Insolvency (Corporate and Personal)

Question 1

what is a company voluntary arrangement?

Answer 1

A binding agreement between the company and its creditors:

by which the company compromises its debts

OR

agrees on an arrangement for their discharge

Question 2

Administration?

Answer 2

main collective process under which:

a company may be organised

OR

its assets realised under the protection of a statutory moratorium.

Question 3

Liquidation broad definition?

Answer 3

not a rescue mechanism but:

is the process by which a company is wound up

AND

involves appointment of a liquidator

Question 4

what are the 2 types of liquidation?

Answer 4

compulsory liquidation -

creditor will serve a winding up petition at court to prove that the company cannot pay its debts

Voluntary liquidation:

members’ voluntary liquidation (if solvent)

OR

Creditors’ voluntary liquidation (if insolvent)

Question 5

What is an individual voluntary arrangement (IVA)?

Answer 5

alternative to bankruptcy where debtor:

agrees to voluntary repayment plan

AND

applies for a moratorium

Question 6

what is a bankruptcy petition?

Answer 6

made to the court by a:

creditor owed 500 GBP or more

creditor bound by an IVA where debtor has not complied

debtor who is unable to pay debts

Question 7

how does a bankruptcy order work?

Answer 7

bankruptcy order is made at court hearing

trustee in bankruptcy takes control of bankrupt’s assets to be sold for repayment

Question 8

when a a bankrupt person discharged from bankruptcy?

Answer 8

one year from the date bankruptcy commences

Question 9

claw-back of assets for creditors: explain what happens with preferences

Answer 9

the preference can be set aside

Question 10

what is a preference?

Answer 10

a company prefers a person if:

1- The person is a creditor, guarantor, or surety of company debts/liabilities

2- company puts that person in a better position in insolvency

3- preference occurred at the relevant time

4- company was insolvent or became insolvent as a result of the preference

Question 11

what is the relevant time for a preference?

Answer 11

if preference occurred:

6 months before insolvency OR
2 years before insolvency if the person is connected to the company

Question 12

what is a transaction at an undervalue?

Answer 12

company enters into transaction at an undervalue at the relevant time if:

it gifts assets

OR

enters into a transaction for significantly less consideration than provided by the company

Question 13

what is the relevant time for a transaction at an undervalue?

Answer 13

2 years before the onset of insolvency

AND

the company was unable or became unable to pay its debts because of the transaction

Question 14

what should the liquidator/adminstrator do if they determine there has been fraudulent trading?

Answer 14

court declaration can be sought in order to:

hold individuals personally liable

AND

require contributions to company’s assets

Question 15

what happens if a director is found liable for wrongful trading?

Answer 15

they can be held personally liable if:

company enters insolvent liquidation

AND

the director knew/ought to have known that the company had no reasonable prospect of avoiding liquidation

AND

that person was a director at the time

Question 16

what is a defence to wrongful trading for directors?

Answer 16

if they took every step to reduce the potential loss to creditors

Question 17

what remedy does the company have for wrongful trading by a director?

Answer 17

director may have to make a personal contribution to the company’s assets

Question 18

how is a floating charge set aside?

Answer 18

it is invalid if at the relevant time when charge was created:

company got nothing in return in the form of new money, goods or services or the extinguishing of existing debts.

Question 19

what is the relevant time for setting aside a floating charge?

Answer 19

if charge was created for a person connected with the company in the 2 years before insolvency

OR

if the charge was created in favour of any person in the 12 months before insolvency.

Question 20

what is the order of priority for distribution to creditors?

Answer 20

1- fixed charge holders
2- liquidation/administration costs
3- preferential creditors
4- floating charge holders
5- ordinary unsecured creditors