Liquidation & Receivership Flashcards
Receivership
A company is said to be under receivership wheb it is unable to repay its debts and the secured creditors appoint a receiver
Job of the Receiver
- Assess the worth of the business
- Restructure or sell the company to recover the secured creditor’s security
Liquidation
Aka winding up is a process where assets are realized. It is the next step after receivership if receiver is unable to get business back on track
Causes of Business Failure
1) Poor liquidity
2) Lack of Good customer base
3) Introduction of a competitor
Secured Creditors
Lend business in exchange for some collateral
Security Agreement
Legal agreement under which debtor’s property becomes collateral for payment of a debt
Receiving Order
Court order made under any law that provides for appointment of receiver
Receiver
Person appointed by a security agreement or court order to take control of all debtor’s business resources. Collects all incoming owing and pays all liabilities.
Receiver Manager
Person appointed by a security agreement or court order to take control of debtor’s business resources. Also appointed as manager to carry on business and giver duties of Receiver
Statement of Affairs
Accounting report similar to balance sheet to show total amount expected to be realized from assets disposal. Prepared under assumption of liquidation NOT going concern (Assets are at FMV)
Bankrupt
A person/business against whom a receiving order is filed. Considered to be “an insolvent - unable to repay debts”. Total realized assets is less than liabilities
Steps in Receivership
1) Determine that debtor has reached bankruptcy
2) Creditors file petition in court for receiving order
3) Petition is heard and either allowed or dismissed
4) Receriver notifies creditors of appointment afyer court grants receiver order
5) Receiver takes custody of debtors assets and opens bank account
6) Continues business and disposes unwanted assts
7)Assess creditors claims and prepares monthly statements
8) Liquidates if business can not be safe
9) disposes assets in a commercially reasonable manner
Role of Liquidator
1) Ease company’s operations
2) Realize and distribute assets to creditors
3) Distribute remaining balance to shareholders
4) De-register the company
Type of Cliams
Fully Secured Claims (liens against assets whose realizable values are equivalent )
Partially Secured (liens against assets where realizable value is less than the amt of claim)
Unsecured Claims
Order of payment of Debts
Recevier/Liquidation Expense - Taxes Payable govt - Wages/salaries - social security taxes - secured claims - other unsecured creditors - shareholders
