Insolvency

Question 1

4 tests of insolvency

Answer 1

Cash Sheet: Cannot pay debts as fall due
Balance Sheet: Liabilities excees Assets (Net Assets negative)
Statutory demand: £750 unpaid for 21 days
Judgment debt: Unable to pay judgment debt

Question 2

What is a Pre-Involvency Moratorium

Answer 2

Breathing space for 20 business days intiiated by company to find longer term solution

Question 3

What is a Restructuring Plan

Answer 3

ALL SHs, ALL creditors ALL debts - restructures debts (court sanctioned)

Question 4

What is a CVA

Answer 4

SHs, unsecured creditors, unsecured debts - restructures (supervisor oversees)

Question 5

Grounds for Freestanding Moratoirum, Restructuirng Plan, CVA

Answer 5

FM: unable or unlikely to become unable to pay debts

RP: Financial Difficulties or likely to encounter financial diffulties

CVA: X

Question 6

Court Permission for FSM, RP, CVA

Answer 6

FSM: GR –> file statement from insolvency practitioner stating FSM could save company as a going concern (court permission if outstanding winding up petition - discreetion to grant if would acheive a better result than liquidation)

RP: yes.

CVA: no (report to court once approved but no consent required)

Question 7

Approval thresholds for FSM, RP, CVA

Answer 7

FSM: None (but may need court + may need statement)

RP: 75% in value creditors per class + 75% in value SHs + court (court can override class who vote against if would not be worse off than under liquidation + at least 1 class consents)

CVA: 75% in value creditors (over 50% of whom not connected) + SH OR

Question 8

Duration of Moratoriums (FSM, IM, FM)

Answer 8

FSM: 20 business days (extend to 40 business days). Court or consent from over 50% creditors: can extend to 1 year.

IM: administration: 10 business days from NOI or from Date of Court Application until decision

FM: administration: 1 year from date of appointemnt of adminsitrator

Question 9

Procedures for starting Administration and Liquidation

Answer 9

Administration:
Out of court: Co, Ds or QFCH (file NOI + serve on QFCH). Wait 5 business days. File NOA within 10 business days..

via court: above + creditors + CVA, liquidator: notify persons entitled to appoint receiver + QFCH then apply to court.

Liquidation
Co, Ds, Creditor, CVA, Administator, Administrative receiver, SoS BEIS: File winding up petition at court

Question 10

Grounds for Administration and Liquidation

Answer 10

Administration: unable or likely to become unable to pay debts as fall due

Liquidation: insolvency right now (one of 4 tests satisfied)

Question 11

Objectives of Administration adn Liqudiation

Answer 11

Admin: save as going concern (if not, better result than liqudiation, if not ….)

Liquidation: distribute assets to creditors

Question 12

Moratoriums - Administration and Liquidation

Answer 12

Administration: Interim and Full

Liquidation: None (but after granted there is an automatic stay on commencing or continuing with proceedings)

Question 13

Impact of Administration and Liqduiation on employees and Ds

Answer 13

Administration: remain but no powers
Liquidation: dismissed

Question 14

Prcoedure during Administration

Answer 14

Administator comes up with a plan within 8 weeks.
over 505 of creditors in value approve
otherwise liquidation

1 year to carry out proposal

Question 15

Types of Receivership

Answer 15

Fixed Asset (LPA): fixed asset holder
Administrative Receiver: QFCH
Court APpointed: if dispute between SHs / POCA issue

Question 16

Voluntary Liquidation

Answer 16

Members Voluntary Liquidation
SH: SR to wind up + OR to appoint Liquidator
Only possible if solvent…
- declaration of solvency (12 months)
- statement of assets and liabilities

Creditors Voluntary Liquidation
SH: SR to wind up + OR to nominate LIquidator
- send statement of assets and liabilites to creditors

CREDITORS have 14 days to approve or put forward own choice of liquidator

Question 17

Statutory Order of Priority

Answer 17

1. Liquidator fees of realising fixed charges
2. Fixed charge (priority is creation date provided registered)
3. Other LIquidator Fees
4. Preferential (Employees (£800 for prior 4 months + holiday pay + pension) (HMRC for PAYE, VAT, NI)
5. Prescribed part fund (max 800k 50% first 10k, 20% thereafter)
6. Unsecured Creditors

Question 18

Prescribed Part Fund - Amount

Answer 18

max 800k (600k pre 2020)
50% of first 10k
20% thereafter

Question 19

Calculation for determining how much unsecured creditors will receive

Answer 19

Amount available / amount due to fixed creditors = amount per pound (APP)

APP x amount due to individual = amount individual creditor will receive

Question 20

Options for Indiviudal Insolvency

Answer 20

Bankcruptcy (liquidation)
IVA (CVA)
DRO

Question 21

Conditions to petition for Bankruptcy

Answer 21

1. Unable to pay statutory demand within 21 days
2. over £5k and unsecureed

Question 22

Requirements for IVA

Answer 22

75% creditors in value agree (at least 50% of which are unconnected)
Statement from nominee that could save individual

Question 23

Conditions for DRO

Answer 23

1. debt is under £50k
2. Do not own house
3. savings under £2k
4. £75 or lss monthly disposable
5. No bankcruptcy IVA or SRO in previous 6 years

Question 24

Statutory Order of Priority for Individual

Answer 24

1. Secured
2. Trustee
3. Preferential
4. Unsecured
5. Spouse