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BLP > Insolvency > Flashcards

Insolvency Flashcards

1
Q

What is a pre-insolvency moratorium? (2) How long does it last?

A
  1. a period which creditors cannot exercise their usual rights and remedies
  2. company does not have to pay debts incurred before moratorium
  3. 20 business days. Directors can extend for further 20 business days. Any further must be made by court
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2
Q

What documents must you file at court to get a pre-insolvency moratorium? (2)

A
  1. statement that company is likely going to become unable to pay debts as they fall due
  2. statement from licensed insolvency practitioner that a moratorium is likely to result in a rescue of the company as a going concern
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3
Q

What informal arrangements can you make following insolvency? (2)

A
  1. negotiation with each creditor
  2. pre-insolvency moratorium
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4
Q

When is a company deemed insolvent? (4)

A
  1. cash flow test
  2. balance sheet test
  3. statutory demand
  4. unable to meet judgement order
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5
Q

What formal arrangements can you make following insolvency? (2)

A
  1. company voluntary arrangement (CVA)
  2. restructuring
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6
Q

What is the major disadvantage of a CVA?

A

cannot bind secured or preferential creditors without consent

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7
Q

What is the major advantage of a CVA?

A

company can still carry on trading and therefore, generate income to be able to pay off some debts

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8
Q

What is the process to set up a CVA? (4)

A
  1. directors draft CVA proposal and appoint Nominee
  2. directors submit CVA proposal + statement of affairs to Nominee
  3. Nominee must report to court within 28 days on whether there should be a vote
  4. vote!
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9
Q

What is the major advantage of restructuring? What is the contingency on this advantage? Name another advantage

A
  1. “cross class cram down” - will bind classes of creditors/SH who voted against and/or did not achieve requisite majority
  2. if it is just and equitable
  3. courts can exclude those who do not have a genuine economic interest from voting
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10
Q

What is a disadvantage of restructuring?

A

can be costly and time consuming

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11
Q

What is the requisite vote to push through a CVA or restructuring? Where does this vote take place?

A

i. at least 75% in value of each class (excluding secured creditors) vote in favour

ii. must not be more than 50% of unconnected creditors

ii. simple majority SH vote in favour

  1. at a GM
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12
Q

What is a CVA?

A

A legally binding agreement between the business and its creditors

It sets out how repayments of company debt should be made to creditors

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13
Q

What benefits does a full moratorium provide in administration? (5)

A
  1. no winding up order
  2. no admin receiver
  3. cannot enforce security
  4. no legal proceedings
  5. cannot forfeit lease
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14
Q

What must an administrator produce within 8 weeks? What are the 2 potential outcomes?

A

a report that must be approved by creditors

  1. approved + achieved = exit admin
  2. rejected or not achieved = liquidation
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15
Q

Who are the 3 entities that can appoint an administrator?

A
  1. court
  2. directors of company
  3. holder of a QFC
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16
Q

What steps must directors take to appoint an administrator? (3)

A
  1. file notice of intention
  2. send notice to any QFC and give them 5BD to appoint own choice
  3. file notice of appointment
17
Q

How does a QFC holder appoint an administrator? (3)

A
  1. enforce in acc with terms of the QFC
  2. seek consent of higher ranking QFC
  3. file notice of appointment
18
Q

Mention the 3 ways a company can be placed in liquidation

A
  1. Compulsory
  2. MVL
  3. CVL
19
Q

How is a company placed in compulsory liquidation? Name the 2 statutory grounds

A

relevant person applies for a winding up petition on one of the statutory grounds:

  1. inability to pay debts
  2. just and equitable
20
Q

Who can apply for a winding up petition? (4)

A
  1. creditor
  2. directors
  3. company
  4. administrator
21
Q

What is the process to place company in MVL (solvent)? (3)

A
  1. declare solvency
  2. SH SR to enter liquidation
  3. OR to appoint liquidator
21
Q

What is the process to start a CVL?

A
22
Q

What is the process to place company in CVL (insolvent)? (4)

A
  1. SH SR to place company in CVL
  2. OR to appoint liquidator
  3. Within 14 days ask creditors to approve put forward own choice of liquidator
  4. Directors send statement of company affairs to creditors
23
Q

What is the statutory order of entitlement for liquidation? (8)

A
  1. liquidator’s fees in selling fixed charge assets
  2. fixed charge holders
  3. two tiers of preferential (tier 1 in full first)
  4. prescribed part fund from floating charge assets (% of company’s net assets)
  5. floating charge holders
  6. unsecured
  • preferential and floating charge holders can collect shortfalls here
  1. interest owed to unsecured creditors
  2. shareholders
24
Q

What are the 2 options for personal insolvency?

A
  1. IVA
  2. bankruptcy petition
25
Q

Name 4 features of the IVA

A
  1. cannot bind secured/preferential creditors without their consent
  2. 14 day moratorium available
  3. same process as setting up a CVA (proposal, interim order, vote)
  4. can last for any length of time
26
Q

Who can bring a bankruptcy petition? (2) On what grounds?

A
  1. creditor - unable to pay debt of £5000 or more
  2. debtor - unable to pay debts
27
Q

Restrictions on debtor following court order include (2)

A
  1. unable to take credit up to £500 without disclosing bankruptcy
  2. cannot act as director in company or be involved in management
28
Q

What is the order of priority for the bankrupt? (7)

A
  1. secured creditors
  2. expenses (ie. Trustee renumeration)
  3. two tiers of preferential creditors
  4. unsecured
  5. statutory interest
  6. debts of a spouse
  7. any surplus back to bankrupt

BLP (9 decks)

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