Liquidation Flashcards
(10 cards)
What happens to a company’s directors when a winding-up order is made?
A. They lose their powers and are dismissed from office
B. They become personally liable for company debts
C. They take over the liquidation process
D. They must appoint new shareholders
A. They lose their powers and are dismissed from office
Explanation: Upon compulsory liquidation, directors lose their authority and are removed from office.
Which test is used to assess if a company can pay its debts as they fall due?
A. Solvency test
B. Cash flow test
C. Liquidity test
D. Viability test
B. Cash flow test
Explanation: The cash flow test (s123(1)(e) IA 1986) examines whether a company can meet debts in the short term.
In a Creditors’ Voluntary Liquidation, who ultimately chooses the liquidator if there is a disagreement?
A. The directors
B. The shareholders
C. The creditors
D. The court
C. The creditors
Explanation: In a CVL, if creditors and shareholders nominate different liquidators, the creditors’ choice prevails.
What must directors provide to begin a Members’ Voluntary Liquidation?
A. A profit forecast
B. A liquidation order from court
C. A list of members
D. A statutory declaration of solvency
D. A statutory declaration of solvency
Explanation: A declaration confirms the company can pay its debts in full within 12 months, required for an MVL.
What happens if a company disposes of property after a winding-up petition is presented but before the order is made?
A. The transaction is void under section 127 IA 1986
B. The creditor must approve it
C. The directors remain liable
D. The liquidator must ratify it
A. The transaction is void under section 127 IA 1986
Explanation: Any asset transfers after a winding-up petition are void unless the court orders otherwise.
Which of the following powers does a liquidator have?
A. Appoint a new board of directors
B. Sell company property and distribute proceeds to creditors
C. Cancel company shares and remove members
D. Merge the company with another
B. Sell company property and distribute proceeds to creditors
Explanation: The liquidator’s main role is to realise assets and pay creditors according to the statutory order.
In a compulsory liquidation, who is appointed immediately as liquidator by default?
A. The administrator
B. The company’s solicitor
C. The Official Receiver
D. A creditor’s nominee
C. The Official Receiver
Explanation: The Official Receiver becomes the default liquidator until another is appointed.
What is the main feature of a Creditors’ Voluntary Liquidation?
A. Initiated by court order
B. Shareholders pass a resolution but creditors control the process
C. Used only for solvent companies
D. Does not require a liquidator
B. Shareholders pass a resolution but creditors control the process
Explanation: A CVL starts with a shareholder vote, but creditors ultimately control the process and liquidator choice.
Which power allows the liquidator to reverse a transaction where the company gave away assets for no value?
A. s127 IA 1986
B. s244 IA 1986
C. s239 IA 1986
D. s238 IA 1986
D. s238 IA 1986
Explanation: This section enables a liquidator to challenge transactions at an undervalue made before insolvency.
Which of the following is a valid ground for the court to order liquidation under s122(1) IA 1986?
A. The company is unable to pay its debts
B. A director has resigned
C. A change in market conditions
D. The shareholders request increased dividends
A. The company is unable to pay its debts
Explanation: Inability to pay debts is the most common ground for a winding-up petition under s122(1)(f) IA 1986.
