Corporate insolvency

Question 1

How can a company show an inability to pay its debts?

Answer 1

There are 4 ways:
1. statutory demand for £750 which is unsatisfied after 21 days
2. attempt made to enforce a judgment debt against the company but it remains unsatisfied
3. the company unable to pay its debts as they fall due
4. the company’s liabilities are more than its assets

Question 2

What can a liquidator investigate?

Answer 2

• floating charges
• preferences
• transactions at an undervalue

Question 3

When will a floating charge be automatically void?

Answer 3

If it is granted at the ‘relevant time’ before insolvency without the company receiving fresh consideration

Question 4

What is the relevant time?

Answer 4

The presentation of the winding-up petition

Question 5

How long is the relevant time for floating charges?

Answer 5

Two years for a connect person or 12 months if an unconnected person

Question 6

When must insolvency be proved for floating charges?

Answer 6

If in favour of an unconnected person within the 12 months of the relevant time

Question 7

What are the timescales for preferences?

Answer 7

Can go back 2 years from relevant time for a connected person, insolvency needs to be proved and a desire to prefer needs to be proved. The desire to prefer will be presumed if it is to a connected person. Only go back 6 months for an unconnected person.

Question 8

What are the timescales for transactions at an undervalue?

Answer 8

Can go back 2 years from relevant time and insolvency needs to be proved. Insolvency presumed if in favour of a connected person.

Question 9

Is there any defences available for either preferences or transactions at an undervalue?

Answer 9

Only transactions at an undervalue - and the transaction had to be entered into in good faith for the purpose of carrying on business and there was reasonable grounds in believing it would benefit the company

Question 10

What is the order of distribution?

Answer 10

• fixed charge holders
• winding-up expenses
• preferential debts
• floating charge holders
• unsecured creditors

Question 11

Are any of the funds ringfenced for certain creditors?

Answer 11

50% of the first £10k and 20% of the balance owed to floating charge holders is set aside for unsecured creditors subject to the statutory limit of £800k