insolvency repetition

Question 1

name three kinds of insolvency

Answer 1

balance sheet insolvency (when liabilities are more than assets), commercial insolvency (lack of liquidity) and ultimate insolvency (when your belongings are carted away)

Question 2

How does insolvency law preventing debtors from destroying or diverting value of by indulging in opportunistic behaviou

Answer 2

By imposting special director duties and the appointment of insolvency practitioner to monitor or replace directors to mange the debtor’s property and business affairs

Question 3

In the case where the assets of an insolvent company are worth more when kept together then focus needs to be on survival and efficient reorganization

Answer 3

True

Question 4

When the insolvent company is viable reallocating the assets to more
productive activities

Answer 4

False, only when it is not viable

Question 5

Insolvency law should facilitate the sale of business as a growing concern if the management is incompetent

Answer 5

True

Question 6

Most juristictions have insolvency law attractive to creditors and entrupenors, especially in the third world.

Answer 6

False

Question 7

Insolvency proceedings may be initiated by the debtor

Answer 7

Yes it is called a voluntary petition although the debtor needs to prove with financial and legal documents that they are or are close to insolvent and needs to be aproved by the court

Question 8

How may insolvency proceedings be initiated by creditors

Answer 8

By proving that the debtor was unable to pay their debts they make an involentary petition. This may be callanged by the debtor wich may result in long trials.

Question 9

Involuntary petitions in insolvency proceedings are aimed to place
insolvent firms in liquidation

Answer 9

True

Question 10

Public agencies may not initiate insolvency proceedings for firms under their oversight when such insolvencies may create systemic risk

Answer 10

False

Question 11

What is a workout in insolvency law

Answer 11

An informal debt restructure handled out of court

Question 12

What is a formal debt restructuring

Answer 12

When proceedings are held in court but debtor remains in posession and management remains in charge although under oversight

Question 13

What are the three types of formal debtr resturncturing procedures

Answer 13

• Insolvency Practitioner - IP
• Debtor in possession - DIP
• Debtor in possession – Supervised by Insolvency Practitioner - DIP SIP

Question 14

What are insolvency practicioners

Answer 14

Licenced profecionals apointed to manage an insolvent firm in place of the directors, may be public oficors or professionals depending on juristiction.

Question 15

What are the drawbacks of appointment of IP by the debtor or creditor or court to supervise and manage the insolvency proceedings

Answer 15

Becouse they may favor the debtors interests over the creditors. For the creditors part it takes time to asseble them all and they may have diferent interests, in some juristictions appointment by courts is a problem cuz corruption. This can be solved through regulation and automation.

Question 16

What are the pros and cons of Debtor in possession - DIP restructureing of insolvency

Answer 16

It is cheaper and takes less time but it creates the risk of opertunism and lack of effective change

Question 17

What is a reorganixation plan in insolvency law

Answer 17

A plan that allows the debtor to emerge from the procedure with a new financial structure more suitable for financial position and generation of cash flow

Question 18

Courts may solve the incomplete contracting problem between debtors and creditors

Answer 18

True

Question 19

Courts are reluctant to allow sale of assets during reorganization

Answer 19

True

Question 20

What are the three main tasks of insolvency courts

Answer 20

Confirmation of a reorganisation plan, Approval of Asset Sales and Approval of Rescue Financing

Question 21

What are the 4 possibilities of handeling an insolvent group

Answer 21

handeling each firm separately, Procedural Coordination (joint procedure but disinkt legual personalities), Facilitating a collective solution (use tools like moratorium) and Substantive consolidation (viewing all as one)

Question 22

What is an enhanced workout

Answer 22

when the parties are bound by law to restructuring-specific standards introduced by an administrative authority such as a central bank, in accordance with an expectation or requirement set out by that authority

Question 23

Hybrid insolvency procedures are often associated with majority rule imposed by courts on decenting creditors

Answer 23

True

Question 24

What is a Pre-negotiated reorganisation

Answer 24

When debtors and creditors negotiate before going to expensive court negotiations

Question 25

What is Pre-packaged reorganization

Answer 25

When the debtor agrees to agree on the reorganization without negotiation to save costs

Question 26

What are UK style pre-packs

Answer 26

When going concern is saved through sale of assets

Question 27

What are the pros and cons of pre-packs

Answer 27

They save time, money and they maximizes the return of creditors but they may lead to conflicts of interest, lack transparency and may lead to opertunistic behaviour f.ex if assets are sold to related parties

Question 28

personal bankrupcy does not not mean they can repudiate or terminate a contract unless expressly allowed to

Answer 28

True

Question 29

The court has inherent jurisdiction to appoint a receiver to protect
and preserve property which is subject of litigation

Answer 29

True

Question 30

Creditors may appoint recivers to serve their interests primarially

Answer 30

True

Question 31

Liquidator is responsible to the court but not under the control of the court

Answer 31

False, they are under the control of the court

Question 32

Rank some potential claims on assets in the case of liqudation

Answer 32

secured creditors > liquidation expenses > prioritized debts like employees > ordinary creditors > interest payments and what remains after all of these are payed goes to the previous owners