Company: Insolvency Sole Proprietors Flashcards

1
Q

Who does insolvency for sole proprietors apply to and what are the options?

A

Sole traders and partners in general partnership

Options
1. negotiations with creditors
- not binding

  1. Individual Voluntary Agreement
    - like negotiation but binding
  2. Bankruptcy
    - judicial process where assets are given to trustee
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2
Q

What is the issue with negotiation with creditors?

A

Will not be binding for lack of consideration

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3
Q

When is a Individual Voluntary Agreement suitable?

A

Only if debtor has enough money, or prospect of receiving some money, to enable them to make reasonable offer to creditors.

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4
Q

What are the advantages of an IVA to each party?

A

Debtor
- avoids restrictions of bankruptcy
- can continue to trade

Creditor
- may receive more than through bankruptcy
- keep potential customer
- quicker

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5
Q

What is the procedure (general for IVA)?

A
  1. take professional advice from insolvency practitioner
  2. Prepare Statement of Affairs
  3. Apply for interim order
  4. Call meeting of creditors to vote on it
  5. Implementation
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6
Q

What is an interim order in an IVA? Who to apply to?

A

Apply to bankruptcy court

Whilst order is in force:
- no bankruptcy petition without permission by court
- no other proceedings or executions can be commenced without permission
- lasts 14 days (can apply for extension)

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7
Q

How is an IVA approved?

A

Meeting with creditors

Agreement of at least 75% in value of unsecured creditors

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8
Q

Who is bound / not bound by an IVA?

A

Bound
- all ordinary unsecured creditors who had notice of meeting
- preferential creditors ONLY unless they agree

Not bound
- preferential creditors:
- employees for wages/holiday pay in last 4 months
- secured creditors

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9
Q

When can petition for bankruptcy be brought during IVA? And by whom?

A

By:
- supervisor (practitioner)
- creditor who is party to IVA

If debtor:
- provided false or misleading information; or
- tried to put money or assets out of reach;
- gave preference to creditor; or
- failed to comply with IVA

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10
Q

Who can apply for bankruptcy?

A

One of 3 ways:

  1. debtor can apply online
    - heard by adjudicator
    - granted if found they are unable to repay debts
  2. Unsecured Creditor(s)
    - jointly owed £5k+
    - present petition to bankruptcy court
  3. From IVA
    - if breach conditions; or
    - give false/misleading info
    - preference to creditor
    - hid assets
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11
Q

Who can be the official receiver? What is that?

A

Official receiver is the trustee in bankruptcy

Either
- civil servant
- creditor can seek to appoint own

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12
Q

How may a creditor show that debtor is insolvent?

A

Statutory Demand for Payment
- if not paid in 3 weeks; or
- debtor does not apply to set it aside in 3 weeks

Statutory Demand for Proof of Ability to Pay
- if debtor does not show reasonable prospect of being able to pay in 3 weeks (21 days); or
- does not apply to court to set aside demand (18 days)

Debtor owes judgement debt and Creditor Seeks to Execute
- and attempted fails

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13
Q

What is the bankruptcy implementation?

A

Official receiver appointed

Bankruptcy estate vests automatically

Sell assets and repay in strict order

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14
Q

What is exempt from Bankruptcy Estate?

A

Assets needed for day to day living

Tools of Trade

Any Salary debtor makes
- subjecting to income payment order

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15
Q

What is an income payment order in bankruptcy? How long does it last?

A

Can be applied for if:
- income of debtor exceeds amount needed for reasonable needs of debtor and their family

Can last max of 3 years

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16
Q

Is home excluded from bankruptcy estate?

A

No passes to trustee subject to below. After one year like court will grant order

Cannot sell without court order if:
- held in joint names
- partner/spouse has equitable interest arising from trust
- spouse has right of occupation
- children under 18 live there

17
Q

What are the restrictions on the debtor in bankruptcy?

A
  • cap on amount of credit they can apply for
  • cannot be a director
  • cannot be a partner
  • cannot trade under another name without disclosing bankruptcy
18
Q

What is the order of distribution to creditors under bankruptcy?

A
  1. cost of bankruptcy
  2. preferential debts
    - employees last 4 months
    - VAT, PAYE and National Insurance
  3. Ordinary unsecured creditors
  4. debts to Spouse

When monty runs out those in certain section are paid proportionately

19
Q

When will bankruptcy end?

A

Not-Culpable
- 1 year

Culpable bankrupt
- up to 15
- restrictions can extend longer

20
Q

When is someone a culpable bankrupt?

A

if they caused bankruptcy by their own dishonesty , negligence or recklessness

21
Q

What happens to partnership if individual parter is bankrupt?

A

Partnership at Will
- dissolved
- money due to insolvent partner goes to trustee

Partnership not at Will
- if PA provides it doesn’t dissolve due to bankruptcy
- remaining partners purchase interest in accordance with retirement provision

LLP
- remaining partners purchase interest in accordance with retirement provision

22
Q

What happens if all partners in partnership are bankrupt?

A

Partnership subject to bankruptcy proceedings

Proceedings used
- for individuals if partners are individuals
- for business if partners are business
- mix if mix