Corporate Insolvency Procedures Flashcards
What are the 4 situations when a company is deemed unable to pay its debts under IA 1986?
- It fails to comply with a statutory demand for payment for a debt of over £750.
- It fails to pay a creditor to satisfy enforcement of a judgment debt.
- Company is unable to pay its debts as they fall due - the cash flow test.
- The liabilities of the company exceed its assets - the balance sheet test.
What is the duration of a moratorium period?
20 business days, beginning with the business day after the moratorium comes into force.
What is a company voluntary arrangement (CVA)?
A compromise between a company and its creditors. Creditors agree to part payment of debts/a new timetable for repayment.
Voting requirements for CVA proposals:
The proposals must be approved by:
75% in value of creditors and a majority of all unconnected creditors (related companies, directors);
A simple majority of members.
BUT if the creditors vote in favour of the CVA proposal and the members vote against it, the creditors’ vote will always prevail.
Who is bound by a CVA?
A CVA is binding on all unsecured creditors. Secured or preferential creditors are not bound.
What is the court appointment procedure for administration?
Application from the company, the directors, a creditor, the supervisor of a CVA or a liquidator to the court:
The court may appoint an administrator where the company is or is likely to become unable to pay its debts.
The court must consider that the appointment is reasonably likely to achieve the purpose of administration.
What is the out-of-court procedure for a CVA?
No court order.
The directors may appoint an administrator out of court.
A holder of a qualifying floating charge (QFC) may appoint an administrator out of court. A QFC holder is someone with a charge relating to the whole/substantially the whole of the company’s property, and which expressly provides the charge holder with the power to appoint an administrator.
What are the advantages of administration?
The statutory moratorium which freezes all actions by creditors. This gives the company time to recover, organise repayment of debts etc… sale of part of business.
Who does a restructuring plan bind?
All creditors and shareholders.
The court may sanction the Plan even if one or more classes do not approve.
Approval required for a restructuring plan?
Sanctioned by be the court.
Approval required by at least 75% in value of each affected class of creditors/shareholders.
What is liquidation?
Liquidation is the process by which a company’s business is wound up and its assets transferred to creditors AND (if there is a surplus of assets over liabilities) to its members.
Compulsory liquidation - the winding up of a company by court order. What are the 3 main circumstances?
- The company has by SR resolved that the company be wound up by the court and the resolution was filed with CH within 15 days;
- The company is unable to pay its debts;
- The court is of the opinion that it is just and equitable that the company should be wound up.
What is members’ voluntary liquidation?
The members of a company resolve to place the company into a members’ voluntary liquidation:
When the period fixed for the duration of the company by the articles expires, and the company in a GM passed a resolution requiring it to be wound up voluntarily.
At any other time if the company resolves by SR that it be wound up voluntarily.
Members voluntary liquidation vs. Creditors’ voluntary liquidation:
MVL - solvent companies
CVL - insolvent companies
If the directors are unable to make a declaration of solvency, the company members may resolve by SR to place the company into a CVL.
What is a pledge?
A pledge is a form of possessory security, which involves the lender having physical possession of the charged asset. e.g. pawning a watch or a piece of jewellery.
