Company Law: Restructuring and Insolvency Flashcards
What is the primary objective of the administrator?
To rescue the company as a going concern
Assuming there has not been a moratorium in place in the previous 12 weeks, the order of priority for payments made by a liquidator is?
Fixed charge holders
Liquidator’s remuneration
Preferential creditors
Floating charge holders
Unsecured creditors
Shareholders
When a liquidator is appointed they may investigate earlier intra-group transfers of assets or sales to a third party where they take place under-value.
What does the liquidator have power to do in this case?
Reverse the sale, require the purchaser to pay for the undervalue purchase or require the selling company’s directors to contribute to the under value
What is winding up?
It brings the existence of a company to an end = liquidation. The company is dissolved and struck off the register at Companies House
What must a liquidator be?
A licensed insolvency practitioner
True or false, HMRC is a preferential creditor?
True
How can a solvent company be brought to an end?
By using a simpler striking-off procedure rather than going through formal liquidation
What is a scheme of arrangement under Part 26 CA 2006?
A court-sanctioned compromise between a company and its creditors or members
What is a company voluntary arrangement?
Where a company finds itself in financial difficulty and makes a voluntary arrangement with creditors. The creditors receive an agreed proportion of what they are owed and the company is preserved.
What is a reconstruction?
Where all or part of the undertaking of a company is transferred to another company but there is no substantial change in the persons who ultimately are interested in the undertaking
What is an amalgamation?
The reverse of reconstruction, bringing together two or more undertakings of separate companies (“the participating companies”) within a single company (“the receiving company”)
What is a partition?
Where a company is divided between two or more shareholders so that after the transaction, there is no substantial identity of shareholders in relation to each part of the undertaking of the company that has been partitioned
How may a partition be effected?
By a dividend in specie, under s.110 of the Insolvency Act 1986 or by using Part 26 CA 2006
What is a moratorium?
It provides a business with an initial 20 day breathing space from creditors within which to formulate a rescue plan. This can be extended for up to 12 months. The company will not pay debts that fell due prior to the moratorium.
What is a restructuring procedure under Part 26A CA 2006?
It allows a company to bind all creditors, including junior or senior classes of creditors even if they vote against the plan, trough the use of a cross-class cram down (CCCD) provision
True or false, once an administration order is in force, the company cannot be put into liquidation?
True
In relation a company which is winding up, what is the time limit for transactions at undervalue?
Two years preceding the winding-up resolution
Why do solvent companies prefer a simple striking off?
Cheaper option, less admin
For which companies is a simple striking off procedure open to?
Solvent companies with assets valued at less than £25,000
True or false, HMRC is a preferential creditor for employer NIC contributions?
False
True or false, HMRC is a secondary preferential creditor for Corporation Tax?
False
True or false, HMRC is a secondary preferential creditor for VAT?
True
True or false, a secured creditor with a fixed charge may appoint a receiver to sell the charged asset?
True
True or false, the receiver must pass any surplus on sale of an asset directly to the company’s shareholders?
False
True or false, if the assets of the company are insufficient to pay the creditors in any class in full, the liquidator must apply the realised assets to the oldest creditor of that class in priority?
False
True or false, the liquidator must apply the realised assets to the VAT debt owed to HMRC before paying anything to the company’s shareholders?
True
