Short form questions Flashcards
SIP14 provides guidance to a receiver in respect of their responsibility to preferential creditors. The potential amount available to the preferential creditors is also dependent upon the appropriate allocation of costs incurred in effecting realisations by the receiver. These categories of costs are?
Liabilities incurred by the company and recoverable by him out of the company’s assets
The costs of the receiver in discharging his statutory duties
The remuneration and disbursements of the receiver
Who should the supervisor of a company voluntary arrangement (“CVA”) deliver his annual progress report to?
The Registrar of Companies
The company;
All creditors bound by the CVA
Members – unless the Court has dispensed with the need to either altogether or if the Court has
allowed the supervisor to advertise to members;
The Company auditors if the company is not in liquidation
List the options available for insolvent partners?
Any partner may seek approval of an IVA (two or more partners may propose these in
interlocking terms)
· Partners may propose a PVA
· Partners may apply to court for a Partnership Administration Order
· Partners may present a joint bankruptcy petition
· Partners may petition to wind-up the partnership as an unregistered company
What percentage of creditors are needed to determine if a decision for a CVA proposal is to be approved and what matters should the chair take into account?
3/4s of the voting creditors in value must approve the IVA
· However, the IVA will not be approved where a simple majority of independent creditors
vote against the arrangement
· Part secured creditors can only vote the unsecured element of their claim.
· “Creditor” is widely defined in the legislation and will include contingent and future creditors
and creditors whose claims are unliquidated.
· When in doubt as to the value of the claim the chair should allow the creditor to vote for £1
How is a ‘prohibited name’ defined
· Any name by which the liquidating company was known in the last 12 months
· or which is so similar to such a name that it suggests an association with the liquidating
company
Should s. 216 be breached what are the potential consequences for the director and also the individual making the breach.
· Breach of these provisions is a criminal offence
· The offending director could be liable to a fine and/or imprisonment
· Where a person breaches the prohibition by being involved in the management
· Or is willing to act on the instructions of a director
· That person may be held personally responsible for the relevant debts
· The relevant debts are all liabilities for the period during which the person was involved in
management or was acting on instructions
Detail what information is required to be included within an administrator’s proposals in respect of pre-appointment costs.
Details of any agreement under which the fees were charged and expenses incurred,
including parties to the agreement and the date of the agreement;
Details of the work done for which the fees were charged and the expenses incurred;
An explanation of why the work was done pre-administration and how it would further
the achievement of the chosen objective;
A statement of the amount of administration costs showing separately:
· the fees charged by administrator
· the expenses incurred by the administrator
· the fees charged by another IP before the company entered ADM, but with a
view to doing so
· the expenses incurred by another IP before the company entered ADM, but with
a view to doing so
· Details of what has already been paid (set out separately as above)
The identity of who made payment or if more than one person made the payment, the
identity of each person and of the amounts paid by each such person (set out separately
as above
A statement of the amounts of unpaid pre-administration costs (set out separately as
above)
In an administrationexplain what is defined as a category one and category two disbursement.Give two examples for each of the categories.
Category 1
· These are expenses which are payable to independent third parties.
· They are specific items of expenditure which are directly referable to the
administration
· Prior approval is not required to draw these expenses
Examples would include
· Room hire – where the room is being hired from a conference centre, hotel etc
and not from the IPs firm
· Postage, telephone charges, case advertising etc
Category 2
· These are expenses which are not payable to independent third parties.
· The costs are likely to be incurred by the administrator or by their firm
· They must also be referable to the administration
· Approval will be required
Examples would include
· Room hire from the IPs own firm
· Document storage
· Photo-copying, business mileage
A trustee should provide a bankrupt with sufficient information at the appropriate times about the ‘bankrupt’s home’ to enable them to understand the possible consequences of the bankruptcy, so that they can make an informed decision or seek advice. What information should be included?
Explanation of the trustee’s interest (i.e. that the bankrupts share has
vested in the trustee on appointment)
· Why Trustee needs to realise property (i.e. to pay costs/secured
creditors/unsecureds)
· How the Trustee’s interest is valued
· How the property might revert to the bankrupt (e.g. expiry of 3-year rule
– annulment etc)
· Impact of changes in value of the property and mortgage payments.
· Treatment of mortgages and other forms of security over the property
· Steps the trustee can take to realise the property
· Timetable for realisation
· Copy of Insolvency Service leaflet
The Act sets out requirements on utility suppliers and office-holders where there is a need for continued supplies after the ‘effective date’. Explain what is meant by the ‘effective date’ and set-out the powers and obligations of the office-holder and such suppliers.
Effective date:
Company enters administration, admin receiver appointed, moratorium in force, CVA
approved, liquidation or provisional liquidation, bankruptcy and IVA.
If a request is made by or with the concurrence of the office-holder for the giving, after
the effective date, of any of the supplies mentioned in the next subsection, the supplier—
(a) may make it a condition of the giving of the supply that the office-holder personally
guarantees the payment of any charges in respect of the supply, but
(b) shall not make it a condition of the giving of the supply, or do anything which has the
effect of making it a condition of the giving of the supply, that any outstanding charges in
respect of a supply given to the company before the effective date are paid
In a creditors’ voluntary liquidation (“CVL”) what information should be included within a notice of intention to declare a dividend to creditors?
· Statement that the office holder intends to declare a dividend within the period of two
months from the last date for proving
· Whether the dividend is interim or final
· The last date by which proofs may be delivered
· Statement of the place where proofs must be delivered
· If the office holder intends to treat small debts as proved for the purposes of paying a
dividend plus additional information required
Who can bring a claim for a transaction defrauding creditors under Section 423 of the Act?
· Official Receiver
· Trustee
· Liquidator
· Administrator
· Supervisor if a victim is bound by the voluntary arrangement
· A victim of the transaction (leave of the court is required if the debtor is bankrupt or in
liquidation or administration)
What must be sent to creditors where the nominee convenes a virtual meeting to seek a decision from the debtor’s creditors as to whether they approve the debtor’s proposal for an IVA?
Notice of the decision procedure/virtual meeting
· Blank proxy
· Copy of the proposal
· Copy of the statement of affairs, or a summary including a list of creditors with the amounts
of their debts
· Estimated outcome/ comparison statement
· Copy of the nominee’s report on the proposal
· Nominee’s comments
· Notice re requisite majorities
· Creditors’ guide to IP’s fees
· Claim form
· Notice re opting out of receiving documents
Who may attend and ask questions at a public examinationof a bankrupt?
· The OR
· The trustee (if other than the OR)
· A special manager
· Any creditor who has tendered proof
Your client submitted a claim in the liquidation of a company, but the liquidator has rejected the claim on the basis that there is no evidence of the debt in the company’s books and records. Your client has advised that he has proof that the debt is owed, and has asked you what he can do.
The creditor may apply to the court for the liquidator’s decision to be reversed or varied
· The application to court must be made within 21 days of the creditor receiving the rejection
of his claim
· The creditor must deliver to the liquidator, notice of venue of the application hearing, once
fixed by the Court
When undertaking an anti-money laundering review for a new appointment, list eight practical matters which you should consider in assessing whether there has been a high risk of money laundering activity.
Is the business predominantly cash-based (eg betting shop)
· Have the individuals / directors fully disclosed details of their identity
· Are you familiar with the business activities
· Is the business involved in high risk activities such as nail bars, car washes, dentists
· Have you been able to verify the company name against Companies House information
· Have you met individuals / directors face to face or are they refusing to meet you and want
to operate through a third party
· Does the company/ business operate in a high-risk country (check list)
· Is the individual/ director a PEP
· Other issues arise including:
· Directors want to pay you in cash
· No books and records or available records don’t support directors’ explanations re trading
activities
· Unexplained trading profits
· No explanation for sources of cash
Action to be taken by MVL liquidator where company now appears unable to pay debts
Your principle has formed the opinion that the company could not pay its debts plus interest
within 12 months
· A meeting of creditors must be convened
· This meeting is to be held within 28 days of the day after your principle formed the opinion
· With the view of placing the company into CVL
· Must give creditors at least 7 days’ notice of the meeting to creditors
· Must provide creditors with a proof of debt and proxy form
· Must advertise the creditors’ meeting in the London Gazette
· May also advertise elsewhere
· Must produce a statement of affairs of the company in advance of the creditors’ meeting
What percentage of creditors is required to request a meeting to replace an existing liquidator? Give two examples of the resolutions which should be passed at this meeting together with the percentage required to pass each of the resolutions
Creditors representing 25% in value of all the company’s creditors can ask the liquidator to
call a meeting to vote on his own removal
· The basis of the liquidator’s fees be fixed on basis preferred (rates to be provided at
meeting)
· The liquidator be authorised to draw “Category 2” disbursements, details provided at the
meeting
· Ordinary resolutions therefore more than 50%
Detail what the process is for removing liquidator by creditors and within what time frame, must the incumbent liquidator convene such ameeting assuming that the correct percentage of creditors has requisitioned it.
The convener must, not later than 14 days from receipt of a request for a requisitioned
meeting provide the requesting creditor with itemised details of the sum to be deposited as
security for payment of the expenses of such procedure
· The convener is not obliged to initiate the decision procedure or deemed consent procedure
until either –
· The convener has received the required sum: or
· The period of 14 days has expired without the convener having informed the requesting
creditor of the sum required to be deposited as security.
· A requisitioned decision must be made –
· where requested under section 136(5)(c), within three months; or
· In any other case, within 28 days
· Of the date on which the earlier of the events specified in paragraph (2) of this rule occurs
Ignoring formal personal insolvency procedures detail the main characteristics of the key options which might be available to a debtor
(1) Informal arrangement/negotiated agreement with creditors
· The debtor contacts his creditors and negotiates an agreement to repay all or some of
his debts.
· This may involve making payments from income or from a lump sum.
· Unlikely to be legally binding
(2) Debt reorganisation or consolidation loan
· The debtor applies for a loan to reorganise or clear his debts.
· A consolidation loan is only appropriate where the debtor has income from which to
make the loan repayments.
· Does not deal with underlying problem which is that debt levels are unsustainable
(3) Re-mortgage of property
· Further advance from existing mortgagee to pay off debts
· Other secured borrowing to facilitate repayment of unsecured debts
· May not be possible if insufficient equity in the property
(4) Sale of non-essential assets to facilitate (part) payment of liabilities Support from family/
other third parties to offer settlement terms to creditors.
(5) Debt management plan
· A debt management company will assess the debtor’s financial situation to establish an
affordable monthly repayment amount.
· The debt management company will then contact all of the debtor’s creditors to
negotiate a reduced monthly repayment.
· The debtor will thereafter pay the debt management company one sum and they in turn
will pay the creditors a pro-rata amount
A provisional liquidator only has those powers which are granted by the court order appointing him. What powers and functions would be usually applied for by a provisional liquidator?
To take possession of, collect and get in all property and assets
· To do all things which may be necessary for the protection of the company’s assets
· To bring or defend any action or other legal proceedings in the name and on behalf of the
company
· To conduct such investigations and obtain such information as may be required to enable a
liquidation to proceed in a speedy and efficient manner
· To employ such accountants, lawyers and other persons and to all things necessary which
the provisional liquidator may consider expedient in connection with the above
· To open or maintain such bank accounts as they consider expedient and to authorise
payments out of the company’s bank account
· To carry on the business of the company including employ, retain or dismiss employees
· To do all other things incidental to the performance of the functions and power of the
provisional liquidator
Pursuant to Section 283A of IA86, a trustee in bankruptcy must send a notice of his or her interest in a property which is the principal dwelling place of the bankrupt, his spouse or former spouse or his civil partner or former civil partner. What information should the notice contain?
The name of the bankrupt
Address of the dwelling house
Title number if registered
Date by which trustee must have delivered notice
Following the adjudication of the creditors’claims ina CVL your principal has asked you to reject specific claims. What should you do?
Statement confirming reasons for rejection to be delivered to the creditor
Notice should be sent as soon as reasonably practicable
If appeal within 21 days, officeholder must file proof at court
Together with the statement sent to creditor
Upon what grounds can a petition for default be presented following the failure of an Individual Voluntary Arrangement (“IVA”)?
Failure to pay contributions
Failure to comply with other obligations stated in the IVA
Who may be summoned by the OR to appear before the court for a private examinationin a bankruptcy?
Bankrupt
Bankrupt’s spouse
Any person who has property comprised in the estate
Bankrupt’s debtors
Any person who has dealings with the Bankrupt/estate
Before the making of a winding-up order the petitioner may apply for the appointment of a provisional liquidator to preserve the assets and records of the company. Name two other duties of the provisional liquidator.
Insure the assets
Maintain books and records and accounts in relation to appointment
Dispose of perishable assets
What restrictions are imposed on a debtor who is subject to a Debt Relief Order (“DRO”)?
May not act as solicitor or insolvency practitioner
Cannot act as director
Partnerships – dissolve automatically
Cannot be a sole trader without disclosing name in which made subject to DR
During the administration of Relax Sofas Limited (“the Company”) the administrators have realised various assets of the business as detailed below. In accordance with SIP 7 and good practise, how should the following transactionsbe reported in your receipts and payments? i.The total sum of £16,500 has been paid to the landlord in respect of the Company’s former trading premises. £12,250 relates to rent arrears and the balance is in respect of the rent due during the administrators’ period of occupation. ii.Stock with a value of £32,650 was returned to supplies who had valid retention of title claims, although you did also pay the sum of £2,500 to another supplier in order to secure title to the stocksupplied by him.iii.Amounts totalling £5,330 were received and disbursed to the former employees under the Employment Protection Act. You received a fee of £250 plus VAT for your work as the employer’s representative.iv.Fixtures and fittings were sold by your agents for the sum of £8,750 (including VAT). After deducting his charges of £3,875 (including VAT) the agent sent youvia bank transfer the sum of £4,875.
i Show the amount £12250 as an expense. Show the balance as a distribution to unsecured
creditor.
ii £2500 as a payment. Note the RoT creditor return of goods
iii Record as a receipt and payment. Record as remuneration £250 plus VAT and source of fee.
Iv Record the amount gross with a payment to agent
Detail what types of disbursements can be charged to an insolvency estate and what authorisation if any, is required prior to drawing them.
Cat 1 disbursements (no authorisation needed) Bond Postage Travel – train fares Statutory advertising Insurance Printing – 3rd party Room hire – 3rd party
Cat 2 disbursements (authorisation needed)
Mileage
Room hire (where firm charges)
Printing/photocopying (where firm charges)
Under the IVA consumer protocol and where the debtor is making monthly contributions from their income, what must a debtor do if they aremade redundant?
Inform supervisor within 14 days
Inform supervisor within 14 days of any payment
Pay supervisor any amount received in excess of 6 months net take home pay
Where possible, continue with monthly payments
Keep supervisor informed of changes to employment status
SIP 16 - Excluding any details in relation to the transaction itself, what other information should be disclosed by the administrator?
Source of initial introduction Extent of preappointment involvement Alternative options considered Consultations with major creditors Requests for funding made Registered charges Whether business acquired in previous 24 months through an insolvency process Names and details of valuers Value for goodwill Whether prepack pool approached or not Viability statement obtained or reasons why it hasn’t been obtained
A creditor’s membership of a committee can be automatically terminated under what condition(s)?
Ceases to be a creditor
Found not to be a creditor
Misses 3 consecutive meetings
Becomes bankrupt
Where a company has gone into compulsory liquidation the Court may appoint any person to be a special manager of the business to assist in the management of the company. Name two of the special manager’s duties.
Supervise the business of the company
Report to liquidator with receipts and payments
What insolvency options are available to creditors of a partnership that is unable to pay its debts?
Winding up order
Administration order
Bankruptcy of partner
Bankruptcy of all partners and a winding up of partnership
What are the effect(s) on a trustee of a)an annulment of a bankruptcy Order and b) a bankrupt obtaining his discharge?
a) Trustee must vacate office
Trustee must return assets to Bankrupt
b)
Discharged from all provable debts
Released from disabilities of bankruptcy
Which decisions in a proposed CVA are required to have three quarters or more in value of those responding vote in favour of?
Approval of CVA
Proposed modifications
What additional powers are commonly found within amortgage deed to assist a receiver appointed under the Land of Property Act 1925, in carrying out his duties?
Power to trade power to sell all assets Power to instruct solicitors and agents Power to mortgage Power to sign all documents Power to enter into contracts Power to take custody of assets Power to open a bank account
There are various legislative sources and non-statutory guidance which an Insolvency Practitioner should be comply with. List eight ofthese?
Insolvency Act 1986
Insolvency Rules 2016
Money Laundering Regulations 2017
EC Regulations 2000
Statements of Insolvency Practice 1-17
Technical Guidance papers
Company directors disqualification act 1986
UNCITRAL Model Law on Cross Border Insolvency
Practice Direction on insolvency proceedings
A creditor’s petition (Form 4.2) served against a company, must specify the grounds on which it is presented and the nature of the relief sought. What other information should also be contained on the petition?
Name of company Company registered office Company registered number Type of company – limited by shares Identity of creditor Particulars of debt EC Regulation applies Contact details for who to contact to resolve debt
What are your obligations as an office holder under the Money Laundering regulations?
IPs are required to:
Establish procedures to identify customers and verify their identities
Determine those with controlling interest ie beneficial owners
Carry out ongoing monitoring of business relationships
Appoint a nominated officer called a ‘Money Laundering Officer’ (MLO), or ‘Money Laundering
Reporting Officer’ (MLRO) to whom principals and employees must make money laundering reports.
This does not apply to sole practitioners who do not employ any staff or act in association with any
other parties.
Maintain records of client identification and of business relationships for at least five years
Maintain a continuing obligation to review
Report suspicions of money laundering to NCA
Specifically under 2017 Regulations IPs must:
Conduct money laundering and terrorist financing risk assessments
Implement systems, policies, controls and procedures to address money laundering and
terrorist financing risks
Apply policies, procedures and controls across the IP firm’s group structure (if relevant)
Adopt appropriate internal controls
Provide training to staff
Comply with customer due diligence, enhanced due diligence and simplified due diligence
requirements and comply with requirements relating to politically exposed persons. Under the
Regulations a relevant person must consider both customer and geographical risk factors in deciding
whether a simplified due diligence is appropriate. The Regulations also create a black list of high risk
jurisdictions. If a transaction involves parties from such jurisdictions enhanced due diligence and risk
assessment will be compulsory.
What powers does the Act give to a supervisor In an Individual Voluntary Arrangement (“IVA”)?
Issue default notice
Petition for bankruptcy
Call creditors meetings
Apply to court for directions
Rule 15.3 lists a number of decision procedures which a convenormay use to seek a decision from creditors. List four of them.
Correspondence
Electronic meeting
Virtual meeting
Physical meeting
Any other decision making procedure which enables all creditors who are entitled to participate in
the making of the decision to participate equally
What are the thresholds required to be met in order for creditors tobe able to request a physical meeting be held?
10% in value; or
10% in number; or
10 creditors
What potential conduct by a director during the course of liquidation could result in a fine, a warrant for his arrest, and/or imprisonment?
Falsification of company records
Misconduct during the course of winding up
Failure to co-operate with the liquidator
Material omission from the statement of affairs
False representation
