Corporate insolvancy Flashcards
What is liquidation
This is winding up a company. Company ceases to exist
What does a liquidator do
Collects assets reviews transaction and distributes assets in order to creditors
What happens to the directors powers during liquidation
They cease to exist but director remains in office. Can be removed by administrator
When does liquidation end
When assets are sold, money is distributed, liquidator money released, accounts forwarded to CH and the court.
Three months later CH dissolves company
Three types of liquidation
Voluntary
Members voluntary
Compulsory
Voluntary liquidation
Directors volunteer this
Members voluntary liquidations
Only available to solvent companies
Director must swear a declaration of solvency and is offence to lie
Compulsory liquidation
Petition at court must prove insolvency
Official receiver will become liquidator or creditors may appoint one
Directors are terminated
What is a company voluntary agreement
When the company agrees with the creditors to pay less than full amount owed
What happens during administration
An independent insolvancy practitioner runs, reorganised or possibly sells a company in financial difficulties
How does administration end
After one year or by administrator
What are the two types of administration
In court route or out of court route
Process for out of court administration
Appointment by directors
Notify QFCH, court and lenders who are entitled to appoint administrator
Director must declare that company cannot pay debts, is not in liquidation and no administration in the past
When will a court order administration
Company is unlikely to be able to pay its debts
Administration is likely to provide a better result to company’s creditors
Once an applicant has applied to court for administration what must they do next
Notify anyone who has appointed an administrative receiver
Notify any qualified floating charge holder entitled to appoint
Notify any other persons as may be prescribed
What is the administration process
Administrator controls money assets and property
Administrator manages company and makes proposals
Proposals are approved if majority (in value) of creditors in favour
Aims of corporate insolvency law
Protect creditors
Balance interests of competing groups of creditors
Promote corporate rescues
Control or punish directors
Under S122(1) Insolvancy Act 1986 when may a company be wound up?
S122(1)(a)- special resolution to wind up by court
S122(1)(d)- company doesn’t commence business within 1 year of incorporation or suspends business for one year
S122(1)(f)- unable to pay debts
S122(1)(g)- court thinks it would be just and equitable to wind up the company
What is the leg for the tests for Insolvancy
S122 and S123 Insolvancy Act 1986
What are the tests for Insolvancy
A creditor is owed £750+, has served a formal written demand and waited three weeks but has not been paid or come to an agreement S123(1)(a)
Creditor obtained judgement against company and tried to execute it but debt is still unsatisfied S123(1)(b)
Can prove that the company can’t pay its debate because it fails the cash flow test S123(1)(e)
They fail the balance sheet test S123(2)
What is the cash flow test
S123(1)(e)
They admit they cannot afford to pay until their creditors pay them
Balance sheet test
S123(2) assets are less than liabilities
