Company Financing and Insolvency

Question 1

What is a charge?

Answer 1

A charge is a legal arrangement that gives a lender a claim ahead of other lenders to the repayment of a debt in the event of a default.

Question 2

What are the 3 types of charges?

Answer 2

1. Fixed
2. Floating
3. Fixed & Floating

Question 3

What is a fixed charge?

Answer 3

A fixed charge is a charge over a specific asset.

Question 4

What is a floating charge?

Answer 4

A Floating charge is a charge over a class of assets rather than a specific asset.

Question 5

What is meant by crystalisation?

Answer 5

It is when a floating charge becomes active and is enforced by the charge holder. It becomes a fixed mortage

Question 6

How long does a company have to inform companies house of a charge on an asset?

Answer 6

21 Days

Question 7

What information must be included on a register of charges?

Answer 7

1. Date of creation of the charge
2. The amount secured
3. Short details of the nature of the charge
4. The person entitled to the charge

Question 8

How are legal charges ranked?

Answer 8

Ranked according to the order on time of their creation.

Question 9

How are equitable charges ranked?

Answer 9

They are ranked according to their time of creation.

Question 10

What ranks first a legal charge or an equitable charge?

Answer 10

The legal charge.

Question 11

What is insolvancy?

Answer 11

Insolvancy is a situation in which a company is unable to pay their debts.

Question 12

What is a Company Voluntary Arrangement (CVA)?

Answer 12

It is an arrangement to agree to pay unsecured creditors in full over an extended period of time.

Question 13

What is Liquidation?

Answer 13

Liquidation is the process of dissolving a company and bringing its affairs to an end.

Question 14

What are the 3 methods of liquidation?

Answer 14

1. Members voluntary liquidation
2. Creditors Voluntary liquidation
3. Compulsory liquidation

Question 15

When is a Members voluntary liquidation used?

Answer 15

When the shareholders of a still solvant company wish to wind up the company voluntarily.

Question 16

When is a Creditors voluntary liquidation used?

Answer 16

It is used when the company is insolvant.

Question 17

Who starts a creditors voluntary liquidation?

Answer 17

The members/shareholders of the company.

Question 18

What is the difference between a creditors voluntary agreement and a members?

Answer 18

In a creditors voluntary agreement the liquidator can be appointed by the creditors.

Question 19

How is compulsory liquidation started?

Answer 19

By a petition to the court for the company to be put into liquidation.

Question 20

Who may petition for a comulsory liquidation?

Answer 20

1. The creditors of the company
2. The government
   3.

Question 21

What is the order of priority in a liquidation?

Answer 21

1. Expenses of the liquidator
2. Preferential creditors such as unpaid wages up to a limit of £800 per employee
3. Holder of floating charges
4. Unsecured cerditors
5. Any interest costs post liquidation
6. Dividends previously declared but not paid
7. Return of shareholders capital
8. Surplus to ordinary shareholders.

Question 22

What is administration?

Answer 22

Administration is the appointment of a qualifed insolvancy practioner to run the company temporarily in order to avoid liquidation and save the company.

Question 23

What is the purpose of adminisatration

Answer 23

1. To save the company as a going concern
2. Achieves better outcome for creditors than immediate liquidation