Insolvency Flashcards
What is a pre-insolvency moratorium? (2) How long does it last?
- a period which creditors cannot exercise their usual rights and remedies
- company does not have to pay debts incurred before moratorium
- 20 business days. Directors can extend for further 20 business days. Any further must be made by court
What documents must you file at court to get a pre-insolvency moratorium? (2)
- statement that company is likely going to become unable to pay debts as they fall due
- statement from licensed insolvency practitioner that a moratorium is likely to result in a rescue of the company as a going concern
What informal arrangements can you make following insolvency? (2)
- negotiation with each creditor
- pre-insolvency moratorium
When is a company deemed insolvent? (4)
- cash flow test
- balance sheet test
- statutory demand
- unable to meet judgement order
What formal arrangements can you make following insolvency? (2)
- company voluntary arrangement (CVA)
- restructuring
What is the major disadvantage of a CVA?
cannot bind secured or preferential creditors without consent
What is the major advantage of a CVA?
company can still carry on trading and therefore, generate income to be able to pay off some debts
What is the process to set up a CVA? (4)
- directors draft CVA proposal and appoint Nominee
- directors submit CVA proposal + statement of affairs to Nominee
- Nominee must report to court within 28 days on whether there should be a vote
- vote!
What is the major advantage of restructuring? What is the contingency on this advantage? Name another advantage
- “cross class cram down” - will bind classes of creditors/SH who voted against and/or did not achieve requisite majority
- if it is just and equitable
- courts can exclude those who do not have a genuine economic interest from voting
What is a disadvantage of restructuring?
can be costly and time consuming
What is the requisite vote to push through a CVA or restructuring? Where does this vote take place?
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
- at a GM
What is a CVA?
A legally binding agreement between the business and its creditors
It sets out how repayments of company debt should be made to creditors
What benefits does a full moratorium provide in administration? (5)
- no winding up order
- no admin receiver
- cannot enforce security
- no legal proceedings
- cannot forfeit lease
What must an administrator produce within 8 weeks? What are the 2 potential outcomes?
a report that must be approved by creditors
- approved + achieved = exit admin
- rejected or not achieved = liquidation
Who are the 3 entities that can appoint an administrator?
- court
- directors of company
- holder of a QFC
What steps must directors take to appoint an administrator? (3)
- file notice of intention
- send notice to any QFC and give them 5BD to appoint own choice
- file notice of appointment
How does a QFC holder appoint an administrator? (3)
- enforce in acc with terms of the QFC
- seek consent of higher ranking QFC
- file notice of appointment
Mention the 3 ways a company can be placed in liquidation
- Compulsory
- MVL
- CVL
How is a company placed in compulsory liquidation? Name the 2 statutory grounds
relevant person applies for a winding up petition on one of the statutory grounds:
- inability to pay debts
- just and equitable
Who can apply for a winding up petition? (4)
- creditor
- directors
- company
- administrator
What is the process to place company in MVL (solvent)? (3)
- declare solvency
- SH SR to enter liquidation
- OR to appoint liquidator
What is the process to start a CVL?
What is the process to place company in CVL (insolvent)? (4)
- SH SR to place company in CVL
- OR to appoint liquidator
- Within 14 days ask creditors to approve put forward own choice of liquidator
- Directors send statement of company affairs to creditors
What is the statutory order of entitlement for liquidation? (8)
- liquidator’s fees in selling fixed charge assets
- fixed charge holders
- two tiers of preferential (tier 1 in full first)
- prescribed part fund from floating charge assets (% of company’s net assets)
- floating charge holders
- unsecured
- preferential and floating charge holders can collect shortfalls here
- interest owed to unsecured creditors
- shareholders
What are the 2 options for personal insolvency?
- IVA
- bankruptcy petition
Name 4 features of the IVA
- cannot bind secured/preferential creditors without their consent
- 14 day moratorium available
- same process as setting up a CVA (proposal, interim order, vote)
- can last for any length of time
Who can bring a bankruptcy petition? (2) On what grounds?
- creditor - unable to pay debt of £5000 or more
- debtor - unable to pay debts
Restrictions on debtor following court order include (2)
- unable to take credit up to £500 without disclosing bankruptcy
- cannot act as director in company or be involved in management
What is the order of priority for the bankrupt? (7)
- secured creditors
- expenses (ie. Trustee renumeration)
- two tiers of preferential creditors
- unsecured
- statutory interest
- debts of a spouse
- any surplus back to bankrupt
