Insolvency law Flashcards
what is administration?
this aims to rescue the company so that it may continue trading as a going concern
what is liquidation?
this winds up the company, bringing its life to an end
Purpose of Administration
There are three key purposes of administration in the order set below:
(1) To rescue the company as a going concern.
(2) If this is not reasonably practicable, to achieve a better result for the company’s creditors as a whole than would be likely with a winding-up.
(3) If neither is reasonably practicable, and provided the administrator does not unnecessarily harm the interests of the creditors as a whole, then to realise the company’s assets to make a distribution to one or more preferential or secured creditors.
Effect of administration
There is a moratorium for the company to resolve financial difficulties. If this cannot be achieved the administrator will arrange for the company to be placed into creditors’ voluntary liquidation.
what is moratorium?
Period during which:
- any petition for winding up is dismissed
- no resolution may be passed to wind up the company
- no other legal proceedings can be commenced
- the rights of the creditors to enform ace security over the company’s assets are suspended
Who may appoint an administrator?
(1) The company acting by ordinary resolution
(2) The directors acting by a majority (5 days notice)
(3) One or more creditors
(4) Qualifying floating charge holders (2 days notice)
What should the administrator have done within 7 days of being appointed?
File notice of his appointment with the Registrar of Companies
Require any of the company’s officers and employees to provide a statement of affairs (who have 11 days to comply with any such request)
What should the administrator have done within 8 weeks of being appointed?
Submit a statement of his proposals for achieving the aim of administration to:
* The Registrar
* The company’s creditors
* The company’s members
The administrator should seek creditor acceptance of their proposals by deemed consent procedures.
The administrator is also required to invite creditors to form a creditor’s committee and to ask for nominations to such a committee.
What should the administrator have done 1 year after being appointed?
The administrator’s appointment is terminated unless extended by the court or (once only) by a prescribed majority of the creditors.
Within how many days of appointment can you make a statement of affairs from the company’s officers?
7 Days
What are the powers of an administrator?
Remove or appoint a director
Call a meeting of members or creditors
Apply to court for directions
regarding the carrying out of his functions
Make payments to secured or preferential creditors
Make payments to unsecured creditors, if the administrator feels that to pay the unsecured creditor will assist the achievement of the administration and otherwise with the permission of the court
Present or defend a petition for the winding up of the company
Administrative receiver
An ‘administrative receiver’ is appointed by a floating charge holder and is essentially a manager with control over the whole, or substantial part, of the company’s property and wide powers over its business.
Fixed charge receiver
May be appointed by the holder of a fixed charge over land in the event of the borrower’s default.
His role is to collect rent and/or sell the property.
He does not need to be a qualified insolvency practitioner and, in practice, will often be a surveyor or other property specialist.
What is a company voluntary arrangement?
Arrangement between company and creditors whereby it agrees to:
- pay a set proportion of its debts (composition of debts)
- pay its debts over a set period of time (a scheme of arrangement)
Procedures of a CVA
A nominee is appointed (either by a solvent company or the administrator/ liquidator).
The nominee reports to court on likelihood of success.
Creditor approval is required. Physical creditor meetings are not required unless the creditors specifically request one.
Binds all unsecured creditors (not fixed charge holders).
Any creditor can appeal to court within 28 days if unfairly prejudiced or if there has been a procedural irregularity.
Liquidation
Liquidation is when a company is officially wound up following the steps outlined in the Companies Act.
What is voluntary liquidation and what are the two types?
- Voluntary liquidation occurs where the members pass a resolution to go into liquidation. 14 days
- Members voluntary liquidation is used where the company is solvent
- Creditors voluntary liquidation is used where the company is insolvent
Creditors voluntary liquidation process
- The liquidator realises the assets of the company.
- The liquidator pays out the money to the creditors, according to the rules of priority established by law.
- The liquidator prepares final accounts and statements and sends them to creditors and members.
- A final meeting of the members is held.
- The liquidator submits a copy of the final statement to the Registrar within seven days of the meeting.
- The company is dissolved three months later and removed from the register.
what are the 4 types of transactions that a liquidator can treat the charges as invalid?
- Any charges not registered within 21 days are void
- Floating charge within created within 12 months
- Transaction at an undervalue within 2 years pre liquidation
- Transactions giving a preference
who may apply to the court for an administration order but cannot appoint an administrator out of court
a creditor with no minimum value of debt (also if they are not a qualifying float charge holder)
who will the court appoint as a liquidator in a compulsory winding up?
the official receiver
who is entitled to propose a company voluntary liquidation?
- the directors
- administrator
- liquidator
order of priority for repayment:
- fixed charge holder
- cost of liquidation
- preferential debts
- secondary preferential creditors
- floating charges
- unsecured ordinary creditors
- deferred debts
- members
