Company Insolvency

Question 1

What is Insolvency?

Answer 1

A company is insolvent when it can no longer pay its debts as they become due

Question 2

What is Voluntary Administration?

Answer 2

When a company is worried about becoming insolvent they may hire an external administrator known as a voluntary administrator. The administrator will assess the health of the business report to the creditors and recommend if the company should be liquidated or return to control of directors

Question 3

What is receivership?

Answer 3

A receiver is usually appointed by a secured creditor who has not been paid on time. A receiver will sell the secured assets of the company to repay the creditor. receivership ends when money owing is paid.

Question 4

What is Liquidation?

Answer 4

A liquidation ocurs when an external person is appointed to

1. collects and sell the assets of an insolvent company
2. distribute the money to creditors
3. Investigate the conduct of the directors and other company officeholders and
4. close the company

Question 5

What are some indicators of Insolvency

Answer 5

1. continuing losses
2. A current ratio below 1
3. overdue taxes
4. poor relationship with the company bank
5. not being able to borrow money from financial institutions
6. Not being able to raise additional share capital
7. taking an excessive amount of time to repay creditors
8. receiving leters demanding payement of debts