Insolvency Law

Question 1

What are the 4 main situations?

Answer 1

1. Company liquidation
2. Members voluntary liquidation
3. Creditors voluntary liquidation
4. Administration

Question 2

Compulsory liquidation

Answer 2

1. Just and equitable or unable to pay debts (judge to decide). Credit owed £750+ or not commenced within year of incorporation or no trading certificate within 3 weeks of registration.
2. Company has passed special resolution to be wound up by court (75% needed)
3. Petitioner can be anyone owed £750+
4. All actions for recovery of debt stopped. Company ceases to carry on business unless necessary. Powers of directors cease. Employees automatically made redundant

Question 3

Members voluntary liquidation

Answer 3

1. Company solvent. Declaration of solvency. Directors make declaration that companies able to pay debts <12 months. Criminal offence to falsify. Winding up starts date of resolution.
2. Members appoint named insolvency practitioner (liquidator)
3. Petitioners are members
4. Liquidator realises assets/distributes them. Reports to final members meeting. Inform registrar. Company dissolved 3 months later.

Question 4

Creators voluntary liquidation

Answer 4

1. Company insolvent. No declaration of solvency. Directors submit statement of companies affairs. Winding up starts date of resolution.
2. Petitioners are creditors. Crs/members appoint insolvency practitioner. Creditor has final say. Appoint liquidation committee (5 members).
3. Liquidator realises assets and distributes them. Reports to final creditors/shareholders meeting. Informs registrar. Company dissolved 3 months later.

Question 5

Administration

Answer 5

1. Aims to rescue company in financial difficulty. Achieve better results for creditors. Realise property to pay creditors.
2. Court in response to petition by credit holder of floating charge (company or directors)
3. Rights of creditors to enforce debts suspended. Petition for winding up company is dismissed. Can’t pass resolution to wind up. Liquidator appointed to administer companies affairs.

Question 6

What is voluntary liquidation?

Answer 6

Occurs where the members pass a resolution to go into liquidation

Question 7

Priority in distributing assets in a liquidation

Answer 7

1. Fixed charge holders
2. Costs (getting assets, liquidators remuneration, and incidental costs)
3. Preferential debts (wages, holiday pay, pension contribution)
4. Floating charges (order created)
5. Unsecured ordinary debts
6. Deferred debts (dividends declared, interest accrued on debts since liquidation)
7. Members (any surplus distributed accordingly to articles)

Question 8

Ending the administration

Answer 8

• can apply to court for discharge at any time
  1. Must apply when purpose of order has been or cannot be achieved
  2. Administration must be completed within 12 months of commencement
  3. Can be extended with consent of court or creditors

Question 9

What does CVA stand for

Answer 9

Company voluntary arrangement

Question 10

What is a CVA

Answer 10

• important procedure that allows the company to enter into a binding arrangement with its creditors

Question 11

What are the stages of a CVA?

Answer 11

a. Proposal for an arrangement must be made that will form the basis of the CVA.
- administrator if in administration
- liquidator if in liquidation
- directors in all other cases
b. If approved, arrangements will need to be supervised by the administrator, liquidator, director or nominee appointed
c. Must submit a report stating whether the proposed CVA has a reasonable prospect of being approved and implemented. And whether or not meetings should be commenced to consider the proposal.
d. When meetings called to approve the proposal, if the meetings reach a conflicting decision, the decision of the creditors meeting will prevail.
e. If proposal is approved, it will bind the company and will be supervised. A moratorium is provided for small companies. Meet two of…
- total overhead > £6.5 m
- balance sheet total no more than £3.26 m
- no more than 50 employees

Question 12

Administration is more popular than a CVA because

Answer 12

1. All administrations come with a moratorium (a legal authorisation to debtors to postpone payment)
2. Is less complex to enter than a CVA

Question 13

Why would a director prefer a CVA

Answer 13

Allows them to remain in control of the company