Lecture 6 Insolvency & Winding Up Flashcards
(12 cards)
What is the difference between a solvent and an insolvent company?
Solvent: Assets > Debts
Insolvent: Assets < Debts
What sorts of WU situations are there?
- Regular winding up (Solvent company)
- Creditors voluntary WU (Insolvent company)
- Compulsory WU (insolvent company)
What are the advantages of Creditors Voluntary arrangement?
-chance of getting payment settlement agreements satisfactory for all
-chance of REVIVAL for company
UK- UNITED KINGDOM JURISDICTION
What is the difference and similarity between MVL and CVL?
UK- UNITED KINGDOM JURISDICTION
UK- UNITED KINGDOM JURISDICTION
MVL- members voluntary liquidation- solvent company
CVL- creditors voluntary liquidation- insolvent company
BOTH-require 75% shareholder approval and appointment of a licensed insolvency practitioner.
UK Jurisdiction
What is the priority rank in paying creditors in the UK?
UK Jurisdiction
UK Jurisdiction
1. Liquidator/administrator fees an expenses
2. Fixed Charge Secured Creditors
3. Preferential Creditors (e.g., Employees) & prescribed part
payout
4. Floating charge secured creditors
5. Unsecured Creditors secured
**6. ** Subordinated Creditors (Shareholders)
GERMANY JURISDICTION
What is the priority rank in paying creditors in germany?
GERMANY JURISDICTION
- Preferential Creditors (employees due to labor laws)
- secured creditors (Creditors with a fixed charge (e.g., mortgage or pledge
on specific assets)) - Cost of insolvency procceedings
- Unsecured creditors
- Subordinated creditors
What is the parri passu principle?
** “equal in right of payment”**
If you are ranked equally
you get a share of the
money.
Once secured creditors are
all paid, then next lower
rank gets paid etc.
what is floating charge?
-Security interest over company assets, not tied to specific assets (creditors cannot seize it in normal course of bussiness- ex. kitchen in restaurant.)
WHEN COMPANY GOES BANKRUPT FLOATING CHARGE CRYSTALIZES AND CREDITORS CAN CLAIM THESE ASSETS.
What is the prescribed part?
The portion of the money from assets sales set aside to pay unsecured creditors.
What is a Creditors Voluntary Arrangement?
- Agreement between creditors and company.
- aim is to let the company survive, insolvent company can be restored after procceedings.
- administrator leads this
What is the difference between administration and liquidation?
administration aims to rescue a financially struggling company, while liquidation focuses on closing down the company and selling its assets to pay off debts
When can there be a Compulsory WU?
- when creditors is owed 750+ and does not want to work together with company and goes to court.
- When 75 percent of shareholders agree that court can WU company.
