Corporate insolvency Flashcards
(356 cards)
1
Q
What statute mainly deals with corporate insolvency
A
Insolvency Act 1986
2
Q
What year did the Enterprise Act come into force
A
2003
3
Q
What is the date the Enterprise Act came into force also known as
A
Relevant Date
4
Q
What was a key aim of the Enterprise Act regarding company rescue
A
Promote rescue culture
5
Q
What type of insolvency procedures did the Enterprise Act give prominence to
A
Collective
6
Q
What enforcement procedure did the Enterprise Act restrict
A
Administrative receiverships
7
Q
What year did the Corporate Insolvency and Governance Act commence
A
2020
8
Q
How many new insolvency procedures did CIGA 2020 introduce
A
Two
9
Q
Name one new insolvency procedure introduced by CIGA 2020
A
Pre-insolvency moratorium
10
Q
Name the other new insolvency procedure introduced by CIGA 2020
A
Restructuring plan
11
Q
What is the overall definition of insolvency for companies under IA 1986 section 122(1)(f)
A
Inability to pay debts
12
Q
Under which section of IA 1986 are the tests for inability to pay debts described
A
Section 123
13
Q
What is the name of the insolvency test where a company cannot pay debts as they fall due
A
Cash flow test
14
Q
What is the name of the insolvency test where a company’s liabilities exceed its assets
A
Balance sheet test
15
Q
What is the minimum debt amount for a statutory demand to evidence cash flow insolvency
A
Over £750
16
Q
What must directors continually review regarding their company
A
Financial performance
17
Q
What should directors obtain advice on when facing company financial difficulties
A
Duties responsibilities liabilities options
18
Q
Name one option for directors facing a company in financial difficulty
A
Do nothing
19
Q
Name another option for directors facing a company in financial difficulty
A
Do a deal
20
Q
Name a formal collective insolvency procedure option for directors
A
Appoint an administrator
21
Q
What type of procedure is requesting the appointment of a receiver
A
Enforcement
22
Q
Which type of creditor benefits from the appointment of a receiver
A
Secured creditor
23
Q
Name another formal collective insolvency procedure option for directors
A
Place the company into liquidation
24
Q
What is the aim of the new procedures introduced by CIGA 2020
A
Increase likelihood of successful restructuring
25
What type of agreements can companies negotiate to avoid formal insolvency
Informal
26
Are informal agreements regulated by insolvency statutes
No
27
What might a company grant to obtain creditor agreement in an informal arrangement
New security
28
What action might a company take regarding directors or senior employees for creditor agreement
Replace
29
What might a company sell to raise cash for informal agreements
Failing businesses
30
What is a common cost reduction method in informal arrangements
Redundancy programme
31
What is issuing new shares to creditors known as
Debt for equity swap
32
What agreement asks creditors to not enforce rights for a period
Standstill Agreement
33
What legislation introduced the pre-insolvency moratorium
CIGA 2020
34
What is the purpose of a pre-insolvency moratorium
Buy time for agreement
35
What is a period where creditors cannot take usual action
Moratorium
36
Can creditors enforce security during a moratorium
No
37
Are legal proceedings against the company stayed during a moratorium
Yes
38
Can winding up procedures be commenced during a moratorium by directors
Yes
39
Can shareholders pass a resolution to wind up during a moratorium without director approval
No
40
Can administration be commenced during a moratorium other than by directors
No
41
Where does a company file documents to obtain a moratorium
Court
42
What statement about debt must be included in moratorium application documents
Unable to pay debts
43
Who provides a statement on the likelihood of company rescue for a moratorium
Licensed insolvency practitioner
44
What is the licensed insolvency practitioner called during a moratorium
Monitor
45
What is the initial duration of a pre-insolvency moratorium in business days
Twenty
46
How can directors extend the initial moratorium period
Further twenty business days
47
How can further moratorium extensions beyond forty days be obtained
Creditor consent or court order
48
What is the maximum moratorium period subject to court order
One year
49
What automatically terminates a moratorium
Company enters liquidation
50
What else automatically terminates a moratorium
Company enters administration
51
What terminates a moratorium upon approval
CVA is approved
52
What terminates a moratorium upon court sanction
Restructuring plan
53
What type of debts do not have to be paid during a moratorium
Pre-moratorium debts
54
What is the non-payment of pre-moratorium debts during a moratorium known as
Statutory repayment holiday
55
Must the Monitor's remuneration be paid during a moratorium
Yes
56
Must goods supplied during the moratorium be paid for
Yes
57
Must rent during the moratorium period be paid
Yes
58
Must wages during the moratorium be paid
Yes
59
Must loans under financial services contracts be paid during a moratorium
Yes
60
What type of debts must always be paid during a moratorium
Moratorium debts
61
When do moratorium debts fall due
During or after moratorium
62
What must a company be able to do regarding debts during a moratorium
Pay debts as they fall due
63
What is the main advantage of a formal arrangement
Legally binding
64
What are the two main formal arrangements considered
CVA Restructuring Plan
65
Under which act are CVAs governed
Insolvency Act 1986
66
What does CVA stand for
Company Voluntary Arrangement
67
What is a CVA defined as
Composition or scheme of arrangement
68
What do creditors agree to in a CVA
Part payment or extended timetable
69
Is court approval required for a CVA
No
70
Who supervises and implements a CVA
Insolvency Practitioner
71
Who remains in office during a CVA
Company's directors
72
Who drafts the CVA proposal initially
Directors
73
Who must be appointed as Nominee for a CVA
Insolvency practitioner
74
What must directors submit to the Nominee with the CVA proposal
Statement of company's affairs
75
Within how many days must the Nominee report to court on the CVA proposal
Twenty eight
76
What is the minimum notice period for creditors to vote on a CVA proposal
Fourteen days
77
What percentage in value of voting unsecured creditors is needed to approve a CVA
At least 75%
78
What proportion of unconnected creditors voting against can invalidate a CVA approval
More than half
79
What majority of shareholders is needed to approve a CVA
Simple majority
80
Whose approval mainly matters in practice for a CVA
Creditors
81
Who usually becomes the Supervisor of a CVA
The Nominee
82
On whom is a CVA binding
All unsecured creditors
83
Are secured creditors bound by a CVA without consent
No
84
Are preferential creditors bound by a CVA without consent
No
85
Within how many days can a CVA be challenged after court report
Twenty eight
86
On what grounds can a CVA be challenged
Unfair prejudice or material irregularity
87
What is the Supervisor's role in a CVA
Agree claims collect funds pay dividends ensure compliance
88
What does the Supervisor send upon CVA completion
Final report
89
In which sector are CVAs commonly used for rent reduction
Retail
90
What is an advantage of a CVA for the company
Directors remain in control
91
What is a major disadvantage of a CVA
Cannot bind secured preferential creditors without consent
92
Who tends to support CVAs as they may recover more
Trade creditors
93
What is a potential outcome of a CVA for landlords
Reduced rents
94
What is the other formal agreement considered
Restructuring Plan
95
What legislation introduced the Restructuring Plan
CIGA 2020
96
What is the purpose of a Restructuring Plan
Compromise creditors restructure liabilities
97
What type of mechanism is a Restructuring Plan a hybrid of
CVA Scheme of Arrangement
98
What is required for a Restructuring Plan to become binding
Court sanction
99
Into what must creditors and members be divided for a Restructuring Plan vote
Classes
100
What percentage in value is needed to approve a Restructuring Plan in each class
At least 75%
101
What is a novel feature allowing exclusion from voting in a Restructuring Plan
No genuine economic interest
102
What novel feature allows court sanction despite a dissenting class
Cross-class cram down
103
What must be true for a cross-class cram down regarding the dissenting class
No worse off
104
What approval is needed for a cross-class cram down
One interested class
105
What can a cram down of shareholders force
Debt for equity swap
106
Who is likely to use the Restructuring Plan alongside the moratorium
Directors
107
Can administrators use the Restructuring Plan
Yes
108
Can liquidators use the Restructuring Plan
Yes
109
What is a key advantage of a Restructuring Plan over a CVA
Can compromise secured creditors
110
What is another advantage of a Restructuring Plan regarding court sanction
Binds all even without full class approval
111
Who can initiate a Restructuring Plan
Company creditor member liquidator administrator
112
Is court sanction required for a Restructuring Plan
Yes
113
Who does a Restructuring Plan bind
All creditors and shareholders
114
What is a limitation of a Restructuring Plan
Court process can be costly and time consuming
115
What is a key aspect to consider for voting in a Restructuring Plan
Separate classes for creditors
116
What is the next most common insolvency procedure after liquidation
Administration
117
Is administration a collective or individual procedure
Collective
118
In whose interest does an administrator primarily act
Creditors as a whole
119
Are administrators officers of the court
Yes
120
Under which schedule of IA 1986 is relevant law for administrations contained
Schedule B1
121
Must administrators be licensed insolvency practitioners
Yes
122
How many statutory objectives of administration are there
Three
123
What is the first statutory objective of administration
Rescue the company
124
What is the second statutory objective of administration
Better result for creditors than winding up
125
What is the third statutory objective of administration
Realise property for secured preferential creditors
126
Are the administration objectives in a specific order
Yes
127
Which administration objective is most likely to be achieved
Better result for creditors
128
Who can apply to court for the appointment of an administrator
Company directors creditor CVA supervisor liquidator
129
What must the court consider when making an administration order
Reasonably likely to achieve purpose
130
What temporarily freezes creditor action on application to court for administration
Interim moratorium
131
When does the interim moratorium end
Administration order made or application dismissed
132
Is court appointment of administrators common or uncommon
Uncommon
133
When might directors have to apply to court for administration
Winding up proceedings started
134
What happens to pending winding up proceedings if an administration order is made
Automatically dismissed
135
Is out of court appointment of administrators more or less common than court procedure
More common
136
Who can appoint an administrator out of court under Schedule B1
Directors or company
137
Who usually appoints under Schedule B1 Para 22
Directors
138
Who else can appoint an administrator out of court
Qualifying floating charge holder
139
What does QFC stand for
Qualifying floating charge holder
140
Must a QFC relate to substantially the whole of the company's property
Yes
141
What must the QFC document provide regarding administrator appointment
Para 14 applies or power to appoint
142
If directors appoint out of court what notice must they file at court
Notice of intention to appoint
143
What is the acronym for notice of intention to appoint
NOI
144
Within how many business days after NOI must notice of appointment be filed
Ten
145
When does the administrators appointment take effect after NOI
When notice of appointment filed
146
Who must directors send the NOI to if there is a QFC
Holder of the QFC
147
How many business days does a QFC holder have to appoint their own administrator after NOI
Five
148
How does a QFC holder appoint an administrator out of court
Enforce security file notice
149
What notice period must lower ranking QFC holders give to higher ranking holders
Two business days
150
What is needed for a lower ranking QFC holder to appoint if higher ranking exists
Consent
151
Is the administrator an officer of the court
Yes
152
To whom does the administrator have a duty
Court creditors
153
Can directors exercise management powers without administrator consent
No
154
Do employees remain employed when a company enters administration
Yes
155
Can administrators sell property subject to a fixed charge without consent
No
156
Do administrators generally have power to pay unsecured dividends without court permission
No
157
How long does an administrator have to produce proposals
Up to eight weeks
158
To whom are the administrator's proposals sent
All creditors
159
What usually happens if administrator proposals are rejected
Company placed into liquidation
160
What is the usual time limit for completion of administrations
Twelve months
161
Can the administration time limit be extended
Yes
162
What key benefit does a company have during administration
Full moratorium
163
What must company documents state during administration
Company is in administration
164
Can a winding up order be made during the moratorium without consent
No
165
Can an administrative receiver be appointed during the moratorium without consent
No
166
Can security be enforced during the moratorium without consent
No
167
Can legal proceedings be commenced or continued during the moratorium without consent
No
168
Can a landlord forfeit a lease during the moratorium without consent
No
169
What legislation gives administrators wide powers
IA 1986
170
Can administrators remove directors
Yes
171
Can administrators dispose of property subject to a floating charge
Yes
172
Can administrators dispose of property subject to a fixed charge with court consent
Yes
173
Can administrators bring proceedings for wrongful trading
Yes
174
What is a pre-packaged sale in administration
Sale prepared before appointment
175
What is an advantage of pre-packaged sales
Goodwill continuity preserved
176
Who is often the pre-pack buyer
Connected party
177
What is a concern with pre-packaged sales to connected parties
Sale price insufficient information
178
What regulations restrict pre-pack sales to connected persons
Administration Restrictions on Disposal to Connected Persons Regulations 2021
179
What approval might be needed for pre-pack sale to connected persons
Creditor approval or evaluator report
180
To whom must an evaluator's report be sent
Companies House all creditors
181
Is receivership a collective or enforcement procedure
Enforcement
182
In whose interest is receivership conducted
Secured creditor
183
How many types of receivers are considered
Three
184
What is now a rare type of receiver
Administrative receiver
185
What is the most common type of receivership
Fixed charge receiver
186
Do fixed charge receivers need to be licensed insolvency practitioners
No
187
Who appoints fixed charge receivers
Holders of a fixed charge
188
What is the primary duty of a fixed charge receiver
To the appointor
189
To whom does a fixed charge receiver owe a limited duty
The debtor
190
For whom does a fixed charge receiver usually act as agent
The chargor mortgagor
191
Can a fixed charge receiver be appointed during a pre-insolvency moratorium
No
192
Can a fixed charge receiver be appointed if the company is in administration
No
193
Are court-appointed receivers common or rare
Relatively rare
194
Who appoints court-appointed receivers
The court
195
Where are the powers and duties of court-appointed receivers set out
Court order
196
Why might court-appointed receivers be appointed in shareholder disputes
Locked in dispute
197
Under which act might court appoint receivers for proceeds of crime
Proceeds of Crime Act 2002
198
What is the typical duty of a court-appointed receiver in a dispute
Run the business until determined
199
What is the most common type of insolvency procedure
Liquidation
200
What percentage of company insolvencies in 2019 were liquidations
Over 87%
201
What was the bulk of liquidations in 2019
Creditors voluntary liquidations
202
What is the process by which a company's business is wound up
Liquidation
203
To whom are a company's assets transferred in liquidation
Creditors members
204
What happens to the company after liquidation
Removed from register dissolved
205
Are liquidation and winding up terms used interchangeably
Yes
206
Are only insolvent companies wound up
No
207
Why might solvent companies be wound up
Business end internal disputes new ventures
208
Is liquidation the newest or oldest corporate insolvency procedure
Oldest
209
What is the liquidator's function regarding company assets
Realise for cash
210
What does the liquidator determine regarding company creditors
Identity amount owed
211
How are creditors of the same rank repaid
Proportionate basis pari passu
212
Where is the ranking of creditors claims set out
IA 1986 IR 2016 general law
213
Does a liquidator have extensive powers to carry on the business
Very limited
214
What usually happens to a company's business after liquidator appointment
Closed
215
Are employees usually dismissed quickly after liquidator appointment
Yes
216
How are assets usually sold in liquidation
Piece meal basis
217
Is the stay on legal proceedings in liquidation limited or extensive
Very limited
218
Do companies often enter liquidation after another insolvency procedure
Yes
219
What are the two main types of liquidation
Compulsory Voluntary
220
What are the two subdivisions of voluntary liquidation
Members Creditors
221
How is a company's life generally ended following liquidation
Dissolution
222
How long after liquidator notice to registrar is compulsory liquidation dissolution
Three months
223
How long after liquidator final accounts filing is voluntary liquidation dissolution
Three months
224
Is compulsory liquidation a court based process
Yes
225
How does compulsory liquidation begin
Winding up petition to court
226
Who requests a winding up order in a petition
Applicant
227
Whom does a compulsory liquidation order favour
All creditors contributories
228
Who initially becomes the liquidator in compulsory liquidation
Official Receiver
229
Who notifies Companies House and creditors of compulsory liquidation
Official Receiver
230
What power does the Official Receiver have regarding liquidator appointment
Summon meetings to choose liquidator
231
Who can apply to court for a winding up petition
Creditor company directors administrator administrative receiver CVA supervisor Secretary of State
232
Under which section of IA 1986 are key grounds for winding up order set out
Section 122(1)
233
What are the key grounds for court to order winding up
Inability to pay debts just equitable
234
Under which section of IA 1986 is inability to pay debts described
Section 123
235
What is a written demand to pay a specific debt
Statutory demand
236
What is the minimum debt for a statutory demand
Over £750
237
How long does a company have to pay a statutory demand
Twenty one days
238
What can a creditor do if a statutory demand is not paid
Petition to wind up
239
What happens if a creditor obtains judgment and fails to execute it
Evidence of inability to pay debts
240
What is the insolvency test where a company cannot pay debts as they fall due
Cash flow test
241
What is the insolvency test where liabilities exceed assets
Balance sheet test
242
Under which section of IA 1986 are certain dispositions void after winding up commencement
Section 127
243
What period does void disposition apply to
Between petition presentation winding up order
244
What automatic action occurs upon a compulsory winding up order
Stay on proceedings
245
What happens to employees upon a compulsory winding up order
Automatically dismissed
246
What happens to directors powers upon a compulsory winding up order
Lost
247
Under which section of IA 1986 is voluntary winding up allowed without court order
Section 84(1)
248
When might voluntary winding up occur due to articles
Company purpose expired
249
What type of resolution is needed for solvent voluntary winding up
Special resolution
250
What type of resolution is needed for winding up due to inability to carry on business
Special resolution
251
What does MVL stand for
Members voluntary winding up
252
Can MVL be used for insolvent companies
No
253
What declaration must directors swear for MVL
Declaration of solvency
254
What must the declaration of solvency state
Able to pay debts with interest within 12 months
255
What must the declaration of solvency contain
Statement of assets liabilities
256
What is the penalty for a director making a declaration of solvency without reasonable grounds
Fine or imprisonment
257
What type of resolution places a company into MVL
Special resolution
258
What type of resolution appoints a liquidator in MVL
Ordinary resolution
259
When does winding up commence in MVL
When special resolution passed
260
What must a liquidator do in MVL if they believe the company is insolvent
Change to CVL
261
What does CVL stand for
Creditors voluntary winding up
262
Is CVL a common or rare insolvency procedure
Most common
263
Is CVL for solvent or insolvent companies
Insolvent
264
Who has effective control in a CVL
The creditors
265
What resolution places a company into CVL
Special resolution
266
What resolution appoints a nominated liquidator in CVL
Ordinary resolution
267
Within how many days of special resolution must directors ask creditors to approve liquidator
Fourteen days
268
What must directors draw up and send to creditors in CVL
Statement of company's affairs
269
What happens to directors management powers upon liquidator appointment
Terminated
270
To whom are directors fiduciary duties transferred upon liquidator appointment
Liquidator
271
What type of professional must a liquidator be
Qualified Insolvency Practitioner
272
Who acts as liquidator in compulsory liquidation initially
Official Receiver
273
What is the liquidator in both CVL and compulsory liquidation considered
Officer of the court
274
What is a principal function of a liquidator regarding assets
Secure and realise
275
Under which section of IA 1986 is securing and realising assets a liquidator function
Section 143
276
What is another principal function of a liquidator regarding company property
Take into custody or control
277
Under which section of IA 1986 is taking custody of property a liquidator function
Section 144
278
Where are liquidators powers to manage the company set out
Part I to III Sch 4 IA 1986
279
Can a liquidator sell company property
Yes
280
Can a liquidator execute deeds in the company name
Yes
281
Can a liquidator raise money on company assets security
Yes
282
Can a liquidator make bills of exchange in company name
Yes
283
Can a liquidator appoint an agent
Yes
284
Can a liquidator do all things necessary to wind up
Yes
285
Can a liquidator carry on the business
Only if beneficial for winding up
286
Can a liquidator commence court proceedings
Yes
287
Can a liquidator pay debts and compromise claims
Yes
288
What duty do liquidators have regarding company property
Preserve maximise value
289
What type of transactions can liquidators avoid
Antecedent
290
Under which section can liquidators disclaim onerous property
Section 178
291
Under which section can liquidators apply to set aside undervalue transaction
Section 238
292
Under which section can liquidators apply to set aside a preference
Section 239
293
Under which section can liquidators apply to set aside extortionate credit transaction
Section 244
294
Under which section is an invalid floating charge claim possible
Section 245
295
Under which section can liquidators apply to set aside fraudulent transactions
Section 423
296
Does the power to avoid certain transactions also apply to administrators
Yes
297
What type of liquidation applies only to solvent companies
Members voluntary liquidation
298
What must directors swear for a members voluntary liquidation
Statutory declaration of solvency
299
Under which section of IA 1986 can compulsory liquidation be ordered
Section 122(1)
300
What is the most common ground for compulsory liquidation
Inability to pay debts
301
Who takes control of the company once liquidation commences
Liquidator
302
What is the liquidator's role regarding company assets
Realise and distribute
303
What is a payment to creditors in insolvency called
Dividend
304
Who distributes assets to creditors in a specific order
Liquidator
305
May an administrator also distribute assets to creditors
Yes
306
Is there a single source for the rules of priority in insolvency
No
307
Where are the rules of priority found
IA 1986 Insolvency Rules 2016 general law
308
What type of charge is assumed in the standard priority order
Qualifying floating charge
309
When must the QFC have been granted for the standard priority order
On or after Relevant Date
310
What date is the Relevant Date
15 September 2003
311
Do the priority rules apply to administrator dividend payments with court permission
Yes
312
Can creditor agreements affect the statutory order of distribution
Yes
313
What type of agreements can alter the priority order
Priority or subordination
314
What is the first priority in payment
Liquidators fees fixed charge assets
315
What is the second priority in payment
Fixed charge creditor proceeds
316
What is the third priority in payment
Liquidators other remuneration costs expenses
317
What is the fourth priority in payment
Preferential creditors
318
How many tiers of preferential creditors are there for insolvencies after December 2020
Two
319
What is the fifth priority in payment
Prescribed part fund
320
What is the sixth priority in payment
Floating charge creditors
321
What is the seventh priority in payment
Unsecured trade creditors
322
What is the eighth priority in payment
Interest owed to unsecured creditors
323
What is the ninth and final priority in payment
Shareholders
324
Whose costs are paid first from fixed charge asset sales
Liquidators costs preserving realising
325
Who is paid second from fixed charge asset sales
Fixed charge creditors
326
What happens if fixed charge proceeds are insufficient
Balance may be unsecured debt
327
What type of charge is assumed over all other company assets
Floating charge
328
What do other liquidation costs include
Selling floating charge assets litigation costs
329
Who must approve litigation costs for liquidators
Preferential creditors floating charge holders or court
330
When did the two tiers of preferential creditors come into effect
On or after 1 December 2020
331
What is the first tier of preferential creditors
Employee claims pension contributions
332
What is the maximum unpaid remuneration per employee in the first tier
£800
333
What is the second tier of preferential creditors
Certain Crown debts
334
What type of Crown debts are in the second tier
PAYE employee NI VAT
335
When were Crown debts removed from preferential status
EA 2002 reforms
336
Have Crown debts regained preferential status
Yes
337
Must tier one preferential debts be paid before tier two
Yes
338
What act introduced the prescribed part fund
Enterprise Act 2002
339
What was the aim of the prescribed part fund
Increase unsecured creditor payment
340
What is another name for the prescribed part fund
Ring fenced fund
341
To what type of floating charges does the prescribed part apply
Created on or after 15 September 2003
342
How is the prescribed part fund calculated
Percentage of net property
343
What is deducted from floating charge proceeds to calculate net property
Liquidators expenses preferential debts
344
What percentage of the first £10000 of net property is the prescribed part
0.5
345
What percentage of net property above £10000 is the prescribed part
0.2
346
What is the maximum prescribed part fund for floating charges before April 2020
£600000
347
What is the maximum prescribed part fund for floating charges on or after April 2020
£800000
348
Do floating charge holders with a shortfall share in the prescribed part fund
No
349
How are floating charge creditors paid after previous steps
Remaining floating charge asset realisations
350
How are multiple floating charge creditors usually paid
According to security priority
351
How do unsecured creditors rank
Equally pari passu
352
Can a floating charge holder claim from the prescribed part for a shortfall
No
353
When does interest on unsecured debts accrue
From winding up commencement
354
Who ranks last in the order of priority
Shareholders
355
Do shareholders usually receive a return in insolvent liquidations
No
356
Do fixed charge holders share their asset sale proceeds with other creditors
No
