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meh > 18 - Liquidation and dissolution > Flashcards

18 - Liquidation and dissolution Flashcards

1
Q

Must a company be insolvent to be liquidated or dissolved?

A

No

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2
Q

When is a company considered insolvent?

A

When it cannot pay its debts

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3
Q

When is a company considered to be unable to pay its debts? (4)

A
  • Creditor of more than £750 demands payment and this is not settled within 3 weeks
  • Judgement executed against company, and company fails to satisfy that judgement
  • Proved to court’s satisfaction that the company is unable to pay debts as they fall due
  • Court is satisfied that assets are less than liabilities
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4
Q

What is liquidation?

A

The process of resolving a company’s affairs by collecting assets and paying off debts, liabilities and entitled persons, prior to dissolution

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5
Q

On what must a company in liquidation state that it is being wound up?

A
  • On every invoice, order of goods, business letter
  • On all websites
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6
Q

What are the two types of liquidation?

A
  • Voluntary winding up
  • Winding up by the court
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7
Q

Purpose of voluntary winding up

A

Allowing company and creditors to settle affairs in a way that avoids involving the courts

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8
Q

2 benefits of voluntary winding up

A
  • Faster than involuntary
  • Less costly than involuntary
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9
Q

How does voluntary winding up commence?

A

Passing of special resolution

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10
Q

Consequences of passing special resolution for voluntary winding up

A
  • Company ceases to carry on business
  • Transfers of shares or alteration of status of members is void
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11
Q

Two types of voluntary winding up

A
  • Members’
  • Creditors’
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12
Q

What does a declaration of solvency declare?

A
  • Directors have made full inquiry into company’s affairs; and
  • Directors have formed opinion that the company will be able to pay its debts in full
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13
Q

What decides whether a voluntary winding up is members’ or creditors’?

A

Members’ if declaration of solvency made within 5 weeks of passing of special resolution

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14
Q

5 examples of who can apply for winding up by the court

A
  • The company
  • Directors of company
  • Any creditor or creditors
  • Secretary of state
  • FCA
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15
Q

6 reasons why a company may be wound up by the court

A
  • Company has resolved to do so
  • No issue of trading certificate within 1 year for PLC
  • Old public company
  • Business not commenced within a year of incorp (or suspended for a year)
  • Company unable to pay its debts
  • Court has opinion that it is just and equitable to wind the company up
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16
Q

What is by far the most popular reason a company may be wound up by the court

A

Unable to pay its debts

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17
Q

What is the role of a provisional liquidator in case of winding up by court?

A

Keep things in status quo and preventing anybody from getting priority

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18
Q

What is the role (functions) of the liquidator?

A

Secure that the assets of the company are got in, realised and distributed to the company’s creditors, and if there is a surplus, the people’s entitled to it

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19
Q

Job of liquidator after they have realised company’s assets

A

Apply those assets ‘in satisfaction of the company’s liabilities pari passu’

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20
Q

What does the pari passu principle state?

A

Liquidator will distribute the assets to the creditors in proportion to the size of their claim against company - effectively, each debt will be paid in proportion

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21
Q

Order of liquidator’s distribution

A
  • Fixed charge assets unavailable so in essence paid first *
  • Moratorium debts, etc.
  • Liquidation expenses
  • Preferential debts (ordinary, then secondary)
  • Debts secured by floating charge (minus ‘prescribed part’)
  • Unsecured debts
  • Deferred debts
  • Members
22
Q

Two types of preferential debt

A

Ordinary (paid first), and secondary

23
Q

Two examples of preferential debts

A
  • Contributions to occupational pension schemes
  • Certain remuneration owed to employees (only first £800 is preferential)
24
Q

What did parliament do after deciding to strengthen position of unsecured creditors in liquidation? S.176A

A

Provided that for charges created on or after 15 September 2003, the liquidator must set aside a portion of assets subject to a floating charge

25
Q

How much property is set aside by the liquidator if net assets do not exceed £10k?

A

50%

26
Q

How much property is set aside by the liquidator if net assets exceed £10k?

A

50% of first £10k, 20% of excess of £10k

27
Q

What is the amount set aside by liquidator known as?

A

Prescribed part

28
Q

What is the maximum amount of the prescribed part?

A

£800k

29
Q

If prescribed part exceeds amount owed to unsecured creditors, where does the surplus go?

A

To satisfy the debts secured by floating charge

30
Q

What is an example of a deferred debt?

A

Sums due to a member by way of dividend

31
Q

Why might liquidator make distributions to all in order, and have some left over to give to members?

A

Company solvent on winding up

32
Q

What is the significance of liability being placed on certain persons who engage in specified forms of malpractice before and during liquidation?

A

Wrongdoers have to contribute to company’s assets

33
Q

Malpractice before and during liquidation - 6 offences which impose criminal liability on certain persons

A
  • Fraud in anticipation of winding-up
  • Transactions in fraud of creditors
  • Misconduct in course of winding-up
  • Falsification of company’s books
  • Material omissions from statements relating to company’s affairs
  • False representations to creditors
34
Q

What was Cork Report concerned at?

A

Phoenix companies
The ease at which a person can allow a company to become insolvent, form a new company, and then carry on trading as before, leaving behind trail of unpaid creditors.
Could even trade assets purchased from liquidator at a discount

35
Q

S.216 - In order to combat use of Phoenix companies, which 3 restrictions have been placed upon persons who were directors of insolvent companies in 12 month period leading to liquidation?

A
  • Cannot be director of other company known by prohibited name
  • Cannot take part in promotion, formation or management of company with prohibited name
  • Cannot be concerned with business carried on under prohibited name, in any way
36
Q

What is meant by ‘prohibited name’?

A
  • Name by which liquidated company was known at any time in 12 month period prior to liquidation
  • Name which is so similar to a name falling within the above to suggest an association
37
Q

2 instances where person will be permitted to use a prohibited name

A
  • Where that person obtains the leave of court to do so
  • In circumstances prescribed by IR 2016 (insolvency rules), such as where business is acquired by NewCo under arrangements made by liquidator
38
Q

Penalty for breaching S.216 (restrictions on phoenix companies)

A
  • Committing criminal offense
  • Personally liable for debt and liabilities of NewCo
39
Q

When is a liquidator allowed to adjust certain pre-liquidation transactions?

A

If these harm the creditors’ interests or undermining the pari passu principle

40
Q

4 types of transactions which can be adjusted by liquidator

A
  • Transactions at an undervalue
  • Preferences
  • Extortionate credit transactions
  • Invalid floating charges
41
Q

How will a liquidator adjust certain transactions?

A

By invalidating them or requiring those engaged to contribute to company’s assets

42
Q

Briefly explain what is meant by transactions at an undervalue re. liquidation adjustment

A

Selling off assets to person or connected person to take them out of liquidator’s hands

43
Q

Briefly explain what is meant by extortionate credit transactions re. liquidation adjustment

A

Company has acquired credit on extortionate terms within 3 year period of entering liquidation

44
Q

Briefly explain what is meant by preferences re. liquidation adjustment

A

A payment to a creditor prior to going into liquidation that effectively acts as a preferential distribution of assets

45
Q

Briefly explain what is meant by invalid floating charges re. liquidation adjustment

A

Floating charges can be cancelled if made within relevant time and company could not pay debts at the time
Debt remains but becomes unsecured

46
Q

What happens to remaining property at dissolution?

A

Is deemed bona vacantia and passes to crown

47
Q

2 ways in which dissolved company can be restored

A
  • Administrative restoration
  • Application made to court to restore dissolved company
48
Q

Conditions required for administrative restoration (5)

A
  • Made by former director or member
  • Made within 6 years of dissolution
  • Company was carrying on business at time of dissolution
  • If bona vacantia property, crown must consent to restoration
  • Applicant delivers specified documentation
49
Q

Which persons are empowered to make application to court to restore company? (5)

A
  • Secretary of state
  • Any former director, member or liquidator
  • Any person with contractual relationship with co
  • Any person with potential legal claim against co
  • Any person who was a creditor at time of dissolution
50
Q

How do Crown debts rank in liquidation?

A

As unsecured debts

51
Q

How much remuneration owed to employees in liquidation is considered preferential

A

£800

52
Q

Floating charges may be considered invalid if made within what time of onset of insolvency?

A
  • 2 years if in favour of connected person
  • 1 year if in favour of any other person

meh (20 decks)

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