Voidable Transactions in Insolvency MCQ Flashcards
Which one of the following correctly sets out the persons against whom a claim for fraudulent trading can be brought?
A. The directors of a company, including past directors, who were knowingly party to the carrying on of any business of the company with an intent to defraud creditors.
B. Any person who is knowingly party to the carrying on of any business of the company with an intent to defraud creditors.
C. The directors of a company who are knowingly or recklessly party to the carrying on of any business of the company with an intent to defraud creditors.
D. The directors of a company who are knowingly party to the carrying on of any business of the company with an intent to defraud creditors.
E. Any person who is knowingly or recklessly party to the carrying on of any business of the company with an intent to defraud creditors.
B. Any person who is knowingly party to the carrying on of any business of the company with an intent to defraud creditors.
Who may bring a claim for fraudulent trading?
A. Any person who can show loss caused by the alleged fraudulent trading.
B. An administrator only.
C. A liquidator or administrator.
D. A liquidator only.
E. A liquidator, administrator or any creditor.
C. A liquidator or administrator.
Correct
Correct - see s 213 and s 246ZA IA 1986.
Which one of the following best describes what must be established for a successful claim for fraudulent trading against a director?
A. That the director breached their duties at a time when the company was insolvent.
B. An intent to defraud creditors which involves actual dishonesty and has resulted in all of the company’s creditors being defrauded.
C. An intent to defraud creditors which involves actual dishonesty, assessed on an objective basis.
D. That the director was incompetent or negligent at a time when the company was insolvent.
E. An intent to defraud creditors which involves actual dishonesty, assessed on a subjective basis.
E. An intent to defraud creditors which involves actual dishonesty, assessed on a subjective basis.
Company D has a loan with ABC Bank which is secured by a fixed charge over certain assets of Company D. It also has a £20,000 overdraft with ABC Bank which is unsecured.
ABC Bank agrees to increase Company D’s overdraft facility from £20,000 to £30,000. This is on condition that Company D grants it a floating charge to secure the whole of the overdraft, to be taken over all assets not covered by the fixed charge. The floating charge is registered at Companies House.
What advice would you give to ABC Bank about the validity of the floating charge if Company D goes into administration 3 months after the floating charge was created?
A. The floating charge was created within the relevant time. This means
the administrator could seek to challenge the floating charge if Company D was insolvent at the time or became insolvent as a result of granting the floating charge. If
the administrator is successful, the floating charge will only be valid to
secure £10,000 and not the full amount of £30,000.
B. The floating charge was created within the relevant time. This means
the administrator could seek to challenge the floating charge if Company D was insolvent at the time or became insolvent as a result of granting the floating charge. If the administrator is successful, the floating charge will only be valid to secure £20,000 and not the new increase to the overdraft of £10,000.
C. The floating charge was created within the relevant time. This means the administrator could seek to challenge the floating charge if Company D was insolvent at the time or became insolvent as a result of granting the floating charge. However,
the floating charge will be valid to secure £30,000 provided Company D has paid £20,000 or more into its account since the creation of the floating charge.
D. The floating charge was created within the relevant time. This means the administrator could seek to challenge the floating charge if Company D was insolvent
at the time or became insolvent as a result of granting the floating charge. If the administrator is successful, the floating charge will not be valid, and the overdraft will be unsecured.
E. The floating charge was created within the relevant time. This means the administrator could seek to challenge the floating charge if Company D was insolvent at the time or became insolvent as a result of granting the floating charge. If the administrator is successful, the floating charge will not be valid, but the overdraft will be secured by the existing fixed charge that the bank has.
C. The floating charge was created within the relevant time. This means the administrator could seek to challenge the floating charge if Company D was insolvent at the time or became insolvent as a result of granting the floating charge. However,
the floating charge will be valid to secure £30,000 provided Company D has paid £20,000 or more into its account since the creation of the floating charge.
*Look at Overdraft element
Which one of the following is correct in relation to a claim for wrongful trading?
A. A claim may be brought by a liquidator or administrator of the company against any director of the company where the director has been in breach of their statutory directors’ duties.
B. A claim may be brought by a liquidator or administrator of the company against any person who was a director at the relevant time where the company continued to trade whilst it was insolvent.
C. A claim may be brought by a liquidator or administrator of the company against any person who was at the relevant time a director of the company and who knew or ought to have concluded that there is no reasonable prospect of the company avoiding insolvent liquidation.
D. A claim may be brought by a liquidator or administrator of the company against any person who was at the relevant time a director of the company but it must be shown that there was an intent to defraud creditors.
C. A claim may be brought by a liquidator or administrator of the company against any person who was at the relevant time a director of the company and who knew or ought to have concluded that there is no reasonable prospect of the company avoiding insolvent liquidation.
Which one of the following is the best description of the reasonably diligent person test?
A. The court applies the ‘reasonably diligent person’ test in order to determine whether the director took every step to minimise the potential loss to the company’s creditors.
B. The reasonably diligent person is an objective test – the court will consider the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by the director in question.
C. The court applies the ‘reasonably diligent person’ test in order to determine whether a director ought to have concluded that there was no reasonable prospect of avoiding an insolvent liquidation or administration.
D. The court applies the ‘reasonably diligent person’ test in order to determine whether a director ought to have concluded that there was no reasonable prospect of avoiding an insolvent liquidation or administration and whether the director then took every step to minimise the potential loss to the company’s creditors.
D. The court applies the ‘reasonably diligent person’ test in order to determine whether a director ought to have concluded that there was no reasonable prospect of avoiding an insolvent liquidation or administration and whether the director then took every step to minimise the potential loss to the company’s creditors.
Which one of the following best describes the ‘point of no return’ referred to in the wrongful trading legislation?
A. The point at which the company enters into insolvent liquidation or administration.
B. The time before the commencement of the winding up or insolvent administration when the company was in fact insolvent on the balance sheet test.
C. The time before the commencement of the winding up or insolvent administration when the company was in fact insolvent on the cash flow test.
D. The time before the commencement of the winding up or insolvent administration at which the director knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation (or insolvent administration).
D. The time before the commencement of the winding up or insolvent administration at which the director knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation (or insolvent administration).
