insolvency repetition Flashcards
name three kinds of insolvency
balance sheet insolvency (when liabilities are more than assets), commercial insolvency (lack of liquidity) and ultimate insolvency (when your belongings are carted away)
How does insolvency law preventing debtors from destroying or diverting value of by indulging in opportunistic behaviou
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
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
True
When the insolvent company is viable reallocating the assets to more
productive activities
False, only when it is not viable
Insolvency law should facilitate the sale of business as a growing concern if the management is incompetent
True
Most juristictions have insolvency law attractive to creditors and entrupenors, especially in the third world.
False
Insolvency proceedings may be initiated by the debtor
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
How may insolvency proceedings be initiated by creditors
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.
Involuntary petitions in insolvency proceedings are aimed to place
insolvent firms in liquidation
True
Public agencies may not initiate insolvency proceedings for firms under their oversight when such insolvencies may create systemic risk
False
What is a workout in insolvency law
An informal debt restructure handled out of court
What is a formal debt restructuring
When proceedings are held in court but debtor remains in posession and management remains in charge although under oversight
What are the three types of formal debtr resturncturing procedures
- Insolvency Practitioner - IP
- Debtor in possession - DIP
- Debtor in possession – Supervised by Insolvency Practitioner - DIP SIP
What are insolvency practicioners
Licenced profecionals apointed to manage an insolvent firm in place of the directors, may be public oficors or professionals depending on juristiction.
What are the drawbacks of appointment of IP by the debtor or creditor or court to supervise and manage the insolvency proceedings
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.
What are the pros and cons of Debtor in possession - DIP restructureing of insolvency
It is cheaper and takes less time but it creates the risk of opertunism and lack of effective change
What is a reorganixation plan in insolvency law
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
Courts may solve the incomplete contracting problem between debtors and creditors
True
Courts are reluctant to allow sale of assets during reorganization
True
What are the three main tasks of insolvency courts
Confirmation of a reorganisation plan, Approval of Asset Sales and Approval of Rescue Financing
What are the 4 possibilities of handeling an insolvent group
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)
What is an enhanced workout
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
Hybrid insolvency procedures are often associated with majority rule imposed by courts on decenting creditors
True
What is a Pre-negotiated reorganisation
When debtors and creditors negotiate before going to expensive court negotiations
What is Pre-packaged reorganization
When the debtor agrees to agree on the reorganization without negotiation to save costs
What are UK style pre-packs
When going concern is saved through sale of assets
What are the pros and cons of pre-packs
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
personal bankrupcy does not not mean they can repudiate or terminate a contract unless expressly allowed to
True
The court has inherent jurisdiction to appoint a receiver to protect
and preserve property which is subject of litigation
True
Creditors may appoint recivers to serve their interests primarially
True
Liquidator is responsible to the court but not under the control of the court
False, they are under the control of the court
Rank some potential claims on assets in the case of liqudation
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
