Insolvency Flashcards
What are the two main options available to a company if it finds itself in financial difficulty?
Administration or liquidation
What does administration do?
Aims to rescue a company so that it can continue trading as a going concern
What does liquidation do?
It winds up the company, thus bringing its life to an end (may be voluntary or compulsory)
What is administration?
A process whereby a specialist takes control of a company’s affairs, in an effort to improve its financial position and rescue it from insolvency
What does administration involve?
The appointment of an insolvency practitioner, known as an administrator, to manage the affairs, business and property of a company
Who can an administrator be appointed by?
The court in response to a petition by the company members, directors or any creditor, and the holder of a qualifying floating charge over the company’s assets
The court will agree to appoint an administrator if it is satisfied that what?
That the company is or is likely to become unable to pay its debts, and the administration order is likely to achieve its objectives
What are the effects of appointing an administrator?
The rights of creditors to enforce any security over the company’s assets are suspended, there can be no enforcement of charges, retention of title clauses or hire-purchase agreements against the company, any outstanding petition for winding up is dismissed, no resolution may be passed to wind up the company, and the directors still continue in office, but their powers are suspended
What type of tasks will the administrator carry out?
They are now the company’s agent, but must act in the best interests of all the company’s creditors, they have wide powers to manage the business and property of the company, including the power to bring and defend legal proceedings, sell assets and borrow money, they have the power to remove and replace directors and employees, and he can pay out monies to secured or preferential creditors without the need to seek approval of the court
What are the number of legal duties of an administrator?
They must send notice of appointment to the company and publish notice of appointment, must obtain a list of company creditors and send notice of appointment to each, within 7 days of appointment they must send notice of appointment to the Registrar, they will arrange for certain relevant people to provide a statement of affairs of the company, they must ensure that every business document of the company bears their identity as administrator and a statement that the company affairs and property are being managed by them, and based not he statement of affairs, they must draw up a statement of their proposals which must be approved at a meeting of creditors within 8 weeks of the commencement of administration, if the meeting does not approve the proposals, the court may dismiss the administrator or make such provisions as it sees fit, and if the meeting approves the proposals, the administrator can carry them out
When will the administration end?
When it is completed or when the administrator is discharged by the court
When normally should the administration be completed?
Within 12 months of the date on which it commenced
What is voluntary liquidation?
Occurs where the members pass a resolution to go into liquidation
An ordinary resolution is passed in which case?
Where the period fixed for the duration of the company expires or an event occurs upon which the articles provide that a company should be wound up
A special resolution is passed in which case?
If the company is wound up for any other reason
