introduction Flashcards

concepts, principles and applications

1
Q

what is insolvency?

A

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

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2
Q

what are financial difficulties?

A

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

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3
Q

what does insolvent mean?

A

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.

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4
Q

what is cash flow insolvency?

A

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

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5
Q

what is balance sheet insolvency?

A

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

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6
Q

what are the 2 types of insolvency?

A
  • cash flow insolvency
  • balance sheet insolvency
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7
Q

what is debt default?

A

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.

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8
Q

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

A

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

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9
Q

what is financial distress?

A

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

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10
Q

what are the 6 principles of insolvency law?

A
  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
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11
Q

who is an unsecured creditor?

A

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

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11
Q

who is a secured creditor?

A

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

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11
Q
A
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11
Q

according to section 2 of the CIA define affected persons?

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