Corporate Insolvency

Question 1

Corporate Insolvency

3 x Procedures

3

Answer 1

Compulsory Liquidation
Members Voluntary Liquidation
Creditors Voluntary Liquidation

Question 2

Corporate Insolvency

s123 Insolvency Act- company unable to pay debts if…

4

Answer 2

1. Creditor owed more than £750, has served a written demand in a prescribed form (“statutiry demand”) and no payment in 3 weeks
2. Creditor tried unsuccesfully to enforce a judgment against the company
3. Proven that the company cannot pay its debts as they fall due
4. Proved that the companeis assets are less than their liabilities

Question 3

Corporate Insolvency

s123(1)(e)- the cash flow test

1 (what is it?)

Answer 3

Can the company pay its debts when they are due now in the reasonably near future?

Question 4

Corporate Insolvency

s123(2) Balance Sheet Test

Answer 4

To prove that the companies assets are less than its liabilities

Accounts for contingent and prospective liabilities

Question 5

Corporate Insolvency

Effect of a Winding up Order

5

Answer 5

1. Liquidator takes over
2. Directors powers cease
3. Employees automatically redundant
4. Proceedings against company automatically stayed
5. Suppliers can’t terminate their existing contracts

Question 6

Corporate Insolvency

Which transactions can be set-aside as per s239 and s238 Insolvency Act 1986?

2

Answer 6

Preferences- e.g better rates for family and friends

Transactions at undervalue- (e.g. company recieves less than it gives)

Question 7

Corporate Insolvency

Members Voluntary Liquidation Process

3

Answer 7

SR passed to wind-up company
OR passed to appoint liquidator

Directors must make a declaration of solvency 5 weeks before SR (confirms debts can be paid 12 months post winding up)

Company is solvent

Question 8

Corporate Insolvency

Creditors Voluntary Liquidation Process

Answer 8

No declaration of solvency

SR passed to wind-up company

Directors send statement of company affairs to creditors within 7 days

Company is insolvent

Company or creditors can nominate insolvency practicioner

Question 9

Corporate Insolvency

What is a) Fixed Charge and b) Floating Charge?

2

Answer 9

a) charge over specific asset(s) (company remains owner but can’t sell without permission)

b) Charge over a class of assets (company free to buy and sell but the charge “crystallizes” upon trigger event)

Question 10

Corporate Insolvency

Order of Distribution

4

Answer 10

1. Fees and expenses of liquidator
2. Preferential debts
3. Money secured by floating charges subject to ring-fencing
4. Shareholders