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chapter 10 Flashcards

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1
Q

3x purposes of administration

A

rescue Co as a GC

achieve a better result for creditors

realise Co assets + distribute to 1 or more secured creditors

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2
Q

who may appoint an administrator

A

Co - ordinary resolution

majority directors

1 or more creditors

QFCHs: charge over whole/most Co property; power to do so; even if Co is in liquidation; must notify any other QFCH

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3
Q

effect of administration

A

moratorium = space

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4
Q

administration - who can appoint out of court? time frame?

A

everyone except creditors

ie co, directors, QFCHs

co + directors = must give 5 days notice to any floating chargeholder

QFCHs = must give 2 days notice

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5
Q

administration - who can appoint in court?

A

everyone - co, directors, creditors, QFCHs

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6
Q

administrator wishes to obtain statements from a number of the Co officers and employees.

how many days must be make his requirements for statements known to them?

how many days do they have to comply with the request?

A

7 days

11 days

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7
Q

what must an administrator do within 7 days

A

-file notice of his appointment to the Registrar of Companies

-require any of the officers + employees to submit a statement of affairs (they have 11 days to comply)

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8
Q

what must an administrator do within 11 weeks

A

submit a statement of proposals for achieving the aim of the administration to:
-registrar
-creditors
-Co members

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9
Q

how many creditors required for creditor acceptance of administrators statement of proposals?

A

< 10% reject = assume remainder accept

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10
Q

T or F
an administrators appointment is terminated 1 year after their appointment unless that period is extended, which can only be done by the court

A

false - can only once be extended by a prescirbed majority of creditors

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11
Q

T or F
if the creditors reject the administrators proposals, the court may make any order it sees fit, including terminating the administrators appointment

A

true

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12
Q

can an administrator: remove a director

A

yes

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13
Q

can an administrator: make payments to unsecured creditors or secured creditors

A

secured - yes

unsecured - only if they feel that paying the unsecured creditors will assist in achieving the purpose of the administration

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14
Q

Benchline Ltd has been placed in administration, following an application by one of its floating
charge holders. Little Bank Ltd has a fixed charge over one of the retail premises of Benchline Ltd.
Requirements
Can the members of Benchline Ltd pass a resolution for the voluntary winding up of the company?
A Yes
B No
Is Little Bank Ltd entitled to enforce its fixed charge without obtaining the consent of the
administrator or the court?
C Yes
D No

A

B - during an administration, there can be no resolution/court order to wind up the Co (there is a mortorium(

D - fixed charges cannot be obtained without obtaining the consent of the administrator or court

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15
Q

Morphitts plc has been placed in administration. Nymph Ltd is owed £100,000 and is worried that if
Morphitts plc ends up in liquidation, the debt will be irrecoverable.
Requirements
Is Nymph Ltd able to pursue recovery of the debt due from Morphitts plc?
A Yes
B No
Can Nymph Ltd petition the court for the winding up of Morphitts plc?
C Yes
D No

A

A - but it must first obtain the consent of the administrator or the court before it can instigate or continue legal preceedings against the Co

D - no resolution/court order can be passed to wind up the Co during administration

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16
Q

administration - are ees automatically dismissed?

A

NO - the Co continues to be the employer but the administrator may terminate any contracts of employment as they deem fit

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17
Q

administration - t/f - administrator cannot sell fixed charge assets

A

false - they can sell fixed charge assets but proceeds must be used to pay fixed charge holders

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18
Q

t/f - A creditor or member can apply to the court if they feel that the administrator has acted in a way that
has harmed their interest

A

true - the court may take various actions against the administrator

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19
Q

W hat is the primary role of a receiver?
A T o rescue the company as a going concern
B T o realise the charged assets and pay off the appointing chargeholder’s debt
C T o pay off creditors with preferential rights
D T o manage the company pending the appointment of an administrator or liquidator

A

B - a receiver is typically appointed by a creditor with a fixed charge over property owned by the Co

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20
Q

can a fixed charge receiver renovate the property / increase the value

A

NO renovation to increase value of fixed charge property

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21
Q

W ho is entitled to propose a company voluntary arrangement?
(1) T he directors
(2) A n administrator
(3) A liquidator
A (1) only
B (2) or (3) only
C None of the above
D A ll of the above

A

All of the above - directors, administrator, liquidator

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22
Q

Once approved, a company voluntary arrangement becomes binding on all creditors.
A True
B False
A company voluntary arrangement typically lasts for 6 to 12 months.
C True
D False

A

B - becomes binding on all unsecured creditors

D - normal duration: 3-5 years

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23
Q

do creditors play a part in members voluntary liquidation?

A

no - as it assumed that their debts will be paid in full

BUT members VL may become a creditors VL where the liquidation process is not progressing to the satisfaction of the creditors

24
Q

members voluntary liquidation - solvent/insolvent - procedures

A

solvent
-special 75% resolution
-directors: statement of solvency
-ord resolution to appoint liquidator
-statement in London Gazette

statement of solvency
-made by all/majority of directors
-made not more than 5 weeks before resolution to wind up is passed

25
Q

creditors voluntary liquidation - solvent/insolvent - procedures

A

insolvent
-SHs pass resolution to wind up the Co
-directors appoint liquidator
-<14 days: creditors meeting (7 days notice)
-present statement of affairs
-creditors may wish to nominate a different liquidator
-form liquidation committee: members + creditors

appointment of liquidator - deemed consent procedure - deemed accepted directors liquidator if <10% object (have 3 days to object)

26
Q

T he members of Recycle Ltd resolve to wind up the company. Since it is not possible to make a
declaration of solvency, a creditors’ voluntary liquidation is called for.

Which of the following parties may nominate the liquidator?
(1) T he members
(2) T he creditors
A (1) only
B (2) only
C Both (1) and (2)
D Neither (1) nor (2)

A

D - directors appoint liquidator. creditors can accept/reject via deemed approval/consent procedure or by a virtual meeting

27
Q

Daisy is owed £25,000 by Innovations Ltd. She proposes to petition the court for a compulsory
winding up of the company, on the grounds that it is insolvent. She seeks your advice.
Requirements
Since Daisy is owed more than £750, can she submit a petition to court immediately?
A Yes
B No
Must Daisy provide additional evidence to satisfy the court that Innovations Ltd is unable to pay its
debts or that its assets are less than its liabilities?
C Yes
D No

A

B - she must have served a written demand for payment + the Co must have failed to pay or offer reasonable security for it < 21 days

D - this is presumed by her satisfying the test above

Can apply if:
-creditors owed >750 and has done written demand for payment/neglected to pay < 21 days
or
-attempted to enforce a judgement
or
-liabilities > assets

28
Q

A petition to wind up a company on the grounds that it is just and equitable to do so, will only be
made where the court is satisfied that the company is unable, or is likely to become unable, to pay its
debts.
A True
B False
A member who petitions the court on the grounds that it is just and equitable to do so must,
generally speaking, have been registered as a shareholder for at least six months out of the last 18
months before the petition being presented.
C True
D False

A

B - nothing to do with being unable to pay debts. Co is usually solvent (or else the member has nothing to gain)

C

29
Q

On a compulsory winding up of a company, who will the court usually appoint?
A T he secured creditor owed the greatest amount of money by the company
B T he auditor of the company
C T he official receiver
D A qualified insolvency practitioner

A

C - although they may be replaced by a qualified insolvency practioner at a later date

30
Q

liquidation - are ees automatically dismissed?

A

yes (unlike administration - no)

31
Q

do Co assets automatically vest in liquidator)

A

no - the Co assets remain the legal property of the Co, but under the liquidators control, unless the court orders them to be vested in them as liquidator

32
Q

Fernline plc is in liquidation and Gerald is the liquidator. He has discovered that Fernline plc sold one
of its principal offices for significantly less than its market value 18 months ago. It is quite clear that
the directors knew that the company was heading for insolvency when it agreed the sale.
Requirements
Is the sale of the office a transaction at an undervalue that is liable to be avoided by Gerald within the
provisions of the Insolvency Act 1986?
A Yes
B No
Where a liquidator can avoid a transaction at an undervalue, can they order the return of the property in order to restore the position to what it would have been if no such transaction had taken
place?
C Yes
D No

A

A - transactions at undervalue < 2 years = void
unless can show: acted in good faith, purpose of carrying out the business, believing on reasonable grounds that it would benefit the Co

D - a liquidator does not have this power but can apply to the court for such an order to be made

33
Q

avoidance of charges - charges not registered < within

A

21 days - becomes void and they become unsecured creditors

34
Q

avoidance of charges - floating charges < within

A

< 1 year = void

if connected person: < 2 years = void

35
Q

avoidance of charges - transactions at undervalue < within

A

< 2 years of liquidation/administration = void

UNLESS can show:
-good faith
-purpose of carrying out the business
-believing on reasonable grounds that it would benefit the Co

36
Q

avoidance of charges - preferences (a Tx which benefits one creditor/guarantor) < within

A

< 6m = unconnected

< 2 years = connected

37
Q

Malcolm has just been appointed liquidator of Tenpin Ltd. The company entered into a floating
charge in favour of one of its directors, Duncan, 13 months ago.
Requirements
Might the floating charge be void as against Malcolm?
A Yes
B No
Would it be possible for Malcolm, as liquidator, to institute proceedings against Duncan, for wrongful
trading or fraudulent trading, in an attempt to make him personally liable for some or all of the
company’s debts?
C Yes
D No

A

A - avoidance of charge - floating charge to connected person can become void if <2 yrs

C - this would be wholly appropriate and is part of the liquidator’s role to consider such matters and take action where relevant

38
Q

1 property, different charges - priority

A

fixed > floating

UNLESS floating created before AND fixed knew about floating charge

39
Q

what clause can a floating charge holder do to prevent fixed > floating in liquidation

A

negative pledge clause - clause in floating charge to prevent fixed charge on same property

40
Q

priorities on liquidation

A

costs of liquidation/liquidator remuneration

–> preferential debts (ee wages, accrued holiday pay, occupational pension fund)

–> secondary preferential debts (HMRC taxes: PAYE, NI, VAT)

–> floating charge holders (ring-fenced if available for distribution > 10k)

–> unsecured debt holders (pro-rata)

–> deferred debts (declared dividends, interest accrued on debts)

–> members (surplus is distributed amongst members)

41
Q

The deemed consent procedure allows creditors to agree proposals put forward by an administrator
without having to attend a meeting.
If less than a particular percentage of the creditors in value object, the proposal is deemed accepted.
Requirement
What is that particular percentage?
A 4%
B 6%
C 8%
D 10%

A

D 10%

42
Q

ring-fencing: min dis fund

can fixed or floating charges be included in pot?

A

ring-fencing: % of assets is ring-fenced for unsecured creditors if dis fund > 10k

if shortfall on fixed asset = shortfall becomes unsecured debt - can join pot

if shortfall on floating assets = shortfall becomes unsecured BUT cannot join pot

43
Q

IVA vs bankruptcy : can individual act as director or insolvency practioner?

A

IVA - yes

Bankruptcy - no

44
Q

IVA vs bankruptcy : which is more flexible?

A

IVA

45
Q

IVA vs bankruptcy : can individual act as a chartered accountant?

A

IVA - yes

Bankruptcy - no

46
Q

what is the individual known as during the bankruptcy period?

A

undischarged bankrupt

47
Q

who can petition a bankruptcy order?

A

-individual BUT online!!!

-nominee in IVA if IVA not being complied with

-creditor IF >£5000 + served a statutory demand + waited 21 days

48
Q

Demelza had always been successful in business until 12 months ago. After a competitor moved in to
adjoining premises, however, her business suffered and she became increasingly depressed by her
rising debts which now stand at over £20,000. Her largest creditor is Hanwick Ltd to whom she owes
£4,500.
Requirement
Which of the following parties may petition the court for Demelza’s bankruptcy?
(1) Demelza
(2) Hanwick Ltd
A (1) only
B (2) only
C Both (1) and (2)
D Neither (1) nor (2)

A

D

Individual must petition online not in court

Creditor needs to be at lease 5k (and served a statutory demand and waited 21 days)

49
Q

Which of the following parties may apply online for a debtor’s bankruptcy?
(1) T he individual debtor themselves
(2) Any creditor of a debtor who is owed at least £750
(3) A supervisor of an approved individual voluntary arrangement (IVA) in respect of that debtor
A (1) only
B (2) and (3) only
C (3) only
D (1), (2) or (3)

A

A - only an individual may apply online for their bankruptcy - third parties must petition the court

also - creditor must be at least 5k!

50
Q

Once a bankruptcy order has been made:
Requirements
Can a secured creditor enforce their security against the bankrupt debtor?
A Yes
B No
Does the debtor’s property vest in the trustee in bankruptcy?
C Yes
D No
LO

A

A - this is an important exception to the normal rule that the bankrupt can no longer be sued or have action taken against them by their creditors

C

51
Q

John is a self-employed decorator who has just been declared bankrupt. He has recently agreed to
sell his car to his neighbour.
Requirements
In calculating the total value of John’s estate, will his decorating tools be included?
A Yes
B No
Can John go ahead and sell his car?
C Yes
D No

A

B no - tools and equipment that are necessary for use in the debtor’s employment, business or vocation are specifically excluded from the sum of their estate (as well as a provision for clothing and for housing for basic essential needs; and properties held in Trusts for other persons as not technically the individuals)

D no - such a sale would be void unless approved by the court, because of his status as an undischarged bankrupt

52
Q

Under Sch. B1 of the Insolvency Act 1986 one or more of a set of three objectives have to be met in
order for the application for an administration order to be successful.
Requirements
Do the following statements represent one of these objectives?
To put a rescue plan into place if it is possible to rescue the company in whole or in part as a going
concern
A Yes
B No
If corporate rescue is not possible, to maximise returns to creditors over and above what would be
achieved had the company not gone into administration first
C Yes
D No

A

A - rescue as a GC

C - if rescuing as a GC is not reasonably practicable, to achieve a better result for the Co creditors (maximise returns for creditors) as a whole than would be likely with a winding up (over and above what would be achieved had the Co not gone into administration first)

53
Q

Under the Insolvency Act 1986 a petition to have a company compulsorily wound up is likely to be
successful:
Requirements
where there has been a fraud on the minority
A Yes
B No
where the court is of the opinion that it is just and equitable that the company should be wound up
C Yes
D No

A

B C

54
Q

In the event of liquidation, the liquidator will distribute the assets of the company concerned to
creditors in accordance with the priority determined by the law relating to insolvency.
Requirement
Assuming there are surplus assets, which of the following creditors will the liquidator repay last?
A Preferential debts
B Fixed chargeholders
C Return of contributed capital to ordinary shareholders
D Floating chargeholders

A

C

55
Q

The members of a company have resolved to wind up the company voluntarily, and the directors
have made a declaration of solvency.
Requirements
Will the liquidation proceed as a members’ voluntary winding up?
A Yes
B No
Is a creditors’ voluntary winding up of a company initiated by the creditors?
C Yes
D No

A

A - yes - solvent - special resolution

D - initiated by the members

56
Q

Bright Bank Ltd has a floating charge over all the undertaking and assets of Gateway Ltd. The floating
charge contains no provision concerning the subsequent creation of fixed charges. When the charge
crystallises Gateway Ltd has the following creditors:
(1) Giant Bank Ltd, which has a fixed charge over some of Gateway Ltd’s assets
(2) T he employees of Gateway Ltd, who are owed remuneration and holiday pay as preferential
debts

Do either or both of Giant Bank Ltd and the employees of Gateway Ltd take priority over the charge
in favour of Bright Bank Ltd that is now a fixed charge following crystallisation?
A Giant Bank Ltd only takes priority
B T he employees only take priority
C Neither take priority
D Both take priority

A

D - both fixed charges and preferential debts rank before floating charges

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