Termination and Insolvency

Question 1

What are the thresholds for both bankruptcy and winding-up proceedings?

Answer 1

£5k for individual insolvency and £750 for corporate insolvency

Question 2

A court order will always be required to sell the bankrupt’s home. True or false?

Answer 2

False, only when there is another person living at the property.

Question 3

Paying off one creditor prior to a bankruptcy or winding-up order is a potential transaction at an undervalue. True or false?

Answer 3

False - this is a potential preference.

Question 4

What are preferential creditors?

Answer 4

Creditors entitled to be paid after fixed charge holders and the costs of the insolvency procedure.

Question 5

A company must be insolvent to enter into a members’ voluntary liquidation. True or false?

Answer 5

True

Question 6

When may an individual be insolvent?

Answer 6

a. a debt is payable immediately or at some certain time in the future; and
b. the debtor appears unable to pay it.

Question 7

What is a statutory demand?

Answer 7

A formal written demand for payment

Question 8

What is bankruptcy?

Answer 8

Judicial process whereby most of the bankrupt’s assets pass to a trustee in bankruptcy and the bankrupt becomes subject to restrictions.

Question 9

How does the bankruptcy process start?

Answer 9

Either a creditor’s petition (most common) or a debtor’s application

Question 10

If a creditor wishes to pursue a bankruptcy process against a company, do they have to relinquish their security?

Answer 10

Yes

Question 11

Is a joint petition possible if a creditor is owed less than £5k?

Answer 11

Yes

Question 12

What is a transaction at an undervalue?

Answer 12

A gift or sale of a property where the consideration received is significantlyless than the value of the property.

Question 13

What is an ‘associate’ in business law?

Answer 13

Relatives, spouses, civil partners, business partners and employees, a company controlled by a person

Question 14

Difference between preferences and undervalues?

Answer 14

A preference usually involves a creditor or guarantor

Question 15

A bankruptcy order is made against a client, who is a sole trader. They have no secured debt, but owe money to an employee, trade
supplier, HMRC and their civil partner.

Which of the following are potentially preferential creditors?

A. The employee only.

B. The employee, trade supplier and civil partner.

C. The employee, HMRC and trade supplier.

D. The employee and HMRC.

E. HMRC and the trade supplier.

Answer 15

D. The employee and HMRC.

Question 16

A bankruptcy order is made against a man this month, following presentation of a bankruptcy petition in the previous month.

Which of the following most accurately describes a potential preference(s)?

A. A gift of £10k, made to the man’s friend, 12 months ago.

B. Repayment of a loan of £5k to the man’s sister, 18 months ago.

C. The sale of a property, for £120k less than its then market value, to the man’s son, four years ago.

D. Full repayment of his credit card balance, one year ago.

E. Repayment of a loan of £5k to the man’s sister, 18 months ago and full repayment of his credit card balance, one year ago.

Answer 16

B. Repayment of a loan of £5k to the man’s sister, 18 months ago.

Question 17

A company’s assets exceed its liabilities, and it is generally able to pay its debts as they fall due. However, a statutory demand for an
unsecured debt of f6k was served four weeks ago by a creditor and has not been complied with. The company has also not made an
application to set it aside.

Which of the following best describes the position?

A. The creditor may petition for the winding-up of the company.

B. The company is able to pay its debts under insolvency legislation.

C. The company is unable to pay its debts under insolvency legislation and the creditor may petition for the winding-up of the company.

D. The company is unable to pay its debts under insolvency legislation, so the company will be wound up.

E. The company is able to pay its debts under insolvency legislation as assets exceed liabilities and technically it can pay its debts as
they fall due.

Answer 17

C. The company is unable to pay its debts under insolvency legislation and the creditor may petition for the winding-up of the company.

Question 18

A company in liquidation has assets of £200k and liabilities of £400k after payment of fixed charge holders and winding-up expenses.
Of the liabilities, £50k is owed to preferential creditors and there are no floating charge holders. The client is owed £50k as an
unsecured creditor.

Which of the following best sets out what the client will receive?

A. £25,000.00

B. £28,571.43

C. £0.50 for every £1

D. £18,750.00

E. £21,428.57

Answer 18

E. £21,428.57

Question 19

A bankruptcy order is made against a client, who is the joint owner of the matrimonial home.

Which of the following best describes the position?

A. All of the client’s property will vest in the trustee in bankruptcy. A court order will be required to sell the home.

B. All of the client’s property will vest in the trustee in bankruptcy except for tools of the trade and most items essential for day-to-day
living. A court order will not be required to sell the home.

C. All of the client’s property will vest in the trustee in bankruptcy except for tools of the trade, their interest in the home, and most
items essential for day-to-day living. A court order will be required to sell the home.

D. All of the client’s property will vest in the trustee in bankruptcy except for tools of the trade, their interest in the home, and most
items essential for day-to-day living. A court order will not be required to sell the home.

E. All of the client’s property will vest in the trustee in bankruptcy except for tools of the trade and most items essential for day-to-day
living. A court order will be required to sell the home.

Answer 19

E. All of the client’s property will vest in the trustee in bankruptcy except for tools of the trade and most items essential for day-to-day
living. A court order will be required to sell the home.