Company Financing and Insolvency Flashcards
What is a charge?
A charge is a legal arrangement that gives a lender a claim ahead of other lenders to the repayment of a debt in the event of a default.
What are the 3 types of charges?
- Fixed
- Floating
- Fixed & Floating
What is a fixed charge?
A fixed charge is a charge over a specific asset.
What is a floating charge?
A Floating charge is a charge over a class of assets rather than a specific asset.
What is meant by crystalisation?
It is when a floating charge becomes active and is enforced by the charge holder. It becomes a fixed mortage
How long does a company have to inform companies house of a charge on an asset?
21 Days
What information must be included on a register of charges?
- Date of creation of the charge
- The amount secured
- Short details of the nature of the charge
- The person entitled to the charge
How are legal charges ranked?
Ranked according to the order on time of their creation.
How are equitable charges ranked?
They are ranked according to their time of creation.
What ranks first a legal charge or an equitable charge?
The legal charge.
What is insolvancy?
Insolvancy is a situation in which a company is unable to pay their debts.
What is a Company Voluntary Arrangement (CVA)?
It is an arrangement to agree to pay unsecured creditors in full over an extended period of time.
What is Liquidation?
Liquidation is the process of dissolving a company and bringing its affairs to an end.
What are the 3 methods of liquidation?
- Members voluntary liquidation
- Creditors Voluntary liquidation
- Compulsory liquidation
When is a Members voluntary liquidation used?
When the shareholders of a still solvant company wish to wind up the company voluntarily.
When is a Creditors voluntary liquidation used?
It is used when the company is insolvant.
Who starts a creditors voluntary liquidation?
The members/shareholders of the company.
What is the difference between a creditors voluntary agreement and a members?
In a creditors voluntary agreement the liquidator can be appointed by the creditors.
How is compulsory liquidation started?
By a petition to the court for the company to be put into liquidation.
Who may petition for a comulsory liquidation?
- The creditors of the company
- The government
3.
What is the order of priority in a liquidation?
- Expenses of the liquidator
- Preferential creditors such as unpaid wages up to a limit of £800 per employee
- Holder of floating charges
- Unsecured cerditors
- Any interest costs post liquidation
- Dividends previously declared but not paid
- Return of shareholders capital
- Surplus to ordinary shareholders.
What is administration?
Administration is the appointment of a qualifed insolvancy practioner to run the company temporarily in order to avoid liquidation and save the company.
What is the purpose of adminisatration
- To save the company as a going concern
- Achieves better outcome for creditors than immediate liquidation
