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Business Law and Practice > Workshop 9: Insolvency pt. 1 - Insolvency Procedures > Flashcards

Workshop 9: Insolvency pt. 1 - Insolvency Procedures Flashcards

**Topic: Corporate Insolvency** - Introduction to Corporate Insolvency - Formal and Informal Arrangements - Administration and receivership - Liquidation - The statutory order of priorities **Topic: Personal Insolvency** - Personal Insolvency

1
Q

What are the two main formal insolvency procedures for insolvent individuals?

A
  1. Bankruptcy
  2. Individual voluntary arrangements (‘IVAs’)
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2
Q

What kind of arrangement is an IVA?

A

Where a debtor makes a proposal for a compromise of their liabilities with their creditors

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3
Q

What are the options a debtor may propose for an IVA?

A

The debtor

  • Paying part of the contractual debt owed
  • Having a longer period to pay than the contractual period
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4
Q

Where is the debtor’s money paid out of in an IVA?

A
  • Income
  • Business
  • Assets
  • Combination of the above
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5
Q

What are the requirements to be a Supervisor of the IVA?

A

A licensed insolvency practitioner must be appointed as IVA Supervisor

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6
Q

What are the requirements to be a Supervisor of the CVA?

A

A licensed insolvency practitioner must be appointed as CVA Supervisor

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7
Q

What is the role of the IVA Supervisor?

A

They supervise

  • Debtor’s implementation and
  • Compliance with terms of IVA
  • Report to the court periodically
  • Can apply to the court for directions
  • HAs the right to petition for debtor’s bankruptcy subject to debtor’s failure of compliance with IVA terms
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8
Q

What is the general duration of an IVA?

A

3-5 years is common in practice

But they can last any time

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9
Q

What is included in the 3 steps of successfully setting up a binding IVA?

A
  1. Nominee (what the Insolvency Practitioner is known as at this stage) assists debtor with drafting proposal of compromise of liabilities and statement of their affairs
  2. Nominee submits report to court; whether proposal is reasonable in being approved
  3. Creditors approve of the proposal to become binding
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10
Q

What is the effect of the court granting an order when a debtor applies to the court for an interim order?

A

Brings about a moratorium

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11
Q

What is a moratorium?

A

A period where creditors are unable to take action to exercise their usual rights and remedies

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12
Q

How much value of a debtor’s debt must a creditor hold for them to vote and the proposal become binding?

A

At least 75%

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13
Q

When may a creditor’s vote of approval for a debtor’s IVA or CVA proposal be ineffective?

A

If more than half of the total value of creditors who are not associates of the debtors vote against it

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14
Q

What are the effects of an approved IVA?

A
  • Binds debtors and their unsecured creditors
  • Nominee becomes IVA Supervisor
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15
Q

What are some advantages of an IVA?

A
  • Alternative to bankruptcy; avoids associated stigma and restrictions
  • Binds unsecured creditors
  • Moratorium available if interim order is made
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16
Q

What are some disadvantages of an IVA?

A
  • May last longer than bankruptcy
  • Cannot bind secured or preferential creditor without their consent
  • Can be expensive
  • Can be time-consuming
  • Uncertainty as to whether creditors will approve
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17
Q

What is bankruptcy equivalent to in a business?

A

Liquidation

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18
Q

How does bankruptcy begin?

A

Presentation of a bankruptcy petition, by either debtor or creditor

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19
Q

What are the ‘grounds of petition’ for a creditor?

A
  • The debt is a debt the debtor appears unable to pay or has no reasonable prospect of paying at the time of the presentation of the petition
  • Debt owed is for an unsecured liquidated sum of over £5k
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20
Q

Can the debtor a creditor is petitioning for bankruptcy be domiciled or present anywhere?

A

No - England and Wales

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21
Q

What must the debtor accompany their petition with when filing for bankruptcy?

A

Statement of affairs

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22
Q

What is a ‘statement of affairs’?

A

Full details of assets and liabilities

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23
Q

What is the ‘bankrupt’ person prohibited/deprived from doing on the making of a bankruptcy order?

A
  • Acting as director
  • Being involved in management of company
  • Obtaining credit of over £500 without disclosing bankruptcy
  • Giving gifts
  • Practising in certain professions
  • Deprived of ownership of their property except for their reasonable domestic needs
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24
Q

What are the two ways a debtor’s inability to pay their debts evidenced?

A
  • A statutory demand that hasn’t been satisfied within 3 weeks from service of the demand or set aside by the court
  • An unsatisfied execution of a judgement or other legal process
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25
Q

What must be satisfied for a bankruptcy order to be made at the discretion of the courts?

A

Satisfaction of the petition groups and having evidence of a debtor’s inability to pay their debts

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26
Q

What is an immediate and automatic power of a Trustee upon the making of a bankruptcy order?

A

The bankrupt’s estate vests in the trustee

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27
Q

What does it mean when the bankrupt’s estate vests in the Trustee?

A

The bankrupt must give up possession/give access to assets to the Trustee

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28
Q

Do assets falling into the estate after the making of a bankruptcy order count as assets that must be vested to the Trustee?

A

Yes

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29
Q

What are some of the Trustee’s statutory powers following the making of a bankruptcy order?

A
  • To sell/otherwise deal with estate assets
  • Carry on bankrupt’s business
  • Sell bankrupts assets
  • Grant security over bankrupt’s assets
  • To disclaim onerous property or contracts
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30
Q

Which order must the Trustee distribute money in the bankrupt’s estate?

A

In accordance with statutory order of priority for bankruptcies

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31
Q

TRUE OR FALSE

Trustee will ask creditors to prove their claims against the bankrupt

A

True

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32
Q

What must creditors who are claiming a dividend from the bankrupt’s estate provide evidence of?

A

Of their claim against the bankrupt to prove their claim

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33
Q

Which order must the Trustee pay dividends to creditors in?

A

In accordance with statutory order of priority

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34
Q

What must the Trustee do proposing to pay a dividend to creditors?

A

Must give notice to creditors who have proved their debts, which includes:

  • Stating amount of sale proceeds received from sale of estate assets
  • Any deductions that have been made from proceeds
  • Amount of dividend that they can expect to receive
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35
Q

Who determines the amount of the creditor’s claim?

Who has the final say on the matter if the creditor does not agree with their determination?

A

Trustee

The court

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36
Q

What is the order of priority of payments for bankruptcy?

A
  1. Secured creditors
  2. Expenses of bankruptcy (incl. Trustee’s remuneration)
  3. Two tiers of preferential creditors
  4. Ordinary unsecured creditors
  5. Statutory interest
  6. Debts of a spouse
  7. Surplus payable to bankrupt
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37
Q

What are the bankrupt’s duties to the Trustee to enable them to carry out their functions according to s. 333 of the Insolvency Act 1986? [Paraphrased]

A

a) give trustee informations of his affairs
b) attend on trustee at such times
c) do all such other things that are reasonably required

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38
Q

What is the effect of a bankruptcy discharge?

A

Bankrupt is released from most of bankruptcy debts and related restrictions (e.g., acting as director etc.)

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39
Q

Why may the Truee apply for an order to suspend the automatic discharge of the bankrupt?

A

If they fail to comply with their obligation under IA 1986

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40
Q

What is the usual time frame of a bankrupt being discharged from bankruptcy?

A

After a maximum of one year

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41
Q

When may the bankrupt be discharged in less than a year?

A

If Trustee files notice stating that the bankrupt does not required investigation

or that they have conducted such investigation within the one year period

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42
Q

What effect does a bankruptcy restriction undertaking (BRU) have?

A

Same as a bankruptcy restriction order (‘BRO’) if accepted

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43
Q

What is the effect of a ‘bankruptcy restriction order/undertaking’?

A

Having the period of time whereby bankrupcry restriction extended

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44
Q

Why may the Secretary of State, or Trustee acting on SoS direction apply to the court for a BRO?

A

If the court considers it appropriate in the circumstances of the bankrupt’s behaviour/conduct

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45
Q

What are some examples of behaviour in Schedule 4a IA 1986 the court will take into account when ordering for a BRO or BRU?

A
  • Failure to keep records
  • Entering into preferences or transactions at an undervalue
  • Fraud
  • Incurring debt without reasonable expectation of being able to pay it
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46
Q

How long will a BRO operate for?

A

Period of between 2 and 15 years

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47
Q

What is the bankrupt unable to do under a BRO or BRU?

A

Act as director or obtain credit of more than £500 without disclosing that they are subject to a BRO

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48
Q

When must the application for a BRO be made?

A

Within a year of the start of the bankruptcy

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49
Q

What is the aim of a Trustee exercising their power to challenge voidable transactions?

A

Aim of increasing assets available to creditors

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50
Q

What must the Trustee balance when challenging voidable transactions?

A

Balance costs and risks of litigation with chances of success in making recoveries for bankruptcy estate

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51
Q

What is meant by the ‘Relevant Date’?

A

When the Enterprise Act 2002 came into force on 15 September

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52
Q

When is the ‘Relevant Date’?

A

15 September 2003

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53
Q

What for ways does s.123 Insolvency Act 1986 describe a company being ‘unable to pay their debts’ as?

A
  1. Unable to pay its debts as they fall due - known as the cash flow test
  2. Has liabilities greater than its assets known as the balance sheet test
  3. Does not comply with a statutory demand for a debt of over £750 (this provides evidence that the company is cash flow insolvent
  4. Has failed to pay a creditor to satisfy enforcement of a judgment debt
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54
Q

What are the most important tests for gauging whether a company is insolvent?

A

Cash flow and balance sheet tests

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55
Q

When is a company designed as being insolvent?

A

When a company is unable to pay its debt

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56
Q

Who is responsible for continually reviewing the financial performance of a company in recognising it is facing financial difficulties?

A

Directors

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57
Q

What are some examples of ‘financial difficulty’ that directors must be aware of?

A

Where the company has

  • Many unpaid creditors putting pressure to pay owed amounts
  • Full drawn overdraft facility and bank is refusing further credit provisions by increasing the overdraft
  • Company has loans and liabilities exceeding the value of its assets
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58
Q

Who is responsible for taking action on behalf of the company when facing financial difficulties?

A

Directors

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59
Q

What are the options directors have when faced with a company in financial difficulty?

A
  1. Do nothing
  2. Do a deal and reschedule debts with company creditors to allow less to pay or more time to pay
  3. Appoint an administrator
  4. Request appointment of a receiver
  5. Place the company into liquidation
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60
Q

Can directors incur personal liability when the company they are directing becomes insolvent under the provisions of the Insolvency Act 1986?

A

Yes

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61
Q

What are examples of informal agreements following the insolvency of a company?

A
  • Grant new or additional security
  • Replace directors or senior employees
  • Sell failing or profitable businesses to raise cash
  • Reduce costs
  • Issue new shares to creditors
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62
Q

What is issuing new shares to creditors also known as?

A

Debt for equity swap

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63
Q

What happens in a Standstill Agreement?

A

The creditors agree not to enforce their rights/remedies for a period of time to allow the company time to negotiate an agreement with them to resolve company’s financial issues

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64
Q

Are informal arrangements regarding the solving of insolvency issues contractually binding or regulated by insolvency-related statutes?

A

They are contractually binding and not regulated by insolvency-related statutes

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65
Q

What does a moratorium do against a creditor in an IVA?

A

Freezes some of the following:

  • Existing, proposed bankruptcy or proceedings
  • Legal processes e.g., execution, landlord’s right of peaceable re-entry and/or distress for rent
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66
Q

What are some actions a pre-insolvency moratorium can restrict against companies?

A
  • Enforcing security against company’s assets
  • Stay of legal proceedings against the company
  • Bar against bringing new proceedings
  • No commencement of winding up procedures
  • No commencement of administration
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67
Q

Who can commence administration or winding up or approve of shareholder’s votes to wind up the company whilst the company is in a pre-insolvency ‘moratorium’?

A

Directors only

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68
Q

What is the procedure for obtaining a pre-insolvency moratorium?

A

Filing documents at court

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69
Q

What documents must be filed at court when requesting a pre-insolvency moratorium?

A
  • Statement that the company is or is likely to unable to pay its debts as they fall due
  • Statement from licensed insolvency practitioner that a moratorium is likely to rescue company as a going concern
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70
Q

What is a ‘Monitor’?

A

A licensed insolvency practitioner for the purposes of pre-insolvency moratorium

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71
Q

How long does the pre-insolvency moratorium last for?

A

20 business days

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72
Q

How many days can the initiaul 20 business day pre-insolvency moratorium be then extended to?

A

By a further 20 business days by directors

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73
Q

How can a pre-insolvency moratorium be extended beyond 40 business days?

A

Consent of requisite majority of creditors and/or court order

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74
Q

What is the maximum period of a pre-insolvency moratorium subject to court order?

A

One year

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75
Q

When will a pre-insolvency moratorium terminate automatically?

A
  • If the company enters liquidation or administration
  • When a Company Voluntary Arrangement is approved
  • When a court sanctions restructuring plan or scheme of arrangement
76
Q

What is the ‘statutory repayment holiday’?

A

The period during the pre-insolvency moratorium where a company does not have to pay its pre-moratorium debts

77
Q

What are pre-moratorium debts defined as?

A

Debts that had fallen due before or during the moratorium by obligation incurred before moratorium

78
Q

What payments are to still be paid, even during the statutory repayment holiday?

A
  • Monitor’s remuneration or expenses
  • Goods and services supplied during the moratorium
  • Rent of a period during moratorium
  • Wages, salary or redundancy payments
  • Loans involving financial services
79
Q

What is a CVA?

A

A compromise between a company and its creditors where creditors agree

  • To part payment of debts owed and/or
  • To new extended timetable for repayment
80
Q

What must be done with the CVA proposal following its approval in accordance with IA 1986?

A

Be reported to court

81
Q

TRUE OR FALSE

A CVA proposal must be approved by the court

A

False

It only needs to be reported to the court, there is no requirement for the court to approve it

82
Q

Who is the CVA supervised and implemented by?

A

A Supervisor

83
Q

Can a CVA be used in conjunction with administration or liquidation?

A

Yes

84
Q

What are the 5 steps of setting up a CVA?

A
  1. Directors (or administrator or liquidator if company in administration or liquidation) draft CVA proposal and appoint a Nominee
  2. Directors submit CVA Proposal and statement of company’s affairs to Nominee
  3. Nominee considers CVA proposal and reports to court as to whether creditors and shareholders should be asked to vote on proposal in 28 days
  4. Nominee must allow at least14 days for creditors to vote
  5. Approval of CVA if
    - at least 75% in value of debts owed of those voting vote in favour
    - or simple majority
  6. Nominee reports to court CVA has been approved
  7. Nominee becomes Supervisor and Supervisor implements CVA proposal
85
Q

Whose vote will prevail in a vote for CVA, if a dispute arises?

A

Creditors

86
Q

Who is a CVA binding on?

A

All unsecured creditors, including those who did not vote or voted against it

87
Q

What is the time period a creditor can challenge a CVA on the grounds of unfair prejudice or material irregularity?

A

Within 28 days of the CVA’s approval

88
Q

What are the grounds a CVA can be challenged?

A
  • Unfair prejudice; the CVA treats one creditor unfairly compared to another
  • Material irregularity relating to the procedure (e.g., the way creditor’s votes were calculated)
89
Q

What is the role of a CVA Supervisor?

A
  • Agree to creditor’s claims
  • Collect unsecured funds to pay dividends
  • Ensure company complies with its CVA obligations
  • Send final report on CVA implementation to shareholders and creditors
90
Q

What are the advantages of a CVA?

A
  • Directors remain in control of the company
  • Company can continue to trade subject to terms of CVA proposal
91
Q

What are the disadvantages of a CVA?

A

Can’t bind secured or preferential creditors without their consent

92
Q

What may a CVA result in for landlords?

Is this a good result or not?

A

Heavily discounted rents and loss of income

Preferable than having empty properties with no income

93
Q

Why may trade creditors tend to support CVAs?

A

Likely to recover more than if the company goes into administration or liquidation

94
Q

What is the purpose of a ‘Restructuring Plan’ that was introduced by Corporate Insolvency and Governance Act 2020?

A
  • To compromise company’s creditors and shareholders and
  • Restructure its liabilities so company can return to solvency
95
Q

Who is the Plan only to be used by?

A

By companies which have or are likely to encounter financial difficulty

96
Q

What is the name of the court approval required for a Plan?

A

A sanction

97
Q

How is a Plan to be approved?

A

By at least 75% in value of those voting in each class

98
Q

TRUE OR FALSE

Creditors and members must vote together

A

False

They are to be divided into classes and each class must be asked to approve the Plan

99
Q

When does the Plan become binding?

A

When the court sanctions the Plan

100
Q

Who does the Plan become binding on when the court sanctions it?

A

Binds all creditors, including secured creditors

101
Q

What are the advantages of a Plan?

A
  • Court can exclude creditors and shareholders from voting if they have no genuine economic interest in the company, even if affected by the Plan
  • Can be used alongside pre-insolvency moratorium, administration and liquidation
  • Can compromise the rights and claims of secured creditors and shareholders
  • Binds all creditors, even if every class of creditor hasn’t been included in majority approval
102
Q

What groups can initiate a Plan?

A
  • Company
  • Creditor
  • Member
  • Liquidator
  • Administrator
103
Q

Can the court sanction the Plan even if one or more classes haven’t approved it?

A

Yes

104
Q

What is meant when administration is describe as a ‘collective’ insolvency procedure?

A

Because administrators are required to perform their duties in interests of the creditors as a whole rather than in the interest of a particular creditor

105
Q

Who does an administrator owe their duties to?

A

Courts and creditors of the company

106
Q

What qualifications must an appointed administrator have?

A

A licensed insolvency practitioner

107
Q

What is the usual case of an appointment of administrator via the court procedure?

A

Where creditor has begun winding up proceedings against company and directors wish to appoint administrators before court has made a winding up order

108
Q

When does the interim moratorium come into effect during application of administration?

How long does it last for?

A

On application to court

Last until either
- Administration order is made
- Court dismissed the application

109
Q

What are the two ways an administrator may be appointed?

Which one is more common than the other?

A
  1. Court procedure
  2. Out of court procedure

Out of court more common

110
Q

When may a court appoint an administrator?

A

When a company is or is likely to become insolvent, on application of company directors, creditor, supervisor of a CVA or a liquidator

111
Q

What are the two ways an appointment of administrator can be done using an out of court procedure?

A
  1. Directors appoint
  2. Holder of a qualifying floating charge appoint
112
Q

What is a Qualifying Floating Charge (‘QFC’)?

A

Floating charge which

a) relates to the whole (or substantial amount) of company’s property and
b) gives power to the holder to appoint an administrator

113
Q

What must a director appointment an adminsitration out of court under Para 22 do?

A

File a notice of their intention to appoint (‘NOI’) at court

114
Q

When must the notice of appointment be file in court after the NOI has been filed with the court?

A

Within 10 business days after the NOI has been filed with the court

115
Q

When does the administrators’ appointment take effect when a director appoints them out of court under Para 22?

A

When the second notice is filed at court

116
Q

What must a director do when their company has granted a QFC and wishes to appoint an administrator out of court when filing at court?

A

They must file the NOI at court and send the NOI to the holder of the QFC

117
Q

What must the QFC holder do within 5 business days following their receipt of the NOI from the director of a company in administration process?

A

Appoint its choice of adminsitrator

118
Q

What happens if the QFC holder does not appoint their choice of administrator within the 5 business days of receiving a NOI from a director of company in administration process?

A

The director can file NOI in usual Para 22 way and they choose their choice of administrator

119
Q

How can a QFC holder appont an adminsitrator out of court?

A
  1. Enforce its security in accordance with QFC terms
  2. Appointment takes effect when it has filed a NOI at court
120
Q

What is the process where there is more than one holder of a QFC?

A

Lower-ranking QFC holders must give two business days notice to hight-ranking QFC holders

121
Q

When can the appointment of administrator take place where there are different ranking QFC holders?

A

When the higher-ranking QFC consents to the appointment

122
Q

What is the status of a 2director whilst an administrator is in office?

A

They are still in office but are unable to exercise their management powers without the administrator’s consent

123
Q

What is the general fixed time limit for the completion of administrations?

A

12 months

124
Q

What do an administrators powers include?

A
  • Carry on business of the company
  • Take possession and sell property of company (subject to fixed charge holders consent)
  • Borrow money
  • Execute documents in company’s name
  • Remove and appoint directors
  • Dispose of property subject to floating charge
  • Dispose of property subject to fixed charge (with courts consent)
  • Bring proceedings against directors for fraudulent and wrongful trading
125
Q

Can administrators exercise the power to pay dividends to unsecured creditors without obtaining court permission?

A

No

126
Q

What is the general process of a administration once appointed within the first eight weeks?

A
  1. Produce report setting out proposals, which may include:
    - Proposals to restructure liability (eg., via scheme of arrangement)
    - Restructuring plan
    - CVA
  2. Send to creditors for approval
  3. If approved, administrator will proceed
  4. If rejected, usually, company will be placed into liquidation
127
Q

What happens if an administrator’s proposals are rejected?

A

The company is usually placed into liquidation

128
Q

What happens if an administrators proposals are approved?

A

Proposals proceed

129
Q

What happens if an administrator’s proposals are achieved?

A

Company will exit administration

130
Q

What is a key benefit for a company during adminsitration?

A

Company has the full benefit of a moratorium

131
Q

TRUE OR FALSE

All business documents and company’s website must state that the company is in administration

A

True

132
Q

What is a pre-packed sale in administration?

A

When business and assets of an insovlent company are prepared for sale to a buter before company enters administration

133
Q

Why are pre-packaged sales advantageous for companies?

A
  • Goodwill and continuity of the business are not damaged by the administration
  • Certainty of results is achieved for creditors
134
Q

What is receivership?

A

Enforcement procedure conduced in the interests of a secured crediot

135
Q

What are there three main types of receivers?

A
  1. Administrative receivers
  2. Fixed charge receivers
  3. Court-appointed receivers
136
Q

What is the process of an administrative receivership?

A

Secured credit with fixed and floating chargers appoints AR to take control of secured assets, sell and use proceeds to repay owed debt

137
Q

TRUE OR FALSE

Administration receivership is the most common procedure

A

False

It is now a rare procedure and prohibited in most cases

138
Q

Does the receiver of an adminsitration receivership have to be a licnesed insolvency practioner?

A

Yes

139
Q

Does the receiver of a fixed charger receivership have to be a licensed insolvency practitioner?

A

No

140
Q

What is the purpose of a fixed charge recieverhsip?

A

To enforce security, manage and sell secured assets and use proceeds to repay debt

141
Q

Who do fixed charge receivers primarily and exclusively owe their duties to during the receivership?

A

Appointer

142
Q

Who do fixed charge receivers owe limited duties to during the receivership?

A

Debtor

143
Q

What do the some of the powers a receiver has include?

A
  • Ability to sell
  • Ability to mortgage
  • Ability to collect rents from secured assets
144
Q

Which assets can a fixed charge receive become the receiver and manager of and be entitled to deal with?

A

Only of the assets secured by the security document

145
Q

When can a fixed charge receive not be a ppointed?

A

Whilst a pre-insolvency moratorium subsists or if the company is in administration

146
Q

Where are court-appointed receivers’ powers and duties set out?

A

In the court order, as they are appointed by the court

147
Q

When are the appointments of court-appointed receivers usually made?

A
  • Where shareholders are locked in dispute
  • Under the Proceeds of Crime Act 2002 and associated legislation
148
Q

What is the typical responsibility of the court-appointed receiver?

A

To run the business until the dispute is determined

149
Q

Can an interim moratorium prevent a QFC holder from appointing an adminsitrator?

A

No

150
Q

Are creditors absolutely prohibited/limited from exercising he prohibited actions during an administrative moratorium?

A

No - only the court can consent to the creditor doing so

151
Q

What is meant by the liquidation process meaning?

A

When a company’s commercial life comes to an end

152
Q

What is the liquidator’s task?

A
  1. Collect in company assets
  2. Sell assets
  3. Determine amounts owed to creditors after identifying them
  4. Pay creditors a dividend out of sale funds
  5. If there is a surplus, pay to shareholders in accordance with the Articles rights
153
Q

What is a term used interchangably with ‘liquidation’?

A

Winding up

154
Q

When may solvent company be wound up?

A

If the purpose it was incorporated for has been fulfilled or

No longer needed as part of corporate group restructuring

155
Q

How are creditors of the same rank to be paid proceeds from sale of business and assets during liquidation?

A

Pari passu, i.e., sharing on equal and proportionate basis based on assets that are available

156
Q

What two categories of liquidation are there?

A
  1. Compulsory liquidation
  2. Voluntary liquidation
157
Q

What two categories is voluntary liquidation subdivided into?

A
  1. Members’ voluntary liquidation
  2. Creditors’ voluntary liquidation
158
Q

What does dissolution do?

A

Bring the company’s life as a legal person/entity to an end

159
Q

When does dissolution occur in a compulsory liquidation?

A

Three months after the liquidator has filed a notice with Companies Registry stating winding up has been completed

160
Q

When does dissolution occur in either of the compulsory liquidations?

A

Three months after the liquidator has filed the final accounts and return with Registrar of Companies at CH

161
Q

What are the steps for the court-based process for compulsory liquidation?

A
  1. Applicant presents winding up petition to court
  2. Court grants petition
  3. Official Receiver becomes liquidator
162
Q

What power does the Official Receiver have for the purposes of choosing a person to become the liquidator of the company in their place?

A

To summon separate meetings of the company’s creditors and contributories

163
Q

Who can be an applicant when applying to the court for a compulsory liquidation?

A
  • Creditor
  • Company itself
  • Directors
  • Administrator
  • Administrative receiver
  • CVA Supervisor
  • Secretary of State for Business, Energy & Industrial Strategy
164
Q

What are the grounds whereby the court can order for the winding up of a company?

A

Set out in s.122 of IA 1986

Include main/common ones

  1. Company is unable to pay its debts
  2. Just and equitable for the company to be wound up
165
Q

What happens following the court’s satisfaction of the grounds for a winding up order?

A
  • Granting of an automatic stay on commencing/continuing proceedings against the company
  • Automatic dismissal of all employees
  • Directors lose powers and are automatically dismissed from office
166
Q

Does a members voluntary liquidation require a court order?

A

No

167
Q

Does a creditors voluntary liquidation require a court order?

A

No

168
Q

The company subject to a members voluntary order must be

a) solvent
b) insolvent

A

Solvent

169
Q

The company subject to a creditors voluntary order must be

a) solvent
b) insolvent

A

Insolvent (unable to carry on its business)

170
Q

What resolutions are required for a company to go into CVL and appoint liquidator?

A

Special to put company into CVL

Ordinary to appoint liquidator

171
Q

How is the decision for a company to go into members voluntary liquidation (‘MVL’)arrived at?

A

By special resolution

172
Q

How does the winding up of a company due to its purpose expiration in the Articles happen?

A

Shareholders resolution

173
Q

What resolutions are required for a company to go into MVL and appoint liquidator?

A

Special to put company into MVL

Ordinary to appoint liquidator

174
Q

When does the winding up of the company commence on a MVL?

A

When the special resolution is passed

175
Q

What must a liquidator do if they consider the company as being unable to pay its debts?

A

Must change the members winding up into a CVL

176
Q

What are the consequences for directors making a declaration of solvency and not having reasonable ground for their opinion?

A

Liable to a fine or imprisonment

177
Q

Which voluntary liqudation will a company go into if a directors declaration of solvency has not been made?

A

CVL

178
Q

What must the directors of the company do within 14 days of the special resolution of a CVL being passed?

A

Ask company’s creditors to either approve the nominated liquidator or choose their own

179
Q

Whose nomination of liquidator takes precedence between a creditors and a company’s shareholders in a CVL?

A

Creditors

180
Q

Who starts the CVL?

Who controls the CVL?

A

Shareholders start by shareholders resolution

Under effective control of creditors, who choose the liquidator

181
Q

Who are the powers and fiduciary duties of a company’s directors passed onto during the liquidation process?

A

To the liquidator

182
Q

What are the qualifications of a liquidator?

A
  • Qualified insolvency practitioner or
  • Official Receiver
183
Q

What do the liquidator’s powers to manage the company include as a part of Sch 4 IA 1986?

A
  • Sell any of company’s property
  • Execute deeds and other documents in name of company
  • Raise money on the security of company assets
  • Appoint agent to do business liquidator is unable to do
  • Carry on business of company to the extent necessary for beneficial winding up of the company
  • Pay debts and compromise claims
  • Commence or defend court proceedings in company’s name
184
Q

What kinds of transactions can a liquidator exercise their power to avoid in fulfilling their duty to preserve the company’s property and maximise the value of the company assets?

A
  • Disclaim onerous property
  • Apply to court to set aside transaction at an undervalue or a preference
  • Apply to court to set aside or vary terms of extortionate credit transaction
  • Claim that floating charge for no new or inadequate consideration is invalid
  • Apply to court to set aside transaction that will defraud creditors
185
Q

What is the statutory order of priority of dividends to credits, assuming there is a QFC granted on or after the Relevant Date?

A
  1. Liquidator’s fees and expenses of preserving and realising assets
  2. Amount due to fixed charger creditor out of selling fixed charge assets
  3. Liquidator’s other remuneration, costs and expenses
  4. Preferential creditors
  5. Creation of prescribed party fund (if available) for unsecured creditors
  6. Amount due to creditors with floating charges
  7. Unsecured/trade creditors
  8. Interest owed to unsecured creditors
  9. Shareholders
186
Q

What is the ‘prescribed part fund’?

A

A ‘ring-fenced’ money reserved for unsecured creditos and doesn’t flow into the pocket of loating charge holders

187
Q

How much of the company’s net property is ring-fenced in a prescribed part fund?

A

50% of the first £10k and 20% thereafter up to a max of £600k for floating charges created before 6 April 2020 and £800k for floating charges created after

Business Law and Practice (7 decks)

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