Insolvency Flashcards
What is insolvency?
A state where a company or individual is unable to pay its debts as they become due.
What is receivership?
A receiver is appointed to take control of a company’s assets and repay secured creditors.
What is administration?
An insolvency procedure aimed at rescuing the company as a going concern or achieving a better outcome for creditors than if the company were immediately liquidated.
What is liquidation?
The company’s assets are sold to repay creditors and the company is dissolved.
What are the grounds for compulsory liquidation?
- A creditor is owed a debt exceeding £750 for three weeks after a written request.
- The court believes the company is unable to pay its debts.
- The company’s assets are worth less than its liabilities.
What is compulsory liquidation?
Initiated by a court order.
What is voluntary liquidation?
Initiated by the company’s shareholders.
What is the role of a liquidator?
Realise the company’s assets, pay off the company debts, and distribute any surplus among shareholders.
What is the order of priority for distributing assets in a liquidation?
Fixed charge secured creditors, liquidator’s fees and expenses, preferential creditors, floating charge holders, unsecured creditors, and shareholders.
What is receivership?
An insolvency procedure where a receiver is appointed to take control of a company’s assets to recover the debt owed to them.
What are the duties of a receiver?
Act in the best interests of the creditor who appointed them, realise the company’s assets to repay the debt, and comply with statutory requirements including reporting to creditors.
What are the objectives of administration?
To rescue the company, the achieve a better result for creditors, and to realise property to make a distribution to secured or preferential creditors.
Who can appoint an administrator?
The company itself, the directors, a secured creditor with a qualifying floating charge, or the court.
What is the effect of an administration order?
A moratorium comes into effect which prevents legal actions against the company, and an administrator is appointed to manage the company affairs.
What is a Company Voluntary Arrangement (CVA)?
A legally binding agreement between a company and its creditors to repay debts over an agreed period of time - a form of corporate rescue that can help avoid liquidation.