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ACA Law > Insolvency > Flashcards

Insolvency Flashcards

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1
Q

What is administration?

A

Trying to rescue a company so that it may continue trading.

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2
Q

What is liquidation?

A

The winding up of a company.

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3
Q

What are the aims of administration?

A

Rescue a company with the aim of allowing it to continue as a going concern. Salvaging it for a little while so as to et a better outcome for any creditors when it is then wound up later on.

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4
Q

How are administrators appointed?

A

By the courts following a petition by creditors when debts haven’t been paid. By ordinary resolution passed by the company to appoint one.

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5
Q

Who can appoint administrators?

A

Anyone with a qualifying floating charge which amounts to substantially or all of the company’s property - someone who has big money in this game.

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6
Q

What is the period of moratorium?

A

The period when the company has gone in to administration but is still running means that there are limits on the powers that anyone involved in the company have.

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7
Q

What can’t happen during the moratorium?

A

Creditors can’t enforce security. The company cannot be wound up. Legal proceedings cannot commence.

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8
Q

What happens during a moratorium?

A

The Directors carry on but they have suspended powers (they can be removed and replaced). The employees carry on but some may have their contracts terminated. The administrators can sell property which is subject to a floating charge with no permission and subject to fixed charges with the courts permission.

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9
Q

Who’s interests does the administrator act on behalf of?

A

The creditors.

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10
Q

How soon do the administrators have to file notice of their appointment?

A

7 days.

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11
Q

How soon must the statement of proposal be created?

A

8 weeks of appointments and this is then submitted to the members and creditors and CH. The creditors must then approve.

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12
Q

What is a creditors committee?

A

A committee of 3 to 5 creditors. They have the right to have meetings with the administrators within 6 weeks of it being set up.

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13
Q

What happens if the proposals aren’t approved?

A

The court may dismiss the administrator.

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14
Q

How does administration end?

A

The job is done, or they are discharged by the court. It could end earlier but it can also be extended (but only once and only with court/creditor consent). Generally though it must be completed in 12 months of commencing.

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15
Q

What is a receiver?

A

Someone who can take control of an asset and receive rent or sell it so that creditors get paid. They are appointed by creditors.

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16
Q

What are admin receivers?

A

Appointed by floating charge holders. They are rarely used due to Enterprise Act 2002.

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17
Q

What are fixed charge receivers?

A

Once a borrower has defaulted the owner of a fixed charge over land can appoint a receiver. They collect the rent/sell.

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18
Q

What do receivers do?

A

Borrow, commence legal proceedings, appoint advisers, pay off company debts. All of which are duties owed to the person who appointed them.

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19
Q

What is a company voluntary arrangement?

A

An agreement between a company and debtors to pay a set proportion of debts over a set period of time. Only allowed by the courts if there is a belief that it will be successful.

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20
Q

Who appoints the nominee in charge of CVA?

A

Company. Administrator. Liquidator.

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21
Q

Who decides on the CVA?

A

The creditors.

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22
Q

How long do creditors have to challenge the CVA?

A

28 days from approval, so long as they had a right to vote and they believe it is unfairly prejudicial or there are material irregularities. Court may then suspend.

23
Q

What are moratoriums used for with CVA’s?

A

They are used to create their proposal. They give the company 28 days. Have to provide their proposal, a statement of affairs and reasonable evidence of success to be allowed a moratorium.

24
Q

What resolution is needed for voluntary liquidation?

A

When there has been an event that states the company should be wound up or the company expires then ordinary. Anything else is special.

25
Q

What is a members VL?

A

Happens when the company is solvent.

26
Q

What is a creditors VL?

A

Happens when the company is insolvent.

27
Q

What is the declaration of solvency?

A

During a VL the directors declare that they will be able to pay their debts in the next 12 months. Must make it no more than 15 weeks before winding up and must go to CH in 15 days.

28
Q

What makes a company ‘unable to pay its debts’?

A

Creditor owed £750 and they have served a written demand and not been paid within 3 weeks. A creditor has been unable to enforce an execution against company property.

29
Q

What is the other grounds to liquidate a company aside from inability to pay debts?

A

PLC has not been issued a trading certificate within a year of incorporation.

30
Q

Who can petition the court for CL?

A

The BEIS. A member. A creditor owed at least £750.

31
Q

What happens when a company is wound up?

A

Recovery of debt actions and legal proceedings are halted. Company ceases except to complete work necessary for winding up. Directors powers cease. Employees are redundant. Assets go in to liquidators control.

32
Q

What must the official receiver investigate?

A

The causes of the failure of the company.

33
Q

What is the liquidator responsible for?

A

Realising the assets and distributing the proceeds and then producing a report which effectively dissolves th company.

34
Q

What happens when a company is liquidated?

A

Floating charges are crystallised. If it has been created in the 12 months prior to the end, or 2 years if they know the person, then the charge could be void/voidable.

35
Q

What happens to charges not registered within 21 days in a CL?

A

They are void.

36
Q

What happens to transactions at undervalue?

A

If the company has done something, and they got less than they gave for it in the past 2 years it will be invalidated. Unless they can prove they acted in good faith with the purpose of carrying on business and believed it was in the companies best interest (directors duty).

37
Q

What happens where preference has been given to a Creditor in CL?

A

It can be invalidated. Tends to be obvious where preference has been given - the company has done it knowing that this might happen and so they have intentionally set it up so that specific Creditor won’t lose out.

38
Q

What happens when an undervalue or preference transaction has occurred before liquidation?

A

The liquidator can apply to the courts to restore the company to the position they were in before that. This only happens if it was that particular transaction that tipped them over the edge.

39
Q

What is the order for paying off parties?

A

Fixed charge holders. Liquidators. Preferential Creditors e.g staff owed wages from previous 4 months. Floating Charge holders. Unsecured Creditors. Members.

40
Q

How are ring fenced funds calculated?

A

Any assets subject to a floating charge are broken down in to 50% of the first 10k, 20% of the rest of it, up until it totals 600k. HMRC count as an unsecured creditor.

41
Q

What is an individual voluntary agreement?

A

An agreement made by individuals in business to repay their creditors reduced amounts over a period of normally 5 years.

42
Q

Who approves IVA’s?

A

The creditors, so it then stops them being able to take that business to court.

43
Q

What happens when you create an IVA?

A

There is a process where they make a proposal to the court and have to consider the chances of success. It allows them the opportunity to carry on business and if you pay everything you owe at the end of it you are freed.

44
Q

What happens if the terms of an IVA aren’t met?

A

Then a petition for bankruptcy can be made.

45
Q

What happens when an individual applies for bankruptcy?

A

They make a petition and apply online. They will hear in 28 days.

46
Q

What happens when you try and bankrupt someone else?

A

You have to bring the petition to court. You must be owed at least 5k. You must serve your petition to the individual. Courts will come to a decision in 14 days.

47
Q

What must you do as a creditor applying for bankruptcy?

A

Prove that you tried to get payment by serving a statutory demand. Prove any attempts to enforce a judgement order haven’t been satisfied.

48
Q

What happens when you are declared bankrupt?

A

Can’t be a company director. Can’t borrow more than £500 without disclosing. Can’t practice as a Chartered Accountant.

49
Q

What does the official receiver do in bankruptcy?

A

Helps to sort out your estate and debts. You may not make a payment of any money unless the courts approve it.

50
Q

What elements of a persons estate are protected in bankruptcy?

A

Tools required for business. Clothing and Household things for basic human needs. Property held on trust to another person. Certain tenancies.

51
Q

What is the time frame for discharging a bankruptcy order?

A

A year or maybe 2 to 15 depending on the nature.

52
Q

What percentage of creditors must object to a decision for it to not be passed?

A

At least 10%

53
Q

How far back do liquidators look to test for preference?

A

6 months for unconnected creditors, 2 years for connected

ACA Law (13 decks)

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