introduction

Question 1

what is insolvency?

Answer 1

this is a situation in which an individual, business, or company is undergoing financial difficulties.

Question 2

what are financial difficulties?

Answer 2

when a company individual or business is failing to meet their debts as they fall due.

Question 3

what does insolvent mean?

Answer 3

section 2
-when liabilities are more than assets
-failing to pay debts in the ordinary course of business
- being unable to pay debts as they fall due.

Question 4

what is cash flow insolvency?

Answer 4

when the company or individual has more assets than liabilities but does not have enough cash to pay off immediate debts.

e.g. a company can have expensive machinery but not have cash to pay off its debts as they fall due because of lack of liquid cash

Question 5

what is balance sheet insolvency?

Answer 5

this is a situation where liabilities exceed the total worth of assets.

e.g. a company can have debts that are worth $1 000,000 and its assets are worth $500,000 even if it sold all its assets it can not pay off its debts

Question 6

what are the 2 types of insolvency?

Answer 6

• cash flow insolvency
• balance sheet insolvency

Question 7

what is debt default?

Answer 7

failing to meet the obligations of paying debts as agreed on in a loan contract.

e.g. if you are to pay $500,000 on the 1st of October and you fail to do so that is called default.

Question 8

what does section 57 (1) (b) say?

Answer 8

a company is unable to pay its debts. tis relates to debt default. because they cannot pay debts.

Question 9

what is financial distress?

Answer 9

section 2 of the CIA
this means a company is about to become insolvent in the next 6 months. because of severe financial challenges.

Question 10

what are the 6 principles of insolvency law?

Answer 10

1. fairness and equitable treatment of creditors
2. balancing the competing interest of shareholders
3. transparency and accountability
4. maximizing the value of assets
5. prevent abuse
6. efficiency and timeliness

Question 11

who is an unsecured creditor?

Answer 11

a creditor with no collateral the creditor is usually a second priority during insolvency proceedings

Question 11

who is a secured creditor?

Answer 11

a creditor with a collateral the creditor has the right to recover debts from a company by selling the property of a company.

Question 11

according to section 2 of the CIA define affected persons?

Answer 11

1. the creditors
2. shareholders
3. members
4. employees and ex-employees
5. regulator
6. registrar