Insolvency Flashcards
When is a company insolvent?
4 options
- creditor served statutory demand for over 750, and it hasn’t been paid within 21 days of service
- creditor obtained judgement against the company and it hasn’t been paid
- cash flow test (can’t pay debts)
- balance sheet tests (liabilities exceed assets)
What are the 3 types of liquidation?
- compulsory liquidation (3rd party presents winding up petition)
- creditors’ voluntary liquidation (directors and shareholders do it voluntarily under creditor pressure)
- members’ voluntary liquidatioin (company still solvent)
In liquidation, in what situation are directors’ appointments terminated?
In compulsory liquidation
Order of asset distribution in liquidation
- fixed charge holders
- costs of winding up
- preferential creditors
- floating charge holders
- unsecured creditors
What are preferential debts?
- wages of employees (up to 800/employee)
- employees’ holiday pay
- HMRC debts collected on its behalf
What is ringfencing?
The setting aside of some available money for floating charge holders for the benefit of unsecured creditors
How much money can be ringfenced?
50% of first 10,000
20% of remainder,
up to maximum total of 800,000
What is the main advantage of administration?
A statutory moratorium is imposed
Who are the administrator’s duties owed to?
Creditors as a whole
What are the 3 aims of administration?
- rescue the company as a going concern
- achieve better result for creditors than if winding up happened
- sell property to pay creditors
What are the 2 routes to starting administration?
- court route
- out of court route
Who are the 3 entities that can appoint an administrator?
- court
- directors
- qualified floating charge holder
What is the main difference between an administrator and an administrative receiver?
Administrator owes duties to the creditors as a whole
Administrative receiver primarily owes duties to those who appoint him, and only a secondary duty to the other creditors
When can a lender appoint an administrator?
- he holds a qualified floating charge,
- the floating charge is enforceable (event of default has occurred)
- the appointment complies with Schedule B1 of the IA
When is an administrator’s proposal to creditors passed?
When the majority of creditors in value present and voting vote for it (as long as those against aren’t over 50% in value of unconnected creditors)
Do directors still owe their duties and remain in office during administration?
Their duties cease, but they remain in office
When does administration end?
Automatically after 12 months
What is a company voluntary arrangement?
A written, binding agreement between the company and all its creditors
When is a company voluntary arrangement approved?
At least 75% of creditors in value, and
At least 50% of unconnected creditors
vote for it
Who is a company voluntary arrangement binding on?
All unsecured creditors in relation to past debts
When can a CIGA 2020 restructuring plan be used?
When the company has/is likely to encounter financial difficulties (insolvency NOT needed!)
What is a CIGA 2020 restructuring plan?
An agreement between the company and all its creditors
When is a CIGA 2020 restructuring plan passed?
Done in classes- class approves it if 75% are in favour
Dissenting class can be crammed down, if it’d be no worse off under the plan as without it
Which debts does the CIGA 2020 moratorium NOT suspend?
- employees’ wages
- monitor’s fees
- goods/services received during the moratorium
How long does the CIGA 2020 moratorium last for (+ can it be extended)?
20 business days, starting the day after the order is made
It can be extended by another 20
Directors can extend it up to 1 year, if the creditors not getting paid agree
When can a CIGA 2020 moratorium be used?
If the company can’t/likely to become unable to pay its debts
What are the 2 types of receivers?
- LPA receivers (appointed by fixed charge holder)
- administrative receivers (appointed by floating charge holder)
Where does the power to appoint an LPA receiver stem from?
The charge agreement (not the LPA)
When can an administrative receiver be appointed?
- charge created before 15.9.2003
- the trigger event has occured
What are the conditions for the court to make an administration order?
The company is/is likely to become unable to pay its debts, and
Administration is reasonably likely to achieve the purpose of administration
