Insolvency Flashcards
When is a company considered insolvent? (4)
Where a creditor has served a statutory demand for an outstanding sum of £750 or more and the debt is not paid within 21 days of the demand
A judgment is obtained against the company and it hasn’t been paid despite enforcement
It can be proved the company is unable to pay its debts
It can be proved that the company’s liabilities exceed its assets
What are the three options for an insolvent company?
Liquidation
Administration
Company Voluntary Arrangement
What is liquidation?
Where a business stops trading and its assets are sold to obtain money to pay the company’s creditors.
What are the three types of liquidation?
Compulsory liquidation
Creditors’ voluntary liquidation
Members’ voluntary liquidation
What is compulsory liquidation?
Where a petitioner presents a winding up petition at court.
This will be prevented where the company can show there is a genuine and substantial dispute in relation to the money owed.
What is creditors’ voluntary liquidation?
Initiated by the company via discussion and agreement with directors and shareholders.
What is members voluntary liquidation?
To wind up a solvent company e.g. dormant or no longer wishing to trade.
Directors must sign a declaration to confirm solvency and will be converted to a CVL if it is discovered otherwise.
How can liquidators and administrators increase assets for creditors?
Avoiding certain floating charges
Transactions showing a preference can be challenged
Transactions at an undervalue can be challenged
Transactions which defraud creditors can be challenged
Extortionate credit transactions can be challenged
When can some floating charges be avoided during liquidation or administration?
If a charge was created with a connected person within two years of insolvency, or any other person within 12 months of insolvency, without the company receiving anything in value in return for granting security.
When can a transaction show a preference?
Where a company puts another person in a better position than they would have been otherwise, in the event the company went into insolvent liquidation/administration.
What is the method by which an insolvent LLP may bring its business activities to an end?
Creditors’ voluntary liquidation
