Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

sqe 1 > Chapter 6 - Termination and insolvency - Corporate insolvency > Flashcards

Chapter 6 - Termination and insolvency - Corporate insolvency Flashcards

1
Q

How many ways are there to show corporate insolvency?

A

4 ways

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does insolvency mean?

A

The company’s inability to pay its debts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the 4 ways to show corporate insolvency

A

A statutory demand has been served for a liquidated sum of £750 and has been unsatisfied after 21 days
Attempt has been made to enforce a judgment debt against the company, but it remains unsatisfied
The company is unable to pay its debts as they fall due
The company’s liabilities are more than its assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What happens to an insolvent company?

A

It goes into liquidation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the two main alternatives for the insolvency of the company?

A

Administration or
a company voluntary agreement (CVA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What happens to the creditors?

A

They have additional options

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is another name for liquidation?

A

Winding -up

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the most drastic insolvency procedure?

A

Liquidation (winding-up)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What does liquidation involve?

A

Liquidation involves the company ceasing (stopping) to trade and a liquidator (an insolvency practitioner) taking control to review past transactions, sell its assets and distribute the proceeds to the creditors. The company is then disolved.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How many types of liquidations exist?

A

3 types

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the 3 types of liquidations?

A

Compulsory liquidation
Creditors voluntary liquidation
Members voluntary liquidation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is compulsory liquidation?

A

Liquidation commenced by a creditor presenting a winding-up petition when a company is insolvent. It is the corporate equivalent of a bankruptcy petition.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the creditor going to prove?

A

IT will prove the inability of the company to pay by showing a statutory demand has been unsatisfied for 21 days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What happens if the debt is disputed?

A

Then the petition will be unable to proceed and the court may adjourn the hearing if the company says it will be able to pay the sum due within a reasonable period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Who becomes the liquidator and when does a liquidation start?

A

When a winding-up order is made by the court, the official receiver (an officer of the court) become the liquidator.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the Creditors voluntary liquidation?

A

The corporate equivalent of a debtor’s application for bankruptcy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

By whom is commenced a CVL?

A

By an insolvent company to response to a creditor’s pressure and /or concern of the directors as to personal liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is required for a CVL (creditor’s voluntary liquidation)?

A

A SR - Special Resolution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What does MVL stand for?

A

Members voluntary liquidation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is MVL?

A

Is a type of liquidation for corporate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How does MVL commence?

A

Is commenced by a solvent company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is MVL used for?

A

Is used for corporate re-structuring or for closing down a company that is no longer needed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is required for an MVL?

A

SR - Special Resolution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are the effects of liquidation?

A

1.The liquidator takes over the company and the directors powers stops
2. Thw liquidator has wide powers to manage and wind up the company. These powers include the ability to investigate and unwind past transactions where permitted under the IA.
3. After submission of final accounts, the liquidator may apply to be released and the company will be dissolved 3 months later

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

After how long will the company be dissolved after the final accounts are completed?

A

3 months

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Why would the liquidator investigate past transactions?

A

To increase the funds available to creditors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What can the liquidators also seek to directors?

A

They can seek to impose personal liability on the directors for misfeasance
wrongful trading
fraudulent trading

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

When is a floating charge be void?

A

If it’s granted at the relevant time before insolvency (before the presentation of the petition) without the company receiving fresh consideration

29
Q

What is the relevant time?

A

is 2 years if the charge is in favour of a connected person

30
Q

What is the relevant time if the charge is in favour of an unconnected person?

A

12 months

31
Q

Does insolvency must be proved if in favor of an unconnected person?

A

Yes

32
Q

How are preferences work?

A

In a similar way to individual insolvency

33
Q

How are transactions at undervalue work?

A

Same as for individual insolvency

34
Q

How are transactions defrauding creditors work?

A

Same as for individual insolvency

35
Q

What is the order of distribution for company insolvency?

A

Fixed-charged holders - any surplus goes to the liquidator and if there is a deficit, this can be claimed as am unsecured creditor
Winding-up expenses
Preferential debts
Floating charge holders (according to priority)
Unsecured creditors

36
Q

What do unsecured creditors need to do to prove their debt?

A

Must complete a form

37
Q

What happens if there are insufficient funds to settle preferential debts or unsecured creditors?

A

Those within the category receive a proportionate sum of what is left

38
Q

What is ring fencing?

A

50% of the first 10K and 20% of the balance owed to floating charge holders is set aside for unsecured creditors.

39
Q

What is the statutory limit for ring fencing?

A

£800k for charges granted form 6th April 2020

£600K for charges created before 6th April 2020

40
Q

Who appoints an administrative receiver or an LPA?

A

Secured creditors

41
Q

What does administration involve?

A

An administrator running the company to rescue it and/or enable it to be sold as a going concern (as business that is still running).

42
Q

In whose interest does the administrator act?

A

In the interest of the creditors and their general priority is to achieve a better result than on winding-up.

43
Q

What does the administration create?

A

It creates a moratorium

44
Q

What does a moratorium prevent?

A

It prevents proceedings or the continuance of proceedings against the company.

45
Q

What does the moratorium provide for the company?

A

It provides breathing space for the administrator to do their work.

46
Q

How is the administrator appointed? Through what?

A

Through the court or out of court

47
Q

Who needs to be notified if the company is unable to pay its debts and the administration is likely to achieve its purpose?

A

Qualifying floating charge holders
and
those entitled to appoint an administrative receiver
and
The court

48
Q

What does a QFC relate to?

A

Relates to the whole of the company’s property and purpots to empower the QFC holder to appoint an administrator or administrative receiver.

49
Q

Who makes the out of court appointment ?

A

Company directors

50
Q

What declaration must be filled?

A

A statutory declaration which states that the company is unable to pay its debts and is not in liquidation

51
Q

What is the procedure if the out of court appointment is made by QFC holder?

A

QFC must notify other QFC holders with priority and the charge must be enforceable
Then they must file notice of appointment at the court along with a statutory declaration confirming the lender is a QFC holder, the charge is enforceable and the appointment complies with SChB1 IA

52
Q

To whom does the administrator has a duty?

A

To all the creditors and the moratorium will continue whilst they act.

53
Q

When does the administration ends?

A

After 1 year unless extended or ended earlier by the administrator or creditor.

54
Q

What is the CVA?

A

Is the corporate equivalent of the IVA.

55
Q

between who is made the CVA?

A

Between the company and the creditors

56
Q

What is actually a CVA?

A

Is a formal compromise agreemnt where creditors accept part payments, or delay in a payment.

57
Q

IS the outcome of the CVA better than liquidation?

A

Yes

58
Q

Which one is cheaper the CVA or the administration?

A

The CVA

59
Q

Who needs to approve the CVA?

A

75% or more in value of the company’s creditors
50% or more of unconnected creditors

60
Q

What happens if the CVa is approved? Is binding on ?

A

Binding on all secured creditors in respect of past debts

61
Q

What does GICA stand for?

A

Corporate Insolvency and Governance Act

62
Q

When was GICA introduced ?

A

in 2020

63
Q

What does GIGA permit?

A

It permits a company to enjoy a moratorium of 20 business days to give it breathing space

64
Q

What do secured creditors appoint?

A

May appoint an LPA (Law Property Act receiver) or an administrative receiver.

65
Q

What is an LPA receiver?

A

A fixed charge holder may appoint an LPA receiver, usually to sell the property.

66
Q

Where is the power of fixed charged holder noted?

A

In the charge document.

67
Q

Who is the administrative receiver appointed by for what charges?

A

By a floating charge holder for charges created before 15th September 2003.

68
Q

Where is noted the power of the floating charge holder?

A

In the charge document

69
Q

What does the administrator do again?

A

They run the company for 1 year and sell the charged assets.

sqe 1 (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions