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BLP > Insolvency > Flashcards

Insolvency Flashcards

1
Q

S123 IA 1986 a company is insolvent when….

A

Statutory demand for £750+ and don’t pay or make an arrangement within 21 days
Creditor obtained judgement and tried to enforce it unsuccessfully
Cash flow test- cannot pay debts as they fall due
Balance sheet test - liabilities exceed assets

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2
Q

Options for secured creditors

A

Fixed charge - LPA receiver
Floating charge before 15.09.13 administrative recover
Floating charge after 15.09.13 administrator

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3
Q

2 new options created by the corporate Insolvancy and governance act 2020

A

Moratorium

Restructuring plan

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4
Q

What is Insolvancy

A

Inability to pay debts

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5
Q

Aims of corporate Insolvancy law

A

Save company
Control D
Protect creditors

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6
Q

Aims of personal Insolvancy law

A

Protect creditors

Encourage entrepreneurs

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7
Q

What is liquidation

A

Winding up

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8
Q

What happens to D during liquidation

A

Ds powers cease and liquidator runs company

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9
Q

3 types of liquidation

A

Compulsory - third party petitions at court on grounds company cannot pay debts. Establish a s123 ground
Creditors voluntary - insolvent company under pressure from creditors
Members voluntary - solvent company wants to end

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10
Q

Process for compulsory liquidation

A

Winding up petition
Ground- cannot pay debts. S123
Cannot proceed if genuine and substantial dispute about money owed
If can pay in reasonable period may adjourn
Official receiver becomes liquidator
Or private practitioner if enough funds

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11
Q

Claims a liquidator can make to maximise assets for creditors

A 
Avoidance of certain floating charges
Preference
Transactions at an undervalue
Transactions defrauding creditors
Extortionate credit transactions
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12
Q

What does liquidator do

A

Sell assets
Pays creditors
Apply for release

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13
Q

When does liquidation end

A

Liquidator applies for release

3 months later registrar of companies dissolved company

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14
Q

Duty of liquidators

A

Maximise assets for creditors

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15
Q

What happens to Ds powers in compulsory liquidation

A

Their appointments are terminated

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16
Q

Who runs a company during liquidation

A

Liquidators

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17
Q

Liquidators powers

A 
Collect and distribute assets
Carry on company business
Commence and defend litigation 
Investigate past transactions 
Investigate Ds conduct 
Anything necessary to facilitate winding up of the company
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18
Q

Extortionate credit transaction - corporate liquidations or administration

A

L or A can challenge transaction made in 3 years prior to L or A

Grossly exorbitant payments or breaches fair dealing

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19
Q

What is a transaction defrauding creditors

A

Transaction at an undervalue which company entered into to put assets out of reach of creditor

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20
Q

Is there a time limit to challenge a transaction defrauding creditors

A

No

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21
Q

Who can challenge a transaction defrauding creditors

A

A. L or creditor

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22
Q

Do you need court permission to challenge a transaction defrauding creditors

A

Yes

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23
Q

Consequences of successfully challenging a transaction defrauding creditors

A

Return property

Discharge security

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24
Q

What is a transaction at an undervalue

A

Gift or consideration significantly lowers than consideration given by company

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25
Q

Requirements to challenge a transaction at an undervalue

A

2 years ending in Insolvency
Insolvent at time or as a result
Insolvency presumed if connected person

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26
Q

Defence to transaction at an undervalue

A

Entered into in good faith
To carry on business
Reasonable grounds for believing it would benefit company

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27
Q

What is a preference

A

Where company puts person in better position than they otherwise would be in it company went into L or A

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28
Q

Requirements to challenge a preference

A 
2 years ending in insolvency - connected person 
6 months - unconnected person 
Insolvent at time or as a result 
No presumption of insolvency 
Desire to prefer not just intention 
Connected person presume desire
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29
Q

Consequences of successfully challenging a preference

A

Release security
Return property
Transfer proceeds of sale of property that formed part of deal

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30
Q

When can a floating charge be avoided

A

Charge is void if it was granted without company receiving fresh consideration in exchange for security
2 years ending in insolvency if connected person
12 months if unconnected person
If unconnected must be insolvent or insolvent as a result. Not if connected

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31
Q

How does L or A avoid a floating charge

A

L or A writes to charge holder saying it is invalid

If charge holder tries to enforce it L or A can get injunction

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32
Q

Who is a connected person

A

D
Shadow D
Relative or business associate of D or shadow D
Associate of company (company in same group or controlled by same D)

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33
Q

Order of payment in liquidation

A 
Fixed 
Expenses of winding up
Preference - rank and abate equally 
Floating 
Unsecured - rank and abate equally 
S
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34
Q

Meaning of rank and abate equally

A

All creditors in that category get same percentage of the outstanding debt they are owed

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35
Q

What is proving the debt

A

Liquidators send form to unsecured creditors which they complete with demands of debt owed to them
Liquidators approve or reject the claim

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36
Q

What are preferential debts

A

Wages of employees in past 4 months up to £800
Employee accrued holiday pay
HMRC behind employees - taxes company collect on HMRC behalf but not taxes company owes directly to HMRC

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37
Q

What if there is a shortfall once fixed charge asset is sold

A

The charge holder becomes an unsecured creditor for the remainder of the outstanding debt

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38
Q

What is ring fencing

A

Setting aside a portion of the available money for floating charge holders and unsecured creditors

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39
Q

Which floating chargers benefit from ring fencing

A

Those created on or after 15.09.13

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40
Q

How much money is ring fenced

A

50% of first £10k of proceeds of property subject to floating charge
20% of remaining proceeds
Up to £800k

Or £600k for charges created before 6.4.20

Unless charge created after that ranks equally or in priority to pre-April charge then £800k applies to both charges

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41
Q

Alternatives to liquidation for corporate Insolvancy

A 
Administration 
Company voluntary arrangement 
Scheme of arrangement 
Restricting plans
A free standing memorium 
Informal agreements with creditors
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42
Q

What is a restructuring plan

A

Company proposed a plan to creditors and members

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43
Q

What is a scheme of arrangement

A

Restructure large companies
Require 2 court hearings and meeting of S with creditors
Can be entered into at any time. No need to be insolvent

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44
Q

What is a free standing memorium

A

Sought by D by making a filing at court

No litigation for period of time

45
Q

Are informal agreements with creditors binding

A

No

46
Q

What is pre-packaged administration

A

Where administrator sells assets and business straight away often to management of company
As a going concern

47
Q

Are unsecured creditors consulted when a pre packaged administration is planned

A

No

48
Q

What is administration

A

When administrator makes changes to company to improve finances or gets it in position for sale

49
Q

Who does administrator have a duty to

A

Creditors

50
Q

Primary objective of an administrator

A

Rescue company as a going concern

If not possible then try to get better result for creditors

51
Q

During administration there is a statutory memorium. What does this mean

A

No one can continue or start legal action against company, enforce judgement or issue a winding up petition without administrators consent

52
Q

Who do receivers have a duty to

A

The person who appointed them

53
Q

Who do administrative receivers have a duty to

A

Primary duty to those who appointed them

Secondary duty to others

54
Q

2 ways to commence administration

A

Out of court

In court

55
Q

When will court grant administration

A

If company is likely to become unable to pay debts and it will achieve a better result for creditors than liquidation

56
Q

What to do after administration order is made using court route

A

Applicant must notify anyone entitled to appoint administrative receiver And any QFCH entitled to appoint administrator

57
Q

Process for commencing administration using out of court route

A

D or company serve notice at court, on QFCH and on any lender entitled to appoint administrative receiver
D must declare company cannot pay debts and is not in liquidation
Moratorium comes into effect

58
Q

Can out of court administration be used if a winding up petition has already been presented at court

A

No D must instead apply for an order than the company go into administration instead of winding up

59
Q

Can any QFCH appoint an administrator

A

They must check if any other QFCH has priority

Must notify anyone with priority to get them the first chance to appoint an administrator

60
Q

What must a lender do to appoint an administrator

A

File notice of appointment at court including a statutory declaration

61
Q

What is a QFC

A

States that para 14 of sch B1 to IA 1986 applies
Charge docs allows holder to appoint administrator or administrative receiver
And
The charge doc related to whole or substantially the whole of company property or does so when added to other security held by same lender

62
Q

When does moratorium come into effect

A

Once administration has started

63
Q

Steps of an administrator

A

Put forward proposals for company to creditors
Creditors can ask for info and amend proposals
Proposals approved

64
Q

When are administrator proposals approved

A

Majority of creditors present and voting are in favour
And
Those who vote against aren’t more than 50% in value of the creditors who are unconnected to the company

65
Q

When does administration end

A

One year from taking effect - automatic
Can be Extended
Or early by application to court if objective achiever or if administrator believes objective cannot be achieved or by application of creditor
Creditor can then present winding up petition

66
Q

Administrators statutory powers

A

Anything necessary or expedient for management of affairs, business and property of company
Remove and appoint D
Paying creditors (need court permission to pay unsecured creditor)
Calling meetings of S or creditors
Dealing with property (court permission to deal with fixed charge property)
Investigate and challenge past transactions
Commence proceedings against D

67
Q

What is a company voluntary arrangement

A

A written agreement binding all unsecured creditors and secured creditors who agree
Agree to wait longer or accept part payment

68
Q

Who supervises a CVA

A

Insolvency practitioner

69
Q

Does CVA apply to past and future debts

A

Only past debts

Not future costs

70
Q

Who is a CVA available to

A

L, A or company

71
Q

Special entitlement for small companies who enter into CVA

A

They get a moratorium of 28 days after filing CVA at court

72
Q

Who must agree to a CVA

A

75% or more in value of company creditors
And
50% of more of non connected creditors

Secured creditor cannot vote except if they are also unsecured creditors

Chair of CVA meeting decides who is connected

73
Q

When is an individual insolvent

S267IA

A

Cannot pay a debt due now
Or
No reasonable prospect of paying a debt due in the future

74
Q

What is bankcruptcy

A

when debtors assets are passed to trustee in bankruptcy who pays as many debts as possible
Individual is subject to restrictions

75
Q

3 ways a creditor can prove an individual is insolvent

A

Serve statutory demand for £5k or more and after 3 weeks it isn’t paid or set aside

Serve statutory demand for future debt of £5k or more and after 3 weeks haven’t set it aside or shown reasonable prospect of being able to pay

Obtain court judgement for £5k or more and attempt execution unsuccessfully

76
Q

When is bankruptcy discharged

A

1 year later

77
Q

How are student loans treated differently during bankruptcy

A

Student loans must be paid in full even after bankruptcy is discharged

78
Q

How is bankruptcy commenced

A

Individual applies
Creditor can petition at court and serve it on debtor if owed £5k or more - show cannot pay or not reasonable prospect using one of three methods in s268

79
Q

Options for an insolvent individual

A

Individual applies for bankruptcy
Individual voluntary agreement
Debt relief order
Creditor petitions for bankruptcy

80
Q

Can creditor petition for individual bankruptcy of debtor if they are owed less than £5k

A

Creditors can join together if owed £5k together

81
Q

How a creditor petitions at court for individual bankruptcy

A

Creditor can petition at court and serve it on debtor if owed £5k or more - show cannot pay or not reasonable prospect using one of three methods in s268
Pay deposit and court fee

82
Q

How an individual applies for their own bankcruptcy

A

Apply online
Adjudicator decides within 28 days or 42 if more info needed
Ground is unable to pay debts
Pay deposit for OR and application fee

83
Q

Who acts as a trustee in bankruptcy

A

Official receiver

Creditor can appoint private trustee if enough funds

84
Q

What must debtor provide OR with to assist with bankruptcy process

A

Statement of affairs detailing recent transactions

85
Q

How is property transferred from debtor to OR

A

It happens automatically

86
Q

How is the trustee in bankruptcy released at the end

A

Must apply to be released

87
Q

What does a trustee in bankruptcy do

A

Challenge transactions
Sells assets
Pay debts

88
Q

Order of distribution in bankruptcy

A 
Secured creditors 
Costs of bankruptcy 
Preferential debts
Unsecured creditors 
Postponed creditors (spouse)

Within each category they rank and abate equally

89
Q

What assets can a debtor keep so trustee in bankcruptcy cannot sell them

A

Assets for day to day living, work and everyday household items

Can replace expensive item with cheaper version

Salary

90
Q

Income payments agreement

A

Can be voluntary or through a court order
Debtor gives bankruptcy trustee some of salary
Lasts 3 years

91
Q

Can a trustee in bankruptcy sell a debtors house

A

If someone else is in it then will need a court order

92
Q

Personal insolvency alternatives to bankruptcy

A

IVA
Negotiate with creditors
Debt relief order

93
Q

What is an IVA

A

Binding agreement between unsecured creditors setting out how much each creditor will get

94
Q

Who supervises an IVA

A

Insolvency practitioner

95
Q

Can a debtors transactions be set aside using an IVA

A

No

96
Q

Steps to get an IVA

A

Debtor gives nominee statement of affairs
Applies to court for interim order to get moratorium for 14 days
Nominee tells court of creditors decision making process should take place
If it does need 75% of creditors in value to agree at least 50% of which in value are not associated to debtor

97
Q

Who is bound by IVA

A

All unsecured creditors

Only binds secured or preferential creditors if they consent

98
Q

Can creditors still petition for bankruptcy if there is an IVA

A

Yes if debtor gave false info or didn’t cooperate

99
Q

Are negotiations with creditors binding

A

No

100
Q

What is a debt relief order

A

When the debtors assets are very low
OR makes order
Debtor is protected from enforcement action by creditors
12 months later mostly free from debt
Same restrictions as bankruptcy apply
Debtor must cooperate with OR and pay creditors if finances improve

101
Q

How long can restrictions under a debt relief order last

A

Up to 15 years if debtor is culpable or dishonest

Can get extra period by OR applying for debt relief restrictions order against debtor

102
Q

Do all bankruptcy restrictions end when bankruptcy is discharged

A

No necessarily

Property is not returned to individual. Must help trustee sell it

103
Q

Is bankruptcy always discharged after 1 year

A

Normally but could be suspended if individual is uncooperative or dishonest

104
Q

What are bankruptcy restriction orders and bankruptcy restriction undertakings

A

Order is for dishonest, negligent or reckless bankrupt. Order made by court. Last 2-15 years

Undertaking is voluntary

Neither can be D, MP or IP, and cannot get credit over £500 without disclosing order

105
Q

Who does a trustee in bankruptcy owe a duty to

A

Creditors

106
Q

What business restrictions apply to debtor in bankruptcy

A

Cannot be a D
Need court permission to manage, prompt or form a company
Disclose bankruptcy for credit over £500
Cannot trade under different name without disclosing bankruptcy
Partnership ends

107
Q

What personal restriction apply to debtor in bankruptcy

A

Need SRA permission to practice as solicitor

Disclose bankruptcy for credit over £500

108
Q

Claims / actions trustee of bankruptcy take take

A

Disclaim onerous property - anyone who suffers loss becomes unsecured creditor
Set aside transactions at an undervalue - 5yrs, no need to show insolvency
Set aside preferences - presumption of intention to prefer if relative of business associate
6m or 2yrs for connected person
Insolvent at time or as a result
Set aside transactions defrauding creditors
Avoid extortionate credit transactions
3 years, grossly exuberant terms or breach fair dealing

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