Business Law VI Insolvency Flashcards
(33 cards)
What kind of creditor will be bound an IVA
The proposals become binding on every ordinary unsecured creditor who has notice of the meeting, even if they do not attend or vote
4 solutions for companies or sole trader/partnerships when the entity is unable to pay its debts
Negotiation with creditors to delay/give up enforcement of the debts
entering an individual voluntary arrangement
applying for bankruptcy
a creditor may present a creditor’s petition for bankruptcy
-Define an IVA (individual voluntary arrangement)
An individual voluntary arrangement is a negotiated agreement between the debtor and all of their creditors.
it is preferred over renegotiation since the latter is not binding since the delay/forbearance does not offer fresh consideration for it to be enforceable.
Steps of initiating an IVA
1) the debtor can not proceed alone. The debtor needs to commission an insolvency practitioner.
2) the debtor will have to prepare for a statement of affairs and will apply to the insolvency court for an interim order
3) the insolvency practitioner then prepares a report advising whether there are any realistic proposals to offer to the creditors. if 75% in value of the unsecured creditors agree to the practitioner’s proposal, the proposals become binding on every ordinary secured creditor who has notice of the meeting.
4) The insolvency practitioner (now called the supervisor) now oversees and implements proposals.
How does the treatment for the ordinary unsecured creditor and preferential creditors and secured creditors differ (in the context of IVA)
IVA proposals, when passed, is binding on ordinary unsecured creditors
IVA proposals are not binding on the other creditors unless they have agreed to the proposals.
if during the implementation of the IVA proposals, the debtor tries to put money out of reach for creditors, by making transactions at an undervalue or giving preferences, who can act and what can they do?
Only the trustees in insolvency can bring an action to set aside those transactions, and petition for the debtor’s bankruptcy.
Define bankruptcy
Bankruptcy is a judicial process in which the assets of the bankrupt debtor are passed to a third party, the trustee of bankruptcy, who liquidates the assets and uses the money from the liquidation to pay off the debtor’s debts.
The debtor will be discharged from most of their debts after one year.
The procedure of filing a bankruptcy
1) The debtor can apply online to declare themselves bankrupt. the adjudicator will declare bankruptcy if certain criteria are met.
2) or creditor can apply for debtor insolvency by showing the debtor cannot pay, may not pay for payable in future, and if there is a judgement debt which the debtor does not honour. The strike threshold is £50,000
3) when a bankruptcy order is made, then an official receiver is appointed. the official receiver is a civil servant who will act as the trustee in bankruptcy unless the creditors seek to appoint their own.
in what situation an adjudicator may declare a debtor bankrupt?
If,
1) one or more unsecured creditors who is/are owed at least £5,000 combined can present a petition for an order of bankruptcy to the bankruptcy court; or
2) the supervisor of an IVA can petition for the debtor’s bankruptcy if the debtor has breached the terms of the IVA, hidden assets, or given a preference to a creditor
When a debtor is declared bankrupt, all his estate will vest in the trustee of bankruptcy. The trustees automatically have the rights to sell the assets.
What kind of assets is exempted from falling into the receiver’s hands?
What about the bankrupt’s home?
assets for day-to-day living (furniture or tools for their jobs)
salary (unless an income payments order has been made)
the bankrupt’s home cannot be sold if
it is held in joint names
a trust may have an equitable interest
the spouse/children under 18 have a right of occupation
a court order or lapse of time (over a year) can override this right.
Restriction of rights on the bankrupt (3)
He cannot,
apply for credit for more than a prescribed amount
act as a company director/partner
trade under another name without disclosure of bankruptcy.
Order of distribution to creditors (in bankruptcy)
costs of the bankruptcy
Preferential debts (employees, HMRC, NI)
Ordinary unsecured creditors; and
Postponed creditor (spouse/civil partner)
The meaning of debts rank and abate equally
that if the liquidated assets cannot fully satisfy one class of creditors, all the creditors in that category will receive the same percentage of their original debt.
Meaning of culpable bankrupts
15
A bankrupt who has caused bankruptcy by their own dishonesty, negligence or recklessness is considered culpable and can be subject to a court bankruptcy order for up to 15 years.
Options for corporate bankruptcy
Receivership: this enables secured creditors to recover what is owed solely to them
Administration and company voluntary arrangements: These seek to rescue the company; and
Liquidation: this causes the company’s assets to be sold to pay off debts and the company will cease to exist
Meaning of receivership 接管
When a company raises debt finances, the creditors will charge their fixed assets and set out what comprises a breach. the agreement will often give the creditor the right to appoint a receiver to take possession of the charged asset and sell it to pay the secured lender. receivership ends when the charged asset is sold.
Define administration
where does the loyalty of an administrator lie?
administration is a procedure that enables the administrator to run, reorganise, and/or sell the company as a going concern. The aim is to
rescue the company as a going concern
Achieve a better result for the company’s creditors than would be achieved if the company were to be wound up
Realise property to distribute to one or more secured creditors.
The administrator acts in the interests of all the creditors
Procedure for going into administration (Non CVA)
Through a formal court hearing; or
By the company, its directors, or the holder of a qualifying floating charge filing certain documents with the court,
The court will only make the order if the company cannot pay its debts and administration will offer a better result than liquidation.
Power of an administrator
4
An administrator must be a licensed insolvency practitioner:
they can
take control of the company’s property can sell it
bring or defend legal proceedings on behalf of the company
carry out the company’s business
remove or replace director; take action against them for wrongful or fraudulent trading
Define moratorium 谅解备忘录
A moratorium is a pact that
restricts the ability for third parties to enforce their rights
prevents the commencement of other insolvency procedures
Two types of voluntary liquidation:
Members’ voluntary liquidation
Creditor’s voluntary liquidation
Explain CVL
BSG7L3
Directors resolve that the company is insolvent and the member pass a special resolution to start the liquidation
The resolution is then advertised in the London gazette. within 7 days the directors must make a statement of affairs which is then sent to the creditors.
the board nominates a liquidator which is then advertised in the London Gazette and the Companies House is notified
The liquidator collects in the assets of the company and distributes funds to the creditors in the statutory order. The company is dissolved after 3 months
Explain MVL
BSOLG3
The directors must make a statutory declaration of insolvency.
The member will pass a special resolution to start the liquidation and an ordinary one to appoint a liquidator
The appointment is advertised in the London Gazette
The liquidator collects in the assets of the company and distributes funds to the creditors in the statutory order. The company is dissolved after 3 months
Order of priority for distribution to creditors in corporate insolvency (5)
Expenses of winding up
Preferential debts
Secured debts (subject to ring-fencing)
Unsecured debts
Shareholders
The principle of rank and abate will apply
