termination and insolvency Flashcards
what are the thresholds for both bankruptcy and winding up proceedings
5k for individual insolvency and 750£ for coporate insolvency
true or false - a court order will always be required to sell the bankrupt’s home
false a court order will not be required where the bankrupt has sole legal and beneficial ownership of the property and is the only person living or entitled to live at the property.
true or false - paying off one creditor prior to a bankruptcy or winding up order is a potential transaction at undervalue
false - potential preference.
what are preferential creditors
entitled to be paid after fixed charge holders and the costs of the insolvency proceedings.
true or false - a company must be solvent to enter into a members voluntary liquidation
true. dbcee
individual insolvency; inability to pay
there are three ways to show an inability to pay under ss267 and 268
1. statutory demand: has been served for a liquidated and unsecured sum of at least 5k or more, payable immediately and after three weeks (21 days) it remains unsatisifed and there is no application to have it set aside.
- a statutory demand has been served for a liquidated and unsecured future liability of at least 5k and three weeks have passed without reasinable prospect of payment being shown or an application to set it asdie
- attempt has been made to enforce a judgement debt of at least 5k but it remains unsatisfied
bankruptcy process
a judicial process whereby most of the bankrupts assets pass to a TIB, and the bankrupt becomes subject to restrictions.
- usually discharged and free after one year
1. usually starts with a creditors petitio
creditors petition
a creditor owed a liquidated and unsecured sum of 5k or more may present a bankruptcy petition if a debtor is unable to pay their debts.
must relinquish their security to prusue.
jointt petitions
possible if a creditor is owed less than 5k
debtors application
if a debtor is unable to pay their debts
investigating past transactions
- disclaiming onerous property
- transactions at undervalue
- preferences
- transactions defrauding creditors
- extorionate credit transactions
transactions at an undervalue
a gift or sale of a property where the consideration recieved is significantly less than the value of the property.
- can set aside going back 5 years from the date of the presentation of the petition
- first 2 years from relevant date - no pre conditions
- beyond that - it must be proved that the bankrput was either insolvent at the time or became insolvent because of the transaction.
- if the transaction was in favour of an associate there is a rebutablle presumption that the bankrupt was insolvent at the time of transaction
preferences
an arrangement that places a crediot or guarantor in a better position than they would otherwise have been in the event of an individual’s bankuptcy.
presumed if in favour of an assoicate.
- can investigate and set aside preferences going back 6 months for an preference or yo to two years from the relevant date.
for all preferences ir must be shown that the bankrupt was insolvent at the time or becameinsolvent because of entering the transaction.
extortionate credit transactions
a credit transaction entered into within 3 years of the relevant date as for undervalues that involves grossly exorbitant payments or grossly contravenes ordinary principles of fair dealing
seldom used. not enough case law.
order of distribution
secured creditors
costs of bankruptcy
preferential debts (wages for work carried out in the four months preceding the bankruptcy f up to 800£
unsecured creditors
postponed creditors.
if there are insufficient funds to settle preferential debts or unsecured creditors, those within the category receive a proportionate sum of what is left
personal insolvency; alternatives to bankruptcy
- IVAS
- Debt relief order
- debt respite scheme
IVA
a binding agreement to settle between debtor and unsecured creditors - avoids stigma of bankruptcy and may give creditor a better result.
- debtor appoints a nominee to become supervisor.
- produces statement of affairs and applies to the court to obtain a moratorium ( a stay on further proceedings normally of 14 days).
- 75% or more creditors in value must agree of which at least 50% are not associates of the debtor.
- if defaults a petition may then be made for bankruptcy.de
debt relief order
involves the write off of debts and is only available where assets and liabilities are low:
1. unsecured liabilities>30k
2. gross assets < 2k
3. no car > 2k
4. cannot have a disposal income of more than 75£ per month.
5. cannot have a dro in the preceding 6 years
6. cannot be subject to other insovlency proceedings
debt respite scheme
provides breathing space for up to 60 days generally or 30 days plus any treatment period for a mental health crisis.
no further action can be taken against the debtor in this time.
corporate insolvency - inability to pay
- a statutory demand has been served for a liquidated sum of 750 or more and it has been unsatisfied for 21 days.
- attempy has been made to enforce judgement debt against the company but it remains unsatisfied.
- the company is unable to pay its debts as it falls due
- the companys liabilitys > assets.
compulsory liquidation
commenced by a creditor presenting a winding up petition when a company is insolvent.
- if the debt is disputed it wont be able to proceed and the court may adjourn the hearing if the company says it will be able to pay the sum within a reasonable period.
creditors voluntary liquidation
commenced by an insolvent company usually as a resppnse to pressure by creditors and a concern of the directors as to personal liability
special resolution is required.
members voluntary liquidation
commenced by a solvent company often used for corporate restructuring or for closing down a company that is no longer needed. a special resolution is required.
ring fencing
50% of first 10k and 20% of the balance owed to floating charge holders is set aside for unsecured creditors - subject to statutory limit of 800k for charges granted from 2020 or 600k for charges before.
alternatives to liquidation -
- adminstration
- company voluntary agreement
- administration
- company voluntary agreement
administration
involves an administrattor (insolvency practioner) running the company to rescue it / or enable it to be sold as going concern.
- they must act in the interests of the creditors and their general priority is to achieve a better result than winding up.
- prevents proceedings against the company.
- a majority in value of the creditors present and voting at a meeting convened by the administrattor must vote in favour of the proposals. hwever the resolution will no t be passed if those against are more than 50% in valueof creditors unconnected to the company.
CVA
- binding agreement between the company and the creditors.
- formal compromise agreement between companies and creditors whereby creditors accept part payment / delay.
- cheaper than administration
must be approved by 75% or more of companys creditors ad 50% or more of unconnected creditors.
secured creditors may also appoint a reciever or an administrative reciever
a fixed charge holder may appoint a lpa reciever usually to sell the property.
balance sheet
The Net Current Assets are calculated by Current Assets less Current Liabilities
the Net Assets are calculated by Fixed and Current Assets less Current and Long-Term Liabilities
