Corporate Insolvency - Introduction

Question 1

When can a company be wound up by the court?

Answer 1

If company is unable to pay its debts

Question 2

What are the 4 tests for insolvency?

Answer 2

1) Cashflow test
2) Balance sheet test
3) Statutory Demand for debt over £750 not complied with
4) Judgement debt not satisfied

Question 3

What is the cashflow test?

Answer 3

Company is unable to pay its debts as they fall due

Question 4

What is the balance sheet test?

Answer 4

Company’s liabilities are greater than its assets

Question 5

What must directors do when their company is facing financial difficulties?

Answer 5

Directors must monitor the company’s financial position and consider whether they are insolvent or likely to become so. They must also consider their legal duties and available options to resolve the company’s difficulties

Question 6

What are 5 key options for directors of a financially distressed company?

Answer 6

1) do nothing (though this risks personal liability)
2) Do a deal with creditors
3) Appoint an Administrator
4) Request the appointment of a receiver
5) Place the company into liquidation