w5 Flashcards
lecture
What is the significance of the Certificate of Incorporation?
It is the birth certificate of the company.
What does winding up (liquidation) signify for a company?
It signifies the death of the company.
What are the two types of winding up?
- Compulsory winding up (via the courts)
- Voluntary winding up (by passing a resolution)
What is the main legislation governing corporate insolvency?
Insolvency Act 1986 (IA86)
When does a company officially come to an end?
When it is wound up/liquidated.
What tests indicate insolvency?
- Cash flow test
- Balance Sheet test
What must directors not do if the company is insolvent?
Take any further credit.
What is required for a Members’ Voluntary Winding Up?
- Special resolution (>75%)
- Declaration of solvency by directors
- Statement of assets and liabilities
What happens after the liquidator is appointed in a Members’ Voluntary Winding Up?
The liquidator realises assets and distributes proceeds.
What is the primary purpose of Administration?
To rescue the company as a going concern.
Who appoints an administrator?
Court on application by shareholders, directors, or holders of floating charges.
How long does an administrator’s appointment last?
One year, subject to renewal by creditors or the court.
What fiduciary duties does an administrator owe?
- To the company
- To its secured creditors
What is a Corporate Voluntary Arrangement (CVA)?
A voluntary arrangement with creditors to avoid winding up.
What is required for a CVA proposal to be approved?
- 75% of unsecured creditors (by debt value)
- 50% of ‘not connected’ creditors
What are the advantages of a Corporate Voluntary Arrangement?
- Avoids liquidation
- Directors continue to run business
- Greater prospect of payment for creditors
What is a Creditors’ Voluntary Winding Up?
Occurs when a company is insolvent.
What must be convened within 14 days in a Creditors’ Voluntary Winding Up?
A Creditors’ Meeting.
Who can apply for compulsory winding up?
- Company’s creditors
- Company shareholders or its directors
- Supervisor of a voluntary arrangement
- An administrator
- Secretary of State
What happens when a winding up order is made?
- Company goes into liquidation
- Company stops trading
- Directors lose power to manage
What is the primary objective of liquidation?
To wind up a company, realise assets, and repay creditors as much as possible.
What are the first two priorities in the order of distribution during liquidation?
- Liquidators’ Costs
- Fixed Charge Holders
What are the three permanent measures introduced by the Corporate Insolvency and Governance Act 2020?
- A free standing moratorium
- A restructuring plan process
- Restrictions on termination of contracts
What does the free standing moratorium allow?
Viable but distressed companies to have initial 20 days of protection.
