Chapter 6 - Termination and insolvency - Corporate insolvency

Question 1

How many ways are there to show corporate insolvency?

Answer 1

4 ways

Question 2

What does insolvency mean?

Answer 2

The company’s inability to pay its debts

Question 3

What are the 4 ways to show corporate insolvency

Answer 3

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

Question 4

What happens to an insolvent company?

Answer 4

It goes into liquidation

Question 5

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

Answer 5

Administration or
a company voluntary agreement (CVA)

Question 6

What happens to the creditors?

Answer 6

They have additional options

Question 7

What is another name for liquidation?

Answer 7

Winding -up

Question 8

What is the most drastic insolvency procedure?

Answer 8

Liquidation (winding-up)

Question 9

What does liquidation involve?

Answer 9

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.

Question 10

How many types of liquidations exist?

Answer 10

3 types

Question 11

What are the 3 types of liquidations?

Answer 11

Compulsory liquidation
Creditors voluntary liquidation
Members voluntary liquidation

Question 12

What is compulsory liquidation?

Answer 12

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

Question 13

What is the creditor going to prove?

Answer 13

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

Question 14

What happens if the debt is disputed?

Answer 14

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

Question 15

Who becomes the liquidator and when does a liquidation start?

Answer 15

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

Question 16

What is the Creditors voluntary liquidation?

Answer 16

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

Question 17

By whom is commenced a CVL?

Answer 17

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

Question 18

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

Answer 18

A SR - Special Resolution

Question 19

What does MVL stand for?

Answer 19

Members voluntary liquidation

Question 20

What is MVL?

Answer 20

Is a type of liquidation for corporate

Question 21

How does MVL commence?

Answer 21

Is commenced by a solvent company

Question 22

What is MVL used for?

Answer 22

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

Question 23

What is required for an MVL?

Answer 23

SR - Special Resolution

Question 24

What are the effects of liquidation?

Answer 24

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

Question 25

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

Answer 25

3 months

Question 26

Why would the liquidator investigate past transactions?

Answer 26

To increase the funds available to creditors

Question 27

What can the liquidators also seek to directors?

Answer 27

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

Question 28

When is a floating charge be void?

Answer 28

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

Question 29

What is the relevant time?

Answer 29

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

Question 30

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

Answer 30

12 months

Question 31

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

Answer 31

Yes

Question 32

How are preferences work?

Answer 32

In a similar way to individual insolvency

Question 33

How are transactions at undervalue work?

Answer 33

Same as for individual insolvency

Question 34

How are transactions defrauding creditors work?

Answer 34

Same as for individual insolvency

Question 35

What is the order of distribution for company insolvency?

Answer 35

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

Question 36

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

Answer 36

Must complete a form

Question 37

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

Answer 37

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

Question 38

What is ring fencing?

Answer 38

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

Question 39

What is the statutory limit for ring fencing?

Answer 39

£800k for charges granted form 6th April 2020 £600K for charges created before 6th April 2020

Question 40

Who appoints an administrative receiver or an LPA?

Answer 40

Secured creditors

Question 41

What does administration involve?

Answer 41

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).

Question 42

In whose interest does the administrator act?

Answer 42

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

Question 43

What does the administration create?

Answer 43

It creates a moratorium

Question 44

What does a moratorium prevent?

Answer 44

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

Question 45

What does the moratorium provide for the company?

Answer 45

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

Question 46

How is the administrator appointed? Through what?

Answer 46

Through the court or out of court

Question 47

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

Answer 47

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

Question 48

What does a QFC relate to?

Answer 48

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

Question 49

Who makes the out of court appointment ?

Answer 49

Company directors

Question 50

What declaration must be filled?

Answer 50

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

Question 51

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

Answer 51

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

Question 52

To whom does the administrator has a duty?

Answer 52

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

Question 53

When does the administration ends?

Answer 53

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

Question 54

What is the CVA?

Answer 54

Is the corporate equivalent of the IVA.

Question 55

between who is made the CVA?

Answer 55

Between the company and the creditors

Question 56

What is actually a CVA?

Answer 56

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

Question 57

IS the outcome of the CVA better than liquidation?

Answer 57

Yes

Question 58

Which one is cheaper the CVA or the administration?

Answer 58

The CVA

Question 59

Who needs to approve the CVA?

Answer 59

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

Question 60

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

Answer 60

Binding on all secured creditors in respect of past debts

Question 61

What does GICA stand for?

Answer 61

Corporate Insolvency and Governance Act

Question 62

When was GICA introduced ?

Answer 62

in 2020

Question 63

What does GIGA permit?

Answer 63

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

Question 64

What do secured creditors appoint?

Answer 64

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

Question 65

What is an LPA receiver?

Answer 65

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

Question 66

Where is the power of fixed charged holder noted?

Answer 66

In the charge document.

Question 67

Who is the administrative receiver appointed by for what charges?

Answer 67

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

Question 68

Where is noted the power of the floating charge holder?

Answer 68

In the charge document

Question 69

What does the administrator do again?

Answer 69

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