Formal and Informal Arrangements Flashcards
(8 cards)
What is the key advantage of a Company Voluntary Arrangement (CVA) for directors?
A. Directors retain control of the company during the process
B. It binds secured creditors automatically
C. It does not require any creditor approval
D. It removes the need for court involvement in any capacity
A. Directors retain control of the company during the process
Explanation: In a CVA, the company’s directors remain in control, unlike administration or liquidation. This allows them to continue running the business while the arrangement is implemented.
What does a pre-insolvency moratorium achieve for a company?
A. Gives the company a temporary legal shield from creditor enforcement
B. Forces a creditor vote on all outstanding debts
C. Prevents the company from issuing shares
D. Allows creditors to enforce judgments more easily
A. Gives the company a temporary legal shield from creditor enforcement
Explanation: A moratorium temporarily restricts creditor action, allowing the company time to restructure or negotiate with creditors.
Which of the following statements about Restructuring Plans is FALSE?
A. The court must sanction the plan before it becomes binding
B. It can bind dissenting classes of creditors
C. It allows for a cross-class cramdown
D. It applies only to solvent companies
D. It applies only to solvent companies
Explanation: A Restructuring Plan is available only to companies that are or are likely to be in financial difficulty, not to solvent companies.
Under a CVA, secured or preferential creditors:
A. Are always bound by the arrangement
B. Can vote to modify their rights
C. Must be excluded from all votes
D. Are bound only if they consent
D. Are bound only if they consent
Explanation: CVAs do not bind secured or preferential creditors unless they explicitly agree, which is a limitation of this procedure.
What is the maximum initial duration of a pre-insolvency moratorium under CIGA 2020?
A. 20 calendar days
B. 30 business days
C. 14 business days
D. 60 calendar days
A. 20 business days
Explanation: The initial moratorium period is 20 business days, extendable by further 20 days or more with consent or court order.
What is the role of the Monitor in a pre-insolvency moratorium?
A. To liquidate company assets
B. To supervise the moratorium and confirm its feasibility
C. To act as company CEO
D. To enforce creditor rights
B. To supervise the moratorium and confirm its feasibility
Explanation: The Monitor is an insolvency practitioner who oversees the moratorium and ensures it is likely to result in a company rescue.
What is a key limitation of informal creditor arrangements?
A. They must be approved by the court
B. They can be enforced on all creditors regardless of consent
C. They lack statutory regulation and depend on unanimous creditor consent
D. They automatically convert to CVAs
C. They lack statutory regulation and depend on unanimous creditor consent
Explanation: Informal arrangements rely on full agreement among creditors, as there’s no statutory mechanism to enforce them on dissenters.
Which debt must still be paid during a pre-insolvency moratorium?
A. Old supplier invoices
B. Employee wages
C. All pre-moratorium debts
D. Tax liabilities from the previous year
B. Employee wages
Explanation: Wages, along with rent for the period and Monitor’s fees, must be paid during a moratorium. Other pre-moratorium debts benefit from a repayment holiday.
