Insolvency Flashcards

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1
Q

What is insolvency?

A

A state where a company or individual is unable to pay its debts as they become due.

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2
Q

What is receivership?

A

A receiver is appointed to take control of a company’s assets and repay secured creditors.

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3
Q

What is administration?

A

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.

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4
Q

What is liquidation?

A

The company’s assets are sold to repay creditors and the company is dissolved.

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5
Q

What are the grounds for compulsory liquidation?

A
  • 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.
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6
Q

What is compulsory liquidation?

A

Initiated by a court order.

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7
Q

What is voluntary liquidation?

A

Initiated by the company’s shareholders.

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8
Q

What is the role of a liquidator?

A

Realise the company’s assets, pay off the company debts, and distribute any surplus among shareholders.

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9
Q

What is the order of priority for distributing assets in a liquidation?

A

Fixed charge secured creditors, liquidator’s fees and expenses, preferential creditors, floating charge holders, unsecured creditors, and shareholders.

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10
Q

What is receivership?

A

An insolvency procedure where a receiver is appointed to take control of a company’s assets to recover the debt owed to them.

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11
Q

What are the duties of a receiver?

A

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.

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12
Q

What are the objectives of administration?

A

To rescue the company, the achieve a better result for creditors, and to realise property to make a distribution to secured or preferential creditors.

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13
Q

Who can appoint an administrator?

A

The company itself, the directors, a secured creditor with a qualifying floating charge, or the court.

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14
Q

What is the effect of an administration order?

A

A moratorium comes into effect which prevents legal actions against the company, and an administrator is appointed to manage the company affairs.

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15
Q

What is a Company Voluntary Arrangement (CVA)?

A

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.

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16
Q

What is a Scheme of Arrangement?

A

A court-approved agreement between a company and its creditors or members to restructure its debts or share capital - more formal and complex than a CVA.

17
Q

What is wrongful trading?

A

When a director continues to trade a company when there is no reasonable prospect of avoiding insolvent liquidation.

18
Q

What is fraudulent trading?

A

Involves carrying on a business with the intent to defraud creditors or any other fraudulent purpose.

19
Q

What the consequences of wrongful or fraudulent trading?

A

Directors can be held personally liable for the company’s debts if found guilty.

20
Q

What is the ‘prescribed part’ of insolvency?

A

A portion of a company’s net assets that is set aside for unsecured creditors in a liquidation, even if there are floating charge holders - helps to ensure a fairer distribution of assets.

21
Q

What is the role of the Insolvency (Scotland) Rules 2018?

A

Sets out procedures for various insolvency processes in Scotland, including receivership, administration, and liquidation.

22
Q

What is a ‘phoenix company’?

A

A new company formed to take over the business of an insolvent company, often with the same directors and assets, to avoid paying creditors of the old company - generally frowned upon and subject to specific regulations.