Module 15 Flashcards
What is absolute insolvency?
a case where a company owner more money than it has. i.e. net liability position
What is practical insolvency?
inability to pay debts as they fall due
What is the simplest way to correct absolute insolvency?
inject equity
What actions can be taken to correct practical insolvency?
- raise additional long term debt finance
- improve working capital
- sell off assets which can be leased back
- obtain more equity finance
What are creditors legally permitted to do after a default period of 30 days?
charge interest at base rate plus eight
What is a company voluntary arrangement?
a company must be insolvent with insufficient funds to pay creditors. The procedure attempts to convince the company’s creditors to take partial payment at a number of pence to the pound.
Who must approve a CVA?
shareholders and creditors. 75% of creditors by value.
More than 50% of shareholders.
What is the major disadvantage of CVA?
before it biomes binding, there is nothing to prevent creditors form take proceedings against the company. e.g. winding up
enforce security.
What is an administration order?
designed to give companies breathing space. the administrator manages the affairs, business and property of the company.
What is a moratorium?
legal breathing space where
-no liquidator can be appointed
0no security may be enforced
-no other legal proceedings
How long does administration last?
12 months or
the date the purpose of the order has been achieved.
What is liquidation?
winding up
What are the three kinds of liquidation?
Members voluntary liquidation
creditors voluntary liquidation
winding up by the court
What is MVL?
For solvent businesses. e.g. due to restructuring end of the companies fixed purpose or period succession problems
What is CVL?
used towing up insolvent companies
passes a special resolution then calls a meeting with creditors who decide the liquidator.
What is winding up by the court?
initiated by a creditor owed more than £750.
What is a statement of affairs?
shows the assets at their realisable values and liabilities ordered by priority.
What are the lists of the SOA?
A- assets not specifically secured B- assets specifically secured and secured creditors C- Preferential creditors D - creditors with floating charge E - unsecured creditors
What happens if there is surplus after paying creditors?
pays interest to creditors
any further surplus goes to shareholders
Who are preferential creditors?
- pension schemes
- unpaid wages for time worked within four months prior to insolvency and capped at £800 per employee
- accrued holiday pay
Who is responsible for preparing the SOA?
directors
How is the SOA prepared?
as at
Why may a director be disqualified?
- general misconduct
- persistent breaches of companies legislation
- fraud
- unfitness
How can a director avoid court proceedings?
voluntary disqualification. 2-15 years
What is the Phoenix syndrome and how is it combatted?
where directors of an insolvent company start new company with similar name and leaving debts behind.
director or shadow director is disbarred from using name.
