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Business Law > W9: Corporate Insolvency > Flashcards

W9: Corporate Insolvency Flashcards

(60 cards)

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1
Q

What are the approval requirements for a Restructuring Plan?

A

The Plan must be approved by 75% in value of each affected class of creditors and shareholders

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2
Q

Main 2 tests for insolvency

A

cash flow test and balance sheet test

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3
Q

debt for equity swap

A

issue new shares to the creditors

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4
Q

How does a standstill agreement work?

A

the creditors agree not to enforce their rights or remedies for a specified time period to give the company and the creditors some time in which to negotiate a contractual arrangement to resolve the company’s financial problems

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5
Q

When should a pre-insolvency moratorium be used?

A

for financially struggling companies that are not in a formal insolvency process

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6
Q

Benefits of a pre-insolvency moratorium

A

Buys time to reach an informal agreement or as a preliminary step to proposing a CVA, restructuring plan or scheme of arrangement

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7
Q

Monitor

A

licensed insolvency practitioner

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8
Q

What docs does a company need to file at court to obtain a pre-insolvency moratorium?

A

A statement that the company is, or is likely to become, unable to pay its debts as they fall due

A statement from a monitor, stating that in their view, it is likely that a moratorium will result in the rescue of the company as a going concern

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9
Q

How long does a pre-insolvency moratorium last?

A

20 business days, directors can then extend for another 20 business days

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10
Q

Max period for pre-insolvency moratorium

A

1 year subject to a court order to extend further

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11
Q

When will a moratorium automatically terminate?

A

if the company enters liquidation or administration, or if a CVA is approved, or a court sanctions a restructuring plan or scheme of arrangement

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12
Q

Which pre-moratorium debts must still be paid during the pre-insolvency moratorium?

A

The Monitor’s remuneration;
Goods and services supplied during the moratorium;
Rent;
Wages, salary or redundancy payments;
Loans under a contract involving financial services (eg bank loans)

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13
Q

Does a CVA proposal require court approval?

A

No, there is no requirement for the court to approve the CVA but the court must be informed of it

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14
Q

Who can initiate a CVA?

A

directors, liquidators and administrators

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15
Q

Who is bound by a CVA?

A

all unsecured creditors

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16
Q

Who is not bound by a CVA?

A

preferential and secured creditors are not bound without consent

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17
Q

Who is bound by a Restructuring Plan?

A

all creditors and shareholders

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18
Q

Limitation on restructuring plan

A

requires court approval, which can be a costly and time-consuming process

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19
Q

Approval required for a Restructuring Plan

A

court approval or at least 75% in value of each affected class of creditor/shareholder

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20
Q

How can a creditor challenge a CVA?

A

A creditor can challenge a CVA within 28 days of the CVA’s approval by creditors being reported to the court on the grounds of ‘unfair prejudice’

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21
Q

How are CVAs used?

A

to reach a compromise with creditors, particularly landlords to agree a reduction in rent so the company can continue trading

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22
Q

Advantages of a CVA

A

directors remain in control of the company, and the company can continue to trade subject to the terms of the CVA proposal with the hope of the company surviving as a going concern

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23
Q

Who is bound if the court approves a Restructuring Plan?

A

it binds all creditors including secured creditors

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24
Q

A cross class cramdown

A

1 rank of creditor can force the Plan on another class of creditor who has voted against the Plan

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25
Main aim of administration
rescue the company as a going concern
26
Who can apply for administration?
the company, the directors, a creditor, the supervisor of a CVA or a liquidator
27
2 out of court procedures for the appointment of administrators
1. the directors or the company may appoint an administrator out of court 2. a holder of a qualifying floating charge (“QFC” ) may appoint an administrator out of court
28
How is an administrator appointed?
A notice of appointment must be filed in court within 10 business days after the notice of intention has been filed with the court. The administrators' appointment takes effect when the second notice is filed at court.
29
Process for a holder of a QFC to appoint an administrator
The directors file the NOI at court and send the NOI to the holder of the QFC. The QFC has 5 business days to appoint its own choice of administrator. If the QFC does not do so, the directors can file the notice of appointment in the usual way and the directors' choice of administrator is appointed.
30
What kind of creditor is a landlord?
landlord = unsecured creditor
31
When an administrator is in office, can the directors exercise their management powers?
directors are unable to exercise any of their management powers without the consent of the administrator
32
Can administrators pay a dividend to unsecured creditors?
Yes but they need court permission
33
Time limit for administration
12-month fixed time limit
34
Requirements for the administrator's proposal
after appointment, an administrator has up to 8 weeks to produce a report setting out proposals for the administration which may include proposals to restructure liabilities through a scheme of arrangement, a restructuring plan or a CVA . This is sent to all creditors for their approval.
35
What happens if the administrator's proposals are rejected?
the company will usually be placed into liquidation
36
During administration, the company has the benefit of a
full moratorium
37
Key things that cannot happen while the company has a full moratorium
No order or resolution to wind up the company can be made or passed No legal proceedings can be commenced or continued against the company or its property; A landlord cannot forfeit a lease of the company’s premises;
38
Administrator has the power to do
'all such things as may be necessary for the management of the affairs, business and property of the company'
39
Can administrators enter into a pre-packaged sale of the company with the company's directors or shareholders?
Yes, only if the sale has been approved in advance by the creditors or the buyer has obtained an evaluator's qualifying report, which must be sent to Companies House and all creditors
40
How does receivership differ to administration?
Receivership is an enforcement procedure which is conducted in the interests of a secured creditor
41
Who appoints a fixed charge receiver?
appointed by the holders of a fixed charge and they owe their duties primarily and exclusively to the appointor
42
When can a fixed charge receiver not be appointed?
while a pre-insolvency moratorium subsists or if the company is in administration
43
pari passu rule
All unsecured creditors rank and abate equally
44
2 key grounds on which the court can order a company to be wound up
1) the company is unable to pay its debts; and 2) it is just and equitable for the company to be wound up
45
Members' voluntary winding up (MVL) can only be used for
solvent companies
46
Resolutions required for members to place the company into MVL
special resolution to place the company into MVL and ordinary resolution to appoint a liquidator
47
On a MVL, if the liquidator considers that the company will be unable to pay its debts, they must change the members' winding up into a
creditors’ voluntary liquidation
48
Resolution to place a company into either MVL or CVL
special resolution
49
Resolution to appoint a liquidator
ordinary resolution
50
most common ground for winding up petition
inability to pay debts
51
For statutory order of priority, security ranks in the order of
creation, not date of registration
52
Where do employees rank in statutory order of priority?
within preferential creditors - Tier 1 unsecured creditors
53
Where is HMRC ranked in statutory order of priority?
within preferential creditors - Tier 2 unsecured creditor
54
Employee claims for unpaid remuneration due in the 4 months before the “relevant date” are capped at
max £800 per employee plus accrued holiday pay
55
Floating charge creditors are paid out of the
prescribed part fund
56
Who is paid last in the statutory order of priority?
shareholders
57
Can you commence administration or a winding up procedure during a pre-insolvency moratorium?
No, it is designed to give the company a breathing space to sort out its finances
58
Relevant time period for a TUV
the challenge period is two years before the commencement of the insolvency process
59
What do transactions as a preference involve?
to be a preference, the recipient must be placed in a better position as a result of the payment, there must be a desire to pay the creditor over others (unless they are a connected person) AND the payment must have been made within 6 months of the insolvency
60
When

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