
Q

On whom is the burden of proof to prove whether a transaction is or is not extortionate?

A

The party arguing that it is NOT extortionate.

36
Q

Who is a connected person when discussing challengable pre-liquidation transactions?

A

1 A director

2 An associate of a director or the company

37
Q

When is a company an associate of another company?

A

Where the same person has control of both companies, or an associate has control.

38
Q

Which section of law governs wrongful trading?

A

S 214 IA (and s246ZB)

39
Q

When may a person be found liable for wrongful trading?

A
  • the company has gone into insolvent liquidation or administration
  • the person knew, or ought to have concluded, that there was no real prospect of the company avoiding insolvency
  • that person was a director
40
Q

How is S174 CA related to S214 IA?

A

They both use the same test of care, skill and diligence in identifying liability of directors.

41
Q

Which section of law governs wrongful trading?

A

s 214 IA (and s 246 ZA)

42
Q

Why is s 213 IA rarely used?

A

Because of the difficulty of proving fraud.

43
Q

Why was s 246ZA IA introduced?

A

To allow ss 213-214 to also include companies in insolvent administration, as well as liquidation.

44
Q

Who may be liable under s 213 IA?

A

Anyone (not just a director as in s 214).

45
Q

What must there be an intent to do in order to prove liability under s 213 IA?

A

Intent to defraud creditors.

46
Q

What is the relevance of s212 IA?

A

Misfeasance proceedings - allows liquidator to apply to court - investigate directors actions

47
Q

What is the consequence for contravention on s 216 IA?

A

Personal liability for company debts while in breach of s 216 (S 217 IA)

Corporate Law (19 decks)

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