Introduction to Corporate Insolvency Flashcards
(8 cards)
What is the key statutory definition of corporate insolvency under the Insolvency Act 1986?
A) When a company fails to hold an AGM
B) When a company is unable to pay its debts
C) When a company ceases trading
D) When a company fails to submit accounts on time
B – When a company is unable to pay its debts
Explanation: Defined under s122(1)(f) IA 1986, supported by the tests in s123.
Which of the following is a recognised insolvency test under s123 of the Insolvency Act 1986?
A) Dividend comparison test
B) Interest coverage ratio
C) Revenue loss test
D) Balance sheet test
D – Balance sheet test
Explanation: Under s123(2), insolvency exists if liabilities exceed assets.
A company is unable to pay staff wages on time, and several suppliers demand payment. Which insolvency test is most likely satisfied?
A) Cash flow test
B) Balance sheet test
C) Statutory demand test
D) Enforcement of judgment debt
A – Cash flow test
Explanation: s123(1)(e): inability to pay debts as they fall due = cash flow insolvency.
Company X has liabilities of £1.2 million and assets of £950,000. Which insolvency test is satisfied?
A) Enforcement test
B) Statutory demand test
C) Balance sheet test
D) Cash flow test
C – Balance sheet test
Explanation: Under s123(2), insolvency is shown by liabilities exceeding assets.
Which action by a director is most likely to result in personal liability if a company is financially distressed?
A) Calling a creditors’ meeting
B) Continuing to trade without a rescue plan
C) Obtaining restructuring advice
D) Filing annual returns
B – Continuing to trade without a rescue plan
Explanation: Wrongful trading risk arises if directors allow trading while insolvent.
Which reform did the Enterprise Act 2002 introduce to promote company rescue?
A) Director disqualification reforms
B) Prescribed part fund
C) Streamlining of administration
D) Moratorium for restructuring
C – Streamlining of administration
Explanation: EA 2002 prioritised administration and restricted receiverships.
A lender with a fixed charge appoints a receiver to sell secured property. What process is triggered?
A) Liquidation
B) Receivership
C) Company Voluntary Arrangement
D) Administration
B – Receivership
Explanation: A fixed charge holder can enforce their rights via receivership.
What new tool was introduced by CIGA 2020 to support companies before formal insolvency?
A) Pre-insolvency moratorium
B) Automatic liquidation
C) Increase in interest thresholds
D) Preferential dividend powers
A – Pre-insolvency moratorium
Explanation: CIGA 2020 allows temporary protection to explore rescue options.
