Insolvency MCQ Flashcards
Which one of the following companies would NOT be considered to be insolvent?
A. A company which has failed to satisfy enforcement of a judgment debt for £500.
B. A company which has liabilities which exceed its assets.
C. A company which has failed to comply with a statutory demand for £800.
D. A company which has failed to comply with a statutory demand for £500.
E. A company which is unable to pay its debts as they fall due.
D. A company which has failed to comply with a statutory demand for £500
Failure to comply with a statutory demand for a debt of over £750 is one of the tests for insolvency.
Why must directors ensure that they take urgent and advice and action when a company is in financial difficulty?
A. Because otherwise they risk being in breach of their directors’ duties under CA 2006. However, directors will not be personally liable due to the doctrine of limited liability.
B. Because directors may be personally liable under provisions of IA 1986 where the company is insolvent if they do not take the correct steps and in breach of their duties under CA 2006.
B. Because directors may be personally liable under provisions of IA 1986 where the company is insolvent if they do not take the correct steps and in breach of their duties under CA 2006.
Insolvency is one of the rare situations in which directors may risk incurring personal liability for the debts of the company.
Which one of the following is true in relation to the option of directors of a company facing insolvency?
A. The company could enter into a CVA, which is an informal arrangement between a company and its creditors.
B. The directors could consider obtaining a pre-insolvency moratorium by filing specified documents at court
C. The directors could enter into a standstill agreement, which is an agreement between the company and the directors to do nothing.
D. The company could enter into a Restructuring Plan. The advantage of this is that no court sanction is needed so it is relatively cheap and quick to obtain.
E.. Due to the risk of being in breach of directors’ duties, the directors should not take any further action in relation to the company.
B. The directors could consider obtaining a pre-insolvency moratorium by filing specified documents at court
Which one of the following is true in relation to CVAs?
A. A company can only enter a CVA once a court order is made sanctioning the arrangement.
B. CVAs must be approved by more than 50% of creditors and 75% of shareholders.
C. Whilst the CVA is supervised by a licensed insolvency practitioner, the directors of the company remain in control of the business.
D. A CVA once approved is binding on all of a company’s creditors.
E. CVAs must be approved by more than 50% of creditors only
C. Whilst the CVA is supervised by a licensed insolvency practitioner, the directors of the company remain in control of the business.
Which one of the following correctly sets out the approval requirements for a Restructuring Plan?
A. The Plan must be approved by 75% in value of each affected class of creditors and shareholders.
B. The Plan must be approved by 75% in value of unsecured creditors and over 50% of shareholders.
C. The Plan must be approved by 75% in value of each affected class of creditors and shareholders. However, the court may sanction the Plan even if one or more classes have not approved it.
D. The Plan must be approved by 75% in value of the total of all creditors and shareholders. However, the court may sanction the Plan even if the relevant approvals have not been obtained.
E. The Plan must be approved by 75% in value of the total of all creditors and shareholders.
C. The Plan must be approved by 75% in value of each affected class of creditors and shareholders. However, the court may sanction the Plan even if one or more classes have not approved it.
Which one of the following statements is correct regarding the appointment of an administrator by the directors of the company ?
A. The directors can only appoint an administrator by obtaining a court order.
B. The directors will have to make a separate application to court to obtain an interim moratorium.
C. The directors must file a notice of intention to appoint an administrator at court and serve this on any QFCH 10 business days before they file the notice of appointment to appoint an administrator.
D. The directors must file a notice of intention to appoint an administrator at court and serve this on any QFCH 5 business days before they file the notice of appointment to appoint an administrator.
E. The directors can file a notice of appointment at court without giving any notice to any QFCHs.
D. The directors must file a notice of intention to appoint an administrator at court and serve this on any QFCH 5 business days before they file the notice of appointment to appoint an administrator.
Which one of the following is possible during an administrative moratorium?
A. A landlord can forfeit the company’s lease of its head office.
B. A QFCH can appoint its own choice of administrator.
C. A supplier can enforce their retention of title clause and take back the goods that have been supplied but not paid for.
D. A creditor can institute legal proceedings against the company without the permission of the court.
B. A QFCH can appoint its own choice of administrator.
Which one of the following statements regarding a fixed charge receiver is correct?
A. A fixed charge receiver owes its duties primarily to its appointor.
B. A fixed charge receiver can only be appointed if the company has a floating charge which is created before 15 September 2003.
C. A fixed charge receiver is appointed under the Law of Property Act 1925.
D. A fixed charge receiver is appointed pursuant to a court order.
E. A fixed charge receiver is an agent of its appointor.
A. A fixed charge receiver owes its duties primarily to its appointor.
Which one of the following procedures requires the company to be solvent?
A. Compulsory liquidation
B. Administration
C. Company Voluntary Arrangement
D. Members’ voluntary liquidation
E. Creditors’ voluntary liquidation
D. Members’ voluntary liquidation
Correct - this can only be used when the company is solvent.
Which one of the following correctly describes the consequences of the court granting a compulsory winding up order on the employees and directors of the company?
A. All employees will be automatically dismissed; the directors lose their powers and are automatically dismissed from office.
B. All employees will be automatically dismissed; the directors lose their powers but remain in office under the supervision of the liquidator until the winding up is complete.
C. There are no immediate consequences on the employees, although once the winding up is complete they will be dismissed. The directors lose their powers but remain in office under the supervision of the liquidator until the winding up is complete.
D. The directors lose their powers but remain in office under the supervision of the liquidator until the winding up is complete. The liquidator will look to make cost savings and may make some employees redundant immediately. The remaining employees will remain until the winding up is complete.
A. All employees will be automatically dismissed; the directors lose their powers and are automatically dismissed from office.
Which one of the following is correct regarding Creditors’ Voluntary Liquidation?
A. The shareholders will pass a special resolution to put the company into liquidation and an ordinary resolution to nominate a liquidator.
B. The creditors will pass an ordinary resolution to put the company into liquidation and a special resolution to appoint a liquidator.
C. If the shareholders and creditors disagree on the choice of liquidator, the shareholders’ choice of liquidator prevails.
D. If the shareholders and creditors disagree on the choice of liquidator, a court order will need to be obtained to appoint a liquidator.
A. The shareholders will pass a special resolution to put the company into liquidation and an ordinary resolution to nominate a liquidator.
Which one of the following best describes the order of priority on insolvency?
A. The proceeds of an insolvent estate should be divided up in the following order of priority: (1) fixed charge creditors; (2) liquidators fees of realising fixed charge assets; (3) other costs and expenses of the liquidation; (4) prescribed part fund; (5) floating charge creditors; (6) preferential creditors; (7) unsecured creditors; (8) interest; (9) shareholders.
B. The proceeds of an insolvent estate should be divided up in the following order of priority: (1) preferential creditors; (2) other costs and expenses of the liquidation; (3) fixed charge creditors; (4) liquidators fees of realising fixed charge assets; (5) prescribed part fund; (6) floating charge creditors; ( (7) unsecured creditors; (8) interest; (9) shareholders.
C. The proceeds of an insolvent estate should be divided up in the following order of priority: (1) liquidators fees of realising fixed charge assets; (2) fixed charge creditors; (3) other costs and expenses of the liquidation; (4) preferential creditors; (5) prescribed part fund; (6) floating charge creditors; (7) unsecured creditors; (8) interest; (9) shareholders.
D. The proceeds of an insolvent estate should be divided up in the following order of priority: (1) prescribed part fund (2) preferential creditors; (3) other costs and expenses of the liquidation; (4) fixed charge creditors; (5) liquidators fees of realising fixed charge assets; (6) floating charge creditors; (7) unsecured creditors; (8) interest; (9) shareholders.
C. The proceeds of an insolvent estate should be divided up in the following order of priority: (1) liquidators fees of realising fixed charge assets; (2) fixed charge creditors; (3) other costs and expenses of the liquidation; (4) preferential creditors; (5) prescribed part fund; (6) floating charge creditors; (7) unsecured creditors; (8) interest; (9) shareholders.
Which of the following are preferential creditors of a company in the order of priority?
A. Creditors with fixed charges
B. Employees
C. Shareholders
D. Trade creditors
E. Creditors with floating charges
B. Employees
There are 2 tiers of preferential creditors – employees for remuneration due in the 4 months before the winding up subject to a maximum of £800 plus accrued holiday pay, and HMRC.
Which of the following best describes the persons who will benefit from the prescribed part fund when a company is in administration?
A. Unsecured creditors.
B. Unsecured creditors and preferential creditors.
C. Unsecured creditors, employees (if they are owed monies over and above the preferential amount)and the shareholders.
D. Unsecured creditors including employees for all amounts owed to the employees at the time the company entered into administration.
E. Unsecured creditors and if there is a surplus in the prescribed part fund after they have been paid off in full, the shareholders.
A. Unsecured creditors.
Correct as the purpose of the prescribed part fund is to ring fence a sum of money to ensure the unsecured creditors get paid something in respect of the debts they are owed by the company so that the secured creditors don’t take it all. Remember the question asked who WILL benefit from the prescribed part fund.
