Week 12 - Insolvency

Question 1

What is insolvency?

Answer 1

When a company is unable to pay its debts as they become due - can be short term and is not uncommon

Question 2

What happens if it is more serious?

Answer 2

There are various options open to the company and its creditors

Question 3

What is it mainly governed by?

Answer 3

The Insolvency Act 1986 (IA) (Revised by Enterprise Act 2002)

Question 4

What is the first conflicting aim of the insolvency act?

Answer 4

To allow secured creditors to realise their security

Question 5

What is the second conflicting aim of the insolvency act?

Answer 5

To ensure the creditors are treated equally favourably

Question 6

What is the third conflicting aim of the insolvency act?

Answer 6

To attempt to keep an insolvent company afloat

Question 7

What are the 3 main options available to an insolvent company?

Answer 7

• administration
• voluntary arrangement with its creditors
• compulsory or voluntary liquidation

Question 8

Why is it often preferable that a company does keep going?

Answer 8

There may be some value doing that in the future - receive investment down the line