Insolvency Flashcards
What is the likely position an administrator will take regarding a payment of a statutory demand prior to insolvency proceedings being brought?
The administrator is unlikely to have the payment set aside as the payment was made under the threat of insolvency proceedings
For there to be a preference transaction, there must be a desire to prefer. If the payment is paid in threat of insolvency proceedings, this is not a desire to prefer
What is an insolvency practitioner looking for in assessing whether a payment for preference can be set aside?
Must look for whether it is possible to establish or presume a desire to prefer the recipient
Who has to pay out the largest amount for wrongful trading?
Directors
- A director is liable for wrongful trading if they continue to trade even though the company aces insolvency and they knew/ought to have known that the company would go insolvent
- This test means that, where insolvency is inevitable, directors will be liable if there is no rational basis for them continuing to trade and they fail to safeguard creditors’ interests
What can a creditor’s bankruptcy petition be served against an individual (personal insolvency)?
The debt must exceed the bankruptcy level which is £5,000
- The ground for petition is that the debtor appears unable to pay or has no reasonable prospect of paying
- The debt owed to the creditor is for an unsecured liquidated sum exceeding £5,000
If the debt exceeds £5,000 - serve the debtor with a statutory demand
How is an individual’s inability to pay debts evidenced (personal insolvency)?
- Statutory demand that has neither been satisfied within 3 weeks nor set aside by the court
What is the statutory order of winding up?
- Liquidator’s fees and expenses of preserving and realizing assets subject to fixed charges
- Amount due to fixed charge creditor out of proceeds of selling assets subject to the fixed charge
- Liquidator’s other remuneration, costs and expenses
- Preferential creditor (the first tier and then the secondary tier)
- Creation of the prescribed part fund (if available) for unsecured creditors
- Amount due to creditors with floating charges
- Unsecured/trade creditors (including payment of prescribed part)
- Interest owed to unsecured creditors
- Shareholders
Who is the prescribed part fund for?
Unsecured creditors
- money reserved for unsecured creditors - ‘ring fenced’
- served rateably among unsecured creditors
Can a floating-charge holder appoint an administrator?
A floating-charge holder may appoint an administrator by filing notice of appointment at the court
What is the ability of creditors to apply for an administrator?
One of more creditors of a company may apply to court for an administration order in respect of a company
- this is not subject to any requirements as to value of their debt or the debt being secured
What is the validity of a floating charge?
A floating charge given to a connected person within two years of winding up is prima facie invalid, except to the extent of new consideration given to the company at or after the creation of the charge
When are new floating charges valid?
A floating charge is valid to the extent that new money or other fresh consideration is provided to the company in return
- Floating charge only valid in relation to new consideration - the ‘new money’ (not the historic debt)
Example:
A company is lent £20,000 by one of its directors in January 2022. In June 2022, with this loan still outstanding, the director lends the company a further £10,000 and is granted, as security, a floating charge over all the assets of the company. The director lends a further £5,000 in August 2023. The company is wound up in October 2023. All three loans remaining outstanding in full, together with interest due.
- Floating charge is valid for £15,000 plus interest on that amount
What is the effect of an interim order within the IVA process?
No bankruptcy petition could be present and no other proceedings commenced against the debtor without the leave of the court
