Chapter 10 - Insolvency Law Flashcards
(128 cards)
1
Q
What are the three key purposes of administration?
A
To rescue the company as a going concern.
If not practical, achieve a better result for creditors as a whole than liquidation.
If neither is possible, realize company assets to pay preferential or secured creditors without causing unnecessary harm.
2
Q
Q: What is the primary advantage of administration?
A
A: It provides a moratorium for the company to resolve financial difficulties, potentially avoiding liquidation.
3
Q
Q: What happens if administration fails?
A
A: The administrator arranges for creditors’ voluntary liquidation.
4
Q
Q: Who can appoint an administrator?
A
The company via an ordinary resolution.
The directors by majority decision.
One or more creditors.
Qualifying Floating Charge Holders (QFCH).
5
Q
Q: What must a QFCH demonstrate to appoint an administrator?
A
A charge over substantially all of the company’s property.
The floating charge includes the power to appoint an administrator.
The QFCH must notify any other QFCHs.
6
Q
Q: What notice must be given before appointing an administrator out of court?
A
Company/Directors: 5 days’ notice to any floating chargeholder.
QFCH: 2 days’ prior notice to any prior QFCH.
7
Q
Q: What documents must be filed in court for an out-of-court appointment?
A
Notice of appointment.
Statutory declaration of lawfulness and enforceability.
Administrator’s statement of consent and purpose.
8
Q
Q: When can a court appoint an administrator?
A
If the company is, or is likely to become, unable to pay its debts.
If an administration order is likely to achieve the purpose of administration.
9
Q
Q: What must a floating charge holder demonstrate in court?
A
A: That their floating charge is qualifying and enforceable.
10
Q
Q: Who can use the court route to appoint an administrator?
A
A: Any party with an interest in the company.
11
Q
Q: What must the administrator do within 7 days of their appointment?
A
File notice of the appointment with the Registrar of Companies.
Require company officers and employees to provide a statement of affairs (must be submitted within 11 days of the request).
12
Q
Q: By when must the administrator submit a statement of proposals?
A
A: Within 8 weeks of the appointment.
13
Q
Q: To whom must the statement of proposals be submitted?
A
The Registrar.
The company’s creditors.
The company’s members.
14
Q
Q: What additional action must the administrator take regarding creditors?
A
A: Seek creditor acceptance of their proposals using deemed consent procedures and invite creditors to form a committee.
15
Q
Q: When is the administrator’s appointment terminated?
A
A: One year after the appointment unless extended by:
The court.
A prescribed majority of creditors (once only).
16
Q
Q: What powers does the administrator assume during administration?
A
A: The administrator takes over powers previously held by directors and may do anything expedient for managing the company’s affairs, business, and property.
17
Q
Q: Can an administrator remove or appoint directors?
A
A: Yes, the administrator has the power to remove or appoint directors.
18
Q
Q: What meetings can an administrator call?
A
A: An administrator can call meetings of members or creditors.
19
Q
Q: What can an administrator do regarding secured and unsecured creditors?
A
Make payments to secured or preferential creditors.
Make payments to unsecured creditors if it supports the administration process, with court permission.
20
Q
Q: Can an administrator apply to court for guidance?
A
A: Yes, an administrator can apply to court for directions on their functions.
21
Q
Q: What role does an administrator play in winding up the company?
A
A: They can present or defend a petition for the company’s winding-up.
22
Q
Q: What happens during the moratorium period?
A
No resolutions or court orders to wind up the company are allowed.
Fixed charges or securities cannot be enforced without consent.
Legal proceedings against the company (including lease forfeiture) require consent from the administrator or court.
23
Q
Q: How can assets subject to floating charges be handled?
A
A: The administrator can sell assets subject to floating charges and use the proceeds without chargee consent.
24
Q
Q: How are assets on hire purchase (HP) or fixed charges managed?
A
A: The administrator can sell such assets with court approval, but proceeds must be used to pay the owner or chargee.
25
Q: What happens to the directors’ powers during administration?
A: Directors’ powers are suspended, though they remain in office. The administrator can remove or appoint directors.
26
Q: Are employees automatically dismissed in administration?
A: No, employees are not automatically dismissed, as the company remains their employer, but the administrator may terminate contracts of employment if necessary.
27
Q: Can transactions made at undervalue be challenged during administration?
A: Yes, such transactions can be avoided.
28
Q1: What are the three purposes of administration?
To rescue the company as a going concern.
If not practicable, to achieve a better result for creditors than a winding-up.
To realise assets to make a distribution to creditors when the above are not feasible.
29
Q2: What effect does administration have on creditor actions?
A: It creates a moratorium, preventing creditor enforcement actions without court or administrator consent.
30
Q3: Who can appoint an administrator? (Multiple choice) A) Shareholders by special resolution
B) Directors by majority decision
C) Creditors
D) Qualifying Floating Charge Holders (QFCH)
A) Shareholders by special resolution
B) Directors by majority decision
C) Creditors
D) Qualifying Floating Charge Holders (QFCH)
A: B, C, and D.
31
Q4: What is required for out-of-court appointment by directors?
A: 5 days’ notice to any floating charge holder.
32
Q5: Within how many days must an administrator file their appointment with the Registrar of Companies?
A: Within 7 days.
33
Q6: What must the administrator do within 8 weeks of appointment?
A: Submit a statement of proposals to the Registrar, creditors, and members.
34
Q7: What powers does an administrator have?
Remove or appoint directors.
Call meetings.
Make payments to creditors.
Apply to court for directions.
35
Q1: What is an administrative receiver?
A: A manager appointed by a floating charge holder with control over substantial parts of the company’s property.
36
Q2: What is the role of a fixed charge receiver?
A: To collect rent or sell property to repay the debt secured by a fixed charge.
37
Q3: Does a fixed charge receiver need to be an insolvency practitioner?
A: No, they can be property specialists like surveyors.
38
Q4: What happens to floating charges when a receiver is appointed?
A: Floating charges crystallise and become fixed charges.
39
Q1: What happens if an administrator fails to file their appointment within the required time?
A: It could result in non-compliance and penalties.
40
Q2: What is the consequence of administration for directors?
A: Their powers are suspended, but they remain in office.
41
Q3: How long does an administrator’s appointment typically last?
A: One year, unless extended by the court or creditors.
42
Q1: What is a Company Voluntary Arrangement (CVA)?
A: A CVA is an agreement between a company and its creditors on how its debts are to be repaid and in what proportions, allowing the company to continue trading.
43
Q2: Which Act introduced CVAs?
A: The Insolvency Act 1986.
44
Q3: What are the key benefits of a CVA?
A: The company can continue trading while repaying its debts.
45
Q4: What are some possible options in a CVA?
Composition of debts (e.g., paying 60p in the £).
Extended time period for payment (usually 3–5 years).
Equity swap.
46
Q5: Who appoints a nominee in a CVA?
A: The nominee can be appointed by a solvent company, an administrator, or a liquidator.
47
Q6: What is the role of the nominee?
A: The nominee reports to the court on the likelihood of success of the CVA.
48
Q7: Is creditor approval required for a CVA?
A: Yes, creditor approval is required, although physical creditor meetings are not mandatory unless specifically requested by creditors.
49
Q8: Which creditors are bound by a CVA?
A: All unsecured creditors are bound, but fixed charge holders are not.
50
Q9: What can creditors do if they believe the CVA is unfair?
A: Creditors can appeal to the court within 28 days if they feel unfairly prejudiced or if there has been a procedural irregularity.
51
Q: What is the minimum notice period required to call a general meeting of a public company?
A: 14 days (can be reduced if 90% or 95% for PLC shareholders consent).
52
Q: Who can call a general meeting in a company?
Directors (usually via the company secretary)
Members holding at least 5% of shares
An auditor giving notice of resignation
53
Q: What is the deadline for holding an Annual General Meeting (AGM) for public companies?
A: Within 6 months after the accounting reference date.
54
Q: What majority is needed to pass an ordinary resolution in a company meeting?
A: Greater than 50% of votes.
55
Q: What majority is needed to pass a special resolution in a company meeting?
A: At least 75% of votes.
56
Q: What is the maximum timeframe within which a company must file a special resolution with the Registrar?
A: Within 15 days.
57
Q: What is a quorum as required by the Companies Act for meetings?
A: A minimum of 2 members, unless the company has only one member.
58
Q: How long must records of company meetings be kept?
A: 10 years.
59
Q: For rights of pre-emption, how many days must the offer remain open for shareholders to accept?
A: At least 21 days.
60
Q: What are the exceptions to the rights of pre-emption?
A: Bonus shares, Non-cash consideration shares, Employee share schemes, Exclusions in the company articles.
61
Q: What happens if shares are allotted at a discount to their nominal value?
A: The allottee is liable to pay the company an amount equal to the discount, plus interest.
62
Q: Within how many months must details of a variation in class rights be delivered to the Registrar?
A: 1 month.
63
Q: What document must directors of a private company sign within 15 days of passing a special resolution for a share buyback?
A: A solvency statement.
64
Q: What is the key requirement for a company issuing redeemable shares?
A: Redeemable shares can only be issued if there are other non-redeemable shares in issue.
65
Q: How is a dividend made unlawful under the Companies Act?
A: If it is paid out of capital instead of distributable profits.
66
Q: In insolvency, which type of charge ranks first in payment priority: Fixed or Floating?
A: Fixed charge.
67
Q: What is the maximum timeframe within which a charge must be registered with the Registrar after its creation?
A: 21 days.
68
Q: What is the purpose of administration under insolvency procedures?
Rescue the company as a going concern.
Achieve a better result for creditors than liquidation.
Realize company assets to distribute to creditors.
69
Q: Within how many days must an administrator file their notice of appointment with the Registrar?
A: 7 days.
70
Q: What are the powers of an administrator during the administration process?
Remove or appoint directors
Call meetings of creditors/members
Make payments to secured or preferential creditors
Present or defend a winding-up petition
71
Q: In a Company Voluntary Arrangement (CVA), what is the initial duration of a moratorium?
A: 28 days (can be extended with creditors' agreement).
72
Q: What declaration must directors make before commencing a members’ voluntary liquidation?
A: A declaration of solvency.
73
Q: How many days’ notice must be given to creditors before a meeting in creditors’ voluntary liquidation?
A: 7 days.
74
Q: Who must approve a CVA plan?
A: The company's unsecured creditors.
75
Q: What is compulsory liquidation, and when does it occur?
A: Compulsory liquidation occurs when a company is obliged to wind up by the court, usually upon the petition of a creditor or member. It is often more time-consuming, complex, and expensive than voluntary liquidation.
76
Q: What are the key grounds for bringing a petition for compulsory liquidation under s 122 IA '86?
A: The significant grounds include the company's inability to pay its debts or that it is just and equitable to wind up the company.
77
Q: What are the key grounds for bringing a petition for compulsory liquidation under s 122 IA '86?
A: The significant grounds include:
The company is unable to pay its debts:
The creditor is owed more than £750 and has issued a written demand for payment at the company's registered office, with no payment or security offered within 21 days.
The creditor has attempted judgment enforcement, but the company fails to satisfy the debt.
The company’s liabilities exceed its assets, making it unable to pay its debts as they fall due.
It is just and equitable to wind up the company:
Used by members dissatisfied with management or where there is a breakdown in quasi-partnership relationships.
78
Q: What role does the Department for Business and Trade play in compulsory liquidation?
A: The Department for Business and Trade can petition for compulsory liquidation if:
A public company has not obtained a trading certificate within one year of incorporation.
A report deems it in the public interest for the company to be wound up (following an investigation).
79
Q: Who is the official receiver, and what are their responsibilities in compulsory liquidation?
A: The official receiver is typically appointed as the liquidator during compulsory liquidation. Their duties include:
Investigating the causes of the company's failure.
Examining the company's promotion, formation, and business dealings.
Reporting their findings, which may lead to disqualification of directors if misconduct is uncovered.
80
Q: What are the key consequences of the commencement of compulsory liquidation?
A: Upon commencement:
Any disposition of property and transfer of shares is void unless authorized by the court.
All legal proceedings against the company are halted unless permitted by the court.
Employees are automatically dismissed, and the liquidator assumes control.
Any floating charges crystallize and become fixed charges.
Assets remain the company’s legal property but are under the liquidator’s control unless otherwise ordered.
81
Q: What does "floating charge crystallization" mean in the context of compulsory liquidation?
A: When a company enters compulsory liquidation, any floating charges held over its assets convert into fixed charges. This means the charge now attaches specifically to the company's assets, giving the lender higher priority in repayment.
82
Q: What are the limitations imposed on business operations during compulsory liquidation?
A: During compulsory liquidation:
The liquidator’s duty is to realize company assets for creditors, not continue business operations.
The company’s business may only continue temporarily to facilitate asset realization, such as selling the business as a going concern.
83
Q: What are the potential liabilities of company directors during compulsory liquidation?
A: Directors lose their management powers but remain in office. They may face:
Personal liability for wrongful or fraudulent trading.
Disqualification for unfit conduct.
84
Q: How does the liquidation process affect secured versus unsecured creditors?
A: - Secured creditors are paid first from the proceeds of assets subject to their security.
Unsecured creditors receive payments only after secured creditors and preferential creditors are satisfied, often receiving minimal or no returns.
85
Q: What happens to ongoing legal actions against a company in compulsory liquidation?
A: All ongoing and new legal actions against the company are stayed, meaning they cannot proceed without court approval.
86
Q: What are the primary roles of a liquidator in either voluntary or compulsory winding up?
A: The liquidator's primary roles include:
Settling the list of contributories (members liable to contribute in winding up).
Collecting and realizing the company’s assets.
Discharging the company’s debts.
Redistributing any surplus to the contributories according to their entitlements.
87
Q: What happens to the directors' powers upon the appointment of a liquidator?
A: The powers of the directors cease upon the liquidator's appointment, except to the extent permitted by the liquidator or, in voluntary winding up, as decided by the company or creditors.
88
Q: What must a liquidator do once the liquidation process is complete in a voluntary winding up?
A: The liquidator must:
Prepare an account showing how the winding up has been conducted.
Present the account at a meeting of members and/or creditors.
File the details with the Registrar within the following week.
The company will be dissolved three months after the filing.
89
Q: What must a liquidator do upon completing a compulsory winding up?
A: The liquidator must return to the court, which issues an order dissolving the company.
This order is filed with the Registrar, and the company is dissolved from the date of the order.
90
Q: What happens if a charge is not registered within 21 days?
A: If a charge is not registered within 21 days:
It becomes void against the liquidator.
The chargee becomes an unsecured creditor.
91
Q: What is the rule for floating charges created within 12 months of winding up?
A: A floating charge created within 12 months before winding up may be void or voidable. This period extends to 2 years if the floating charge was given to a connected person.
92
Q: Define "transactions at an undervalue" and the associated timeframe.
A: A transaction at an undervalue occurs when the company gives greater value than it receives (e.g., a gift or undervalued transaction).
Timeframe: 2 years before liquidation or administration.
Exceptions apply if the transaction is:
In good faith.
For carrying on the company’s business.
Believed on reasonable grounds to benefit the company.
93
Q: What is considered a "preference" in insolvency law?
A: A preference is a transaction that benefits one creditor or guarantor of the company's debts over others in an insolvent liquidation.
Timeframe:
6 months before insolvency for transactions with unconnected persons.
2 years for transactions with connected persons.
The transaction must be made with the intention of producing the preferential result.
94
Q1: What determines the priority of charges over the same property?
A1: The priority of charges is determined by their order of creation. If property yields less than the combined secured amounts, creditors are paid based on their ranking.
95
Q2: How do legal and equitable charges differ in terms of priority?
A2: Legal charges rank according to their creation order, while equitable charges (floating charges) also rank by their creation but are generally subordinate to legal charges unless specified otherwise.
96
Q3: What is a negative pledge clause in floating charges?
A3: A negative pledge clause prevents a company from creating a fixed charge over the same property, which could otherwise take priority over the floating charge.
97
Q4: What happens to floating charges upon crystallisation?
A4: Once a floating charge crystallises, it becomes a fixed charge. Subsequent fixed charges created rank after the crystallised floating charge.
98
Q5: What are the consequences of not registering a charge within 21 days?
A5: The charge becomes void against the liquidator and creditors, and the creditor holding the charge is treated as an unsecured creditor.
99
A5: The charge becomes void against the liquidator and creditors, and the creditor holding the charge is treated as an unsecured creditor.
100
Q6: What are the prescribed priorities for asset distribution in a compulsory winding up?
Costs of liquidation (e.g., liquidator's fees).
Preferential debts (e.g., employee wages, holiday pay, pensions).
Secondary preferential debts (e.g., HMRC taxes).
Floating charges (after ring-fencing).
Unsecured creditors.
Deferred debts (e.g., unpaid dividends).
Members (if a surplus exists).
101
Q7: What is the purpose of "ring-fencing" in floating charges?
A7: Ring-fencing allocates part of the floating charge realisations (e.g., 50% of the first £10,000 and 20% thereafter) to unsecured creditors to ensure some recovery for them.
102
Q8: What transactions are considered voidable before liquidation?
Unregistered charges: Void if not registered within 21 days.
Transactions at undervalue: Made two years prior to insolvency without good faith or legitimate business reasons.
Preferences: Transactions benefiting one creditor over others made within 6 months (unconnected) or 2 years (connected).
103
Q9: What is the consequence of a floating charge created within 12 months of insolvency?
A9: The charge may be voidable unless it was created for new value provided to the company.
104
Q10: What is the effect of an equitable charge created before a legal charge?
A10: An equitable charge created first will take priority over a legal charge only if the legal charge holder had notice of the earlier equitable charge.
105
Q11: What happens to the company’s property during liquidation?
A11: The company’s assets become part of the liquidator's control. Dispositions of assets made after liquidation commencement are void unless approved by the court.
106
Q12: Can a creditor with a floating charge claim the ring-fenced portion of assets?
A12: No, ring-fenced amounts are reserved for unsecured creditors.
107
Q13: What percentage of floating charge realisations is ring-fenced?
50% of the first £10,000 of floating charge realisations.
20% of realisations beyond £10,000, up to a maximum.
108
Q14: Why are ring-fencing rules introduced?
A14: To ensure unsecured creditors have access to part of the company’s assets, even when secured creditors have floating charge claims.
109
2 Alana has been appointed administrator of Desktop Ltd. She wishes to obtain statements from a number of the company’s officers and employees.
Requirements
Within how many days must she make her requirements for statements known to them?
A 7 days
B 14 days
How many days do the officers and employees have to comply with her request?
C 11 days D 21 days
2 Correct answer(s): A 7 days
Correct answer(s): C 11 days
110
3 Are the following statements true or false?
LO 2o
An administrator’s appointment is terminated one year after their appointment unless that period is extended, which can only be done by the court.
A True B False
If the creditors reject the administrator’s proposals, the court may make any order it sees fit, including terminating the administrator’s appointment.
C True D False
3 Correct answer(s): B False
The period may also be extended by a prescribed majority of creditors (but only once). Correct answer(s):
C True
111
5 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
5 Correct answer(s): B No
During the period of administration, there can be no resolution or court order to wind up the company.
Correct answer(s):
D No
It can only enforce the charge with the consent of either the administrator or the court.
112
6 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
6 Correct answer(s): A Yes
But it must first obtain the consent of the administrator or the court, before it can instigate or continue legal proceedings against the company.
Correct answer(s):
D No
No resolution or petition for winding up can be passed or presented during administration.
113
8 What is the primary role of a receiver?
A To rescue the company as a going concern
B To realise the charged assets and pay off the appointing chargeholder’s debt
C To pay off creditors with preferential rights
D To manage the company pending the appointment of an administrator or liquidator
8 Correct answer(s):
B To realise the charged assets and pay off the appointing chargeholder’s debt
A receiver is typically appointed by a creditor with a fixed charge over property owned by the company.
114
11 With regard to a members’ voluntary winding up of a company:
Requirements
The declaration of solvency is to be made by:
A the directors, acting unanimously
B a majority of the directors
In appointing a liquidator, the company must pass:
C an ordinary resolution
D a special resolution
11 Correct answer(s):
B a majority of the directors
Provided there are two or more directors. Correct answer(s):
C an ordinary resolution
An ordinary resolution is sufficient.
115
12 Are the following statements true or false?
Creditors play no part in a members’ voluntary liquidation. A True
B False The declaration of solvency applicable to a members’ voluntary winding up must be made not more than five weeks before the resolution to wind up is passed.
C True D False
12 Correct answer(s): A True
Liquidation proceeds as a members’ voluntary liquidation only where it can be assumed that the company’s debts can be paid in full (and a declaration of solvency has been made). If the liquidator concludes that that is not the case, they must call a creditors’ meeting and lay before it a statement of the company’s assets and liabilities.
Correct answer(s): C True
116
13 The 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.
Requirement
Which of the following parties may nominate the liquidator?
(1) The members
(2) The creditors
A (1) only
B (2) only
C Both (1) and (2)
D Neither (1) nor (2)
13 Correct answer(s):
D Neither (1) nor (2)
It is the directors who nominate the liquidator. The creditors must consent to the nomination through the ‘deemed consent’ procedure or by a virtual meeting.
117
14 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
14 Correct answer(s): B No
She must also have served a written demand on the company at its registered office and the company must have failed to pay it (or to offer reasonable security for it) within 21 days.
Correct answer(s):
D No
This is effectively presumed by her satisfying the test referred to above.
118
15 Are the following statements true or false?
LO 2o
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
15 Correct answer(s): B False
On the contrary, this petition is normally presented by a member and, consequently, will only be considered where the company is solvent (otherwise the member has nothing to gain from the winding up).
Correct answer(s): C True
119
16 On a compulsory winding up of a company, who will the court usually appoint?
A The secured creditor owed the greatest amount of money by the company
B The auditor of the company
C The official receiver
D A qualified insolvency practitioner
16 Correct answer(s):
C The official receiver
Although they may be replaced by a qualified insolvency practitioner at a later date.
120
17 Lin is appointed liquidator of Laburnum Ltd.
Requirements
LO 2o
Do the company’s assets automatically vest in Lin?
A Yes
B No
Are the employees of Laburnum Ltd automatically dismissed when Lin is appointed as liquidator? C Yes
D No
17 Correct answer(s): B No
The company’s assets remain the legal property of the company, but under Lin’s control, unless the court orders them to be vested in her as liquidator.
Correct answer(s): C Yes
121
19 Manish 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 Manish? A Yes
B No
Would it be possible for Manish, 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
19 Correct answer(s): A Yes
A floating charge to a connected person may be void if entered into within the two years before the liquidation (12 months in the case of an unconnected person).
Correct answer(s): C Yes
This would be wholly appropriate and is part of the liquidator’s role to consider such matters and take action where relevant.
122
20 In distributing a company’s assets in a compulsory liquidation, in which order will the following receive any payments due to them?
(1) Floating chargees
(2) Members
(3) Employees who are owed accrued holiday pay
A (1), (2), (3)
B (2), (3), (1)
C (3), (1), (2)
D (3), (2), (1)
20 Correct answer(s): C (3), (1), (2)
Accrued holiday pay is a preferential debt, payable second, after the costs of liquidation and is followed by payment of floating charges (subject to the ring-fencing provisions). Members may receive a share of any surplus in the event that the company can, in fact, satisfy all its debts.
123
21 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%
21 Correct answer(s): D 10%
If less than 10% of the creditors in value object, the proposals are accepted.
124
25 The members of a company have resolved to wind up the company voluntarily, and the directors have made a declaration of solvency.
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
25 Correct answer(s): A Yes
If a declaration of solvency is made then the liquidation proceeds as a members’ voluntary winding up.
Correct answer(s):
D No
Despite the label, this is not the case. The members initiate the winding up.
125
26 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) The employees of Gateway Ltd, who are owed remuneration and holiday pay as preferential debts
Requirement
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 The employees only take priority
C Neither take priority
D Both take priority
26 Correct answer(s):
D Both take priority
Both fixed charges and preferential debts rank before floating charges.
126
27 With regard to the powers of an administrator, are they entitled to: present a petition for the winding up of the company?
A Yes
B No
Remove one director and replace them by appointing another person? C Yes D No
27 Correct answer(s): A Yes
An administrator may present or defend a petition for the winding up of the company.
Correct answer(s):
C Yes
Generally speaking, the administrator has all the powers of the directors in addition to some specific powers conferred by the Insolvency Act 1986.
127
28 Which of the following statements concerning the administrator of a company is correct?
A An administrator’s role has no timescale and ends once the objectives of administration have been met.
B An administrator has 14 days following their appointment to file notice of their appointment with the Registrar of Companies.
C An administrator has 21 days following their appointment to require any of the company’s officers and employees to provide a statement of affairs.
D An administrator has 8 weeks following their appointment to submit a statement of their proposals for achieving the aim of administration to the Registrar of Companies and the company’s creditors and members.
28 Correct answer(s):
D An administrator has 8 weeks following their appointment to submit a statement of their proposals for achieving the aim of administration to the Registrar of Companies and the company’s creditors and members.
The administrator’s appointment has a timescale and is terminated in one year after the appointment starts unless it is extended by the court or (once only) by a prescribed majority of the creditors. An administrator has seven days following their appointment to file notice of their appointment with the Registrar and to require any of the company’s officers and employees to provide a statement of affairs. The statement of proposals must be submitted within eight weeks of their appointment.
128
29 Which of the following debts are next in order of priority for repayment in a liquidation after deferred debts?
A Members
B Unsecured ordinary creditors
C Secondary preferential creditors
D Floating charges
29 Correct answer(s): A Members
The order of priority for repayment is: costs of liquidation, preferential debts, secondary preferential creditors, floating charges, unsecured ordinary creditors, deferred debts and members.
