Workshop 9: Insolvency pt. 1 - Insolvency Procedures Flashcards
**Topic: Corporate Insolvency** - Introduction to Corporate Insolvency - Formal and Informal Arrangements - Administration and receivership - Liquidation - The statutory order of priorities **Topic: Personal Insolvency** - Personal Insolvency (187 cards)
1
Q
What are the two main formal insolvency procedures for insolvent individuals?
A
- Bankruptcy
- Individual voluntary arrangements (‘IVAs’)
2
Q
What kind of arrangement is an IVA?
A
Where a debtor makes a proposal for a compromise of their liabilities with their creditors
3
Q
What are the options a debtor may propose for an IVA?
A
The debtor
- Paying part of the contractual debt owed
- Having a longer period to pay than the contractual period
4
Q
Where is the debtor’s money paid out of in an IVA?
A
- Income
- Business
- Assets
- Combination of the above
5
Q
What are the requirements to be a Supervisor of the IVA?
A
A licensed insolvency practitioner must be appointed as IVA Supervisor
6
Q
What are the requirements to be a Supervisor of the CVA?
A
A licensed insolvency practitioner must be appointed as CVA Supervisor
7
Q
What is the role of the IVA Supervisor?
A
They supervise
- Debtor’s implementation and
- Compliance with terms of IVA
- Report to the court periodically
- Can apply to the court for directions
- HAs the right to petition for debtor’s bankruptcy subject to debtor’s failure of compliance with IVA terms
8
Q
What is the general duration of an IVA?
A
3-5 years is common in practice
But they can last any time
9
Q
What is included in the 3 steps of successfully setting up a binding IVA?
A
- Nominee (what the Insolvency Practitioner is known as at this stage) assists debtor with drafting proposal of compromise of liabilities and statement of their affairs
- Nominee submits report to court; whether proposal is reasonable in being approved
- Creditors approve of the proposal to become binding
10
Q
What is the effect of the court granting an order when a debtor applies to the court for an interim order?
A
Brings about a moratorium
11
Q
What is a moratorium?
A
A period where creditors are unable to take action to exercise their usual rights and remedies
12
Q
How much value of a debtor’s debt must a creditor hold for them to vote and the proposal become binding?
A
At least 75%
13
Q
When may a creditor’s vote of approval for a debtor’s IVA or CVA proposal be ineffective?
A
If more than half of the total value of creditors who are not associates of the debtors vote against it
14
Q
What are the effects of an approved IVA?
A
- Binds debtors and their unsecured creditors
- Nominee becomes IVA Supervisor
15
Q
What are some advantages of an IVA?
A
- Alternative to bankruptcy; avoids associated stigma and restrictions
- Binds unsecured creditors
- Moratorium available if interim order is made
16
Q
What are some disadvantages of an IVA?
A
- May last longer than bankruptcy
- Cannot bind secured or preferential creditor without their consent
- Can be expensive
- Can be time-consuming
- Uncertainty as to whether creditors will approve
17
Q
What is bankruptcy equivalent to in a business?
A
Liquidation
18
Q
How does bankruptcy begin?
A
Presentation of a bankruptcy petition, by either debtor or creditor
19
Q
What are the ‘grounds of petition’ for a creditor?
A
- The debt is a debt the debtor appears unable to pay or has no reasonable prospect of paying at the time of the presentation of the petition
- Debt owed is for an unsecured liquidated sum of over £5k
20
Q
Can the debtor a creditor is petitioning for bankruptcy be domiciled or present anywhere?
A
No - England and Wales
21
Q
What must the debtor accompany their petition with when filing for bankruptcy?
A
Statement of affairs
22
Q
What is a ‘statement of affairs’?
A
Full details of assets and liabilities
23
Q
What is the ‘bankrupt’ person prohibited/deprived from doing on the making of a bankruptcy order?
A
- Acting as director
- Being involved in management of company
- Obtaining credit of over £500 without disclosing bankruptcy
- Giving gifts
- Practising in certain professions
- Deprived of ownership of their property except for their reasonable domestic needs
24
Q
What are the two ways a debtor’s inability to pay their debts evidenced?
A
- A statutory demand that hasn’t been satisfied within 3 weeks from service of the demand or set aside by the court
- An unsatisfied execution of a judgement or other legal process
25
What must be satisfied for a bankruptcy order to be made at the discretion of the courts?
Satisfaction of the petition groups and having evidence of a debtor's inability to pay their debts
26
What is an immediate and automatic power of a Trustee upon the making of a bankruptcy order?
The bankrupt's estate vests in the trustee
27
What does it mean when the bankrupt's estate vests in the Trustee?
The bankrupt must give up possession/give access to assets to the Trustee
28
Do assets falling into the estate after the making of a bankruptcy order count as assets that must be vested to the Trustee?
Yes
29
What are some of the Trustee's statutory powers following the making of a bankruptcy order?
- To sell/otherwise deal with estate assets
- Carry on bankrupt's business
- Sell bankrupts assets
- Grant security over bankrupt's assets
- To disclaim onerous property or contracts
30
Which order must the Trustee distribute money in the bankrupt's estate?
In accordance with statutory order of priority for bankruptcies
31
**TRUE OR FALSE**
Trustee will ask creditors to prove their claims against the bankrupt
True
32
What must creditors who are claiming a dividend from the bankrupt's estate provide evidence of?
Of their claim against the bankrupt to prove their claim
33
Which order must the Trustee pay dividends to creditors in?
In accordance with statutory order of priority
34
What must the Trustee do proposing to pay a dividend to creditors?
Must give notice to creditors who have proved their debts, which includes:
- Stating amount of sale proceeds received from sale of estate assets
- Any deductions that have been made from proceeds
- Amount of dividend that they can expect to receive
35
Who determines the amount of the creditor's claim?
Who has the final say on the matter if the creditor does not agree with their determination?
Trustee
The court
36
What is the order of priority of payments for bankruptcy?
1. Secured creditors
2. Expenses of bankruptcy (incl. Trustee's remuneration)
3. Two tiers of preferential creditors
4. Ordinary unsecured creditors
5. Statutory interest
6. Debts of a spouse
7. Surplus payable to bankrupt
37
What are the bankrupt's duties to the Trustee to enable them to carry out their functions according to s. 333 of the Insolvency Act 1986? [Paraphrased]
a) give trustee informations of his affairs
b) attend on trustee at such times
c) do all such other things that are reasonably required
38
What is the effect of a bankruptcy discharge?
Bankrupt is released from most of bankruptcy debts and related restrictions (e.g., acting as director etc.)
39
Why may the Truee apply for an order to suspend the automatic discharge of the bankrupt?
If they fail to comply with their obligation under IA 1986
40
What is the usual time frame of a bankrupt being discharged from bankruptcy?
After a maximum of one year
41
When may the bankrupt be discharged in less than a year?
If Trustee files notice stating that the bankrupt does not required investigation
or that they have conducted such investigation within the one year period
42
What effect does a bankruptcy restriction undertaking (BRU) have?
Same as a bankruptcy restriction order ('BRO') if accepted
43
What is the effect of a 'bankruptcy restriction order/undertaking'?
Having the period of time whereby bankrupcry restriction extended
44
Why may the Secretary of State, or Trustee acting on SoS direction apply to the court for a BRO?
If the court considers it appropriate in the circumstances of the bankrupt's behaviour/conduct
45
What are some examples of behaviour in Schedule 4a IA 1986 the court will take into account when ordering for a BRO or BRU?
- Failure to keep records
- Entering into preferences or transactions at an undervalue
- Fraud
- Incurring debt without reasonable expectation of being able to pay it
46
How long will a BRO operate for?
Period of between 2 and 15 years
47
What is the bankrupt unable to do under a BRO or BRU?
Act as director or obtain credit of more than £500 without disclosing that they are subject to a BRO
48
When must the application for a BRO be made?
Within a year of the start of the bankruptcy
49
What is the aim of a Trustee exercising their power to challenge voidable transactions?
Aim of increasing assets available to creditors
50
What must the Trustee balance when challenging voidable transactions?
Balance costs and risks of litigation with chances of success in making recoveries for bankruptcy estate
51
What is meant by the 'Relevant Date'?
When the Enterprise Act 2002 came into force on 15 September
52
When is the 'Relevant Date'?
15 September 2003
53
What for ways does s.123 Insolvency Act 1986 describe a company being 'unable to pay their debts' as?
1. Unable to pay its debts as they fall due - known as the cash flow test
2. Has liabilities greater than its assets known as the balance sheet test
3. Does not comply with a statutory demand for a debt of over £750 (this provides evidence that the company is cash flow insolvent
4. Has failed to pay a creditor to satisfy enforcement of a judgment debt
54
What are the most important tests for gauging whether a company is insolvent?
Cash flow and balance sheet tests
55
When is a company designed as being insolvent?
When a company is unable to pay its debt
56
Who is responsible for continually reviewing the financial performance of a company in recognising it is facing financial difficulties?
Directors
57
What are some examples of 'financial difficulty' that directors must be aware of?
Where the company has
- Many unpaid creditors putting pressure to pay owed amounts
- Full drawn overdraft facility and bank is refusing further credit provisions by increasing the overdraft
- Company has loans and liabilities exceeding the value of its assets
58
Who is responsible for taking action on behalf of the company when facing financial difficulties?
Directors
59
What are the options directors have when faced with a company in financial difficulty?
1. Do nothing
2. Do a deal and reschedule debts with company creditors to allow less to pay or more time to pay
3. Appoint an administrator
4. Request appointment of a receiver
5. Place the company into liquidation
60
Can directors incur personal liability when the company they are directing becomes insolvent under the provisions of the Insolvency Act 1986?
Yes
61
What are examples of informal agreements following the insolvency of a company?
- Grant new or additional security
- Replace directors or senior employees
- Sell failing or profitable businesses to raise cash
- Reduce costs
- Issue new shares to creditors
62
What is issuing new shares to creditors also known as?
Debt for equity swap
63
What happens in a Standstill Agreement?
The creditors agree not to enforce their rights/remedies for a period of time to allow the company time to negotiate an agreement with them to resolve company's financial issues
64
Are informal arrangements regarding the solving of insolvency issues contractually binding or regulated by insolvency-related statutes?
They are contractually binding and not regulated by insolvency-related statutes
65
What does a moratorium do against a creditor in an IVA?
Freezes some of the following:
- Existing, proposed bankruptcy or proceedings
- Legal processes e.g., execution, landlord's right of peaceable re-entry and/or distress for rent
66
What are some actions a pre-insolvency moratorium can restrict against companies?
- Enforcing security against company's assets
- Stay of legal proceedings against the company
- Bar against bringing new proceedings
- No commencement of winding up procedures
- No commencement of administration
67
Who can commence administration or winding up or approve of shareholder's votes to wind up the company whilst the company is in a pre-insolvency 'moratorium'?
Directors only
68
What is the procedure for obtaining a pre-insolvency moratorium?
Filing documents at court
69
What documents must be filed at court when requesting a pre-insolvency moratorium?
- Statement that the company is or is likely to unable to pay its debts as they fall due
- Statement from licensed insolvency practitioner that a moratorium is likely to rescue company as a going concern
70
What is a 'Monitor'?
A licensed insolvency practitioner for the purposes of pre-insolvency moratorium
71
How long does the pre-insolvency moratorium last for?
20 business days
72
How many days can the initiaul 20 business day pre-insolvency moratorium be then extended to?
By a further 20 business days by directors
73
How can a pre-insolvency moratorium be extended beyond 40 business days?
Consent of requisite majority of creditors and/or court order
74
What is the maximum period of a pre-insolvency moratorium subject to court order?
One year
75
When will a pre-insolvency moratorium terminate automatically?
- If the company enters liquidation or administration
- When a Company Voluntary Arrangement is approved
- When a court sanctions restructuring plan or scheme of arrangement
76
What is the 'statutory repayment holiday'?
The period during the pre-insolvency moratorium where a company does not have to pay its pre-moratorium debts
77
What are pre-moratorium debts defined as?
Debts that had fallen due before or during the moratorium by obligation incurred before moratorium
78
What payments are to still be paid, even during the statutory repayment holiday?
- Monitor's remuneration or expenses
- Goods and services supplied during the moratorium
- Rent of a period during moratorium
- Wages, salary or redundancy payments
- Loans involving financial services
79
What is a CVA?
A compromise between a company and its creditors where creditors agree
- To part payment of debts owed and/or
- To new extended timetable for repayment
80
What must be done with the CVA proposal following its approval in accordance with IA 1986?
Be reported to court
81
**TRUE OR FALSE**
A CVA proposal must be approved by the court
False
It only needs to be reported to the court, there is no requirement for the court to approve it
82
Who is the CVA supervised and implemented by?
A Supervisor
83
Can a CVA be used in conjunction with administration or liquidation?
Yes
84
What are the 5 steps of setting up a CVA?
1. Directors (or administrator or liquidator if company in administration or liquidation) draft CVA proposal and appoint a Nominee
2. Directors submit CVA Proposal and statement of company's affairs to Nominee
3. Nominee considers CVA proposal and reports to court as to whether creditors and shareholders should be asked to vote on proposal in 28 days
4. Nominee must allow at least14 days for creditors to vote
5. Approval of CVA if
- at least 75% in value of debts owed of those voting vote in favour
- or simple majority
6. Nominee reports to court CVA has been approved
7. Nominee becomes Supervisor and Supervisor implements CVA proposal
85
Whose vote will prevail in a vote for CVA, if a dispute arises?
Creditors
86
Who is a CVA binding on?
All unsecured creditors, including those who did not vote or voted against it
87
What is the time period a creditor can challenge a CVA on the grounds of unfair prejudice or material irregularity?
Within 28 days of the CVA's approval
88
What are the grounds a CVA can be challenged?
- Unfair prejudice; the CVA treats one creditor unfairly compared to another
- Material irregularity relating to the procedure (e.g., the way creditor's votes were calculated)
89
What is the role of a CVA Supervisor?
- Agree to creditor's claims
- Collect unsecured funds to pay dividends
- Ensure company complies with its CVA obligations
- Send final report on CVA implementation to shareholders and creditors
90
What are the advantages of a CVA?
- Directors remain in control of the company
- Company can continue to trade subject to terms of CVA proposal
91
What are the disadvantages of a CVA?
Can't bind secured or preferential creditors without their consent
92
What may a CVA result in for landlords?
Is this a good result or not?
Heavily discounted rents and loss of income
Preferable than having empty properties with no income
93
Why may trade creditors tend to support CVAs?
Likely to recover more than if the company goes into administration or liquidation
94
What is the purpose of a 'Restructuring Plan' that was introduced by Corporate Insolvency and Governance Act 2020?
- To compromise company's creditors and shareholders and
- Restructure its liabilities so company can return to solvency
95
Who is the Plan only to be used by?
By companies which have or are likely to encounter financial difficulty
96
What is the name of the court approval required for a Plan?
A sanction
97
How is a Plan to be approved?
By at least 75% in value of those voting in each class
98
**TRUE OR FALSE**
Creditors and members must vote together
False
They are to be divided into classes and each class must be asked to approve the Plan
99
When does the Plan become binding?
When the court sanctions the Plan
100
Who does the Plan become binding on when the court sanctions it?
Binds all creditors, including secured creditors
101
What are the advantages of a Plan?
- Court can exclude creditors and shareholders from voting if they have no genuine economic interest in the company, even if affected by the Plan
- Can be used alongside pre-insolvency moratorium, administration and liquidation
- Can compromise the rights and claims of secured creditors and shareholders
- Binds all creditors, even if every class of creditor hasn't been included in majority approval
102
What groups can initiate a Plan?
- Company
- Creditor
- Member
- Liquidator
- Administrator
103
Can the court sanction the Plan even if one or more classes haven't approved it?
Yes
104
What is meant when administration is describe as a 'collective' insolvency procedure?
Because administrators are required to perform their duties in interests of the creditors as a whole rather than in the interest of a particular creditor
105
Who does an administrator owe their duties to?
Courts and creditors of the company
106
What qualifications must an appointed administrator have?
A licensed insolvency practitioner
107
What is the usual case of an appointment of administrator via the court procedure?
Where creditor has begun winding up proceedings against company and directors wish to appoint administrators before court has made a winding up order
108
When does the interim moratorium come into effect during application of administration?
How long does it last for?
On application to court
Last until either
- Administration order is made
- Court dismissed the application
109
What are the two ways an administrator may be appointed?
Which one is more common than the other?
1. Court procedure
2. Out of court procedure
Out of court more common
110
When may a court appoint an administrator?
When a company is or is likely to become insolvent, on application of company directors, creditor, supervisor of a CVA or a liquidator
111
What are the two ways an appointment of administrator can be done using an out of court procedure?
1. Directors appoint
2. Holder of a qualifying floating charge appoint
112
What is a Qualifying Floating Charge ('QFC')?
Floating charge which
a) relates to the whole (or substantial amount) of company's property and
b) gives power to the holder to appoint an administrator
113
What must a director appointment an adminsitration out of court under Para 22 do?
File a notice of their intention to appoint ('NOI') at court
114
When must the notice of appointment be file in court after the NOI has been filed with the court?
Within 10 business days after the NOI has been filed with the court
115
When does the administrators' appointment take effect when a director appoints them out of court under Para 22?
When the second notice is filed at court
116
What must a director do when their company has granted a QFC and wishes to appoint an administrator out of court when filing at court?
They must file the NOI at court and send the NOI to the holder of the QFC
117
What must the QFC holder do within 5 business days following their receipt of the NOI from the director of a company in administration process?
Appoint its choice of adminsitrator
118
What happens if the QFC holder does not appoint their choice of administrator within the 5 business days of receiving a NOI from a director of company in administration process?
The director can file NOI in usual Para 22 way and they choose their choice of administrator
119
How can a QFC holder appont an adminsitrator out of court?
1. Enforce its security in accordance with QFC terms
2. Appointment takes effect when it has filed a NOI at court
120
What is the process where there is more than one holder of a QFC?
Lower-ranking QFC holders must give two business days notice to hight-ranking QFC holders
121
When can the appointment of administrator take place where there are different ranking QFC holders?
When the higher-ranking QFC consents to the appointment
122
What is the status of a 2director whilst an administrator is in office?
They are still in office but are unable to exercise their management powers without the administrator's consent
123
What is the general fixed time limit for the completion of administrations?
12 months
124
What do an administrators powers include?
- Carry on business of the company
- Take possession and sell property of company (subject to fixed charge holders consent)
- Borrow money
- Execute documents in company's name
- Remove and appoint directors
- Dispose of property subject to floating charge
- Dispose of property subject to fixed charge (with courts consent)
- Bring proceedings against directors for fraudulent and wrongful trading
125
Can administrators exercise the power to pay dividends to unsecured creditors without obtaining court permission?
No
126
What is the general process of a administration once appointed within the first eight weeks?
1. Produce report setting out proposals, which may include:
- Proposals to restructure liability (eg., via scheme of arrangement)
- Restructuring plan
- CVA
2. Send to creditors for approval
3. If approved, administrator will proceed
4. If rejected, usually, company will be placed into liquidation
127
What happens if an administrator's proposals are rejected?
The company is usually placed into liquidation
128
What happens if an administrators proposals are approved?
Proposals proceed
129
What happens if an administrator's proposals are achieved?
Company will exit administration
130
What is a key benefit for a company during adminsitration?
Company has the full benefit of a moratorium
131
**TRUE OR FALSE**
All business documents and company's website must state that the company is in administration
True
132
What is a pre-packed sale in administration?
When business and assets of an insovlent company are prepared for sale to a buter before company enters administration
133
Why are pre-packaged sales advantageous for companies?
- Goodwill and continuity of the business are not damaged by the administration
- Certainty of results is achieved for creditors
134
What is receivership?
Enforcement procedure conduced in the interests of a secured crediot
135
What are there three main types of receivers?
1. Administrative receivers
2. Fixed charge receivers
3. Court-appointed receivers
136
What is the process of an administrative receivership?
Secured credit with fixed and floating chargers appoints AR to take control of secured assets, sell and use proceeds to repay owed debt
137
**TRUE OR FALSE**
Administration receivership is the most common procedure
False
It is now a rare procedure and prohibited in most cases
138
Does the receiver of an adminsitration receivership have to be a licnesed insolvency practioner?
Yes
139
Does the receiver of a fixed charger receivership have to be a licensed insolvency practitioner?
No
140
What is the purpose of a fixed charge recieverhsip?
To enforce security, manage and sell secured assets and use proceeds to repay debt
141
Who do fixed charge receivers primarily and exclusively owe their duties to during the receivership?
Appointer
142
Who do fixed charge receivers owe limited duties to during the receivership?
Debtor
143
What do the some of the powers a receiver has include?
- Ability to sell
- Ability to mortgage
- Ability to collect rents from secured assets
144
Which assets can a fixed charge receive become the receiver and manager of and be entitled to deal with?
Only of the assets secured by the security document
145
When can a fixed charge receive not be a ppointed?
Whilst a pre-insolvency moratorium subsists or if the company is in administration
146
Where are court-appointed receivers' powers and duties set out?
In the court order, as they are appointed by the court
147
When are the appointments of court-appointed receivers usually made?
- Where shareholders are locked in dispute
- Under the Proceeds of Crime Act 2002 and associated legislation
148
What is the typical responsibility of the court-appointed receiver?
To run the business until the dispute is determined
149
Can an interim moratorium prevent a QFC holder from appointing an adminsitrator?
No
150
Are creditors absolutely prohibited/limited from exercising he prohibited actions during an administrative moratorium?
No - only the court can consent to the creditor doing so
151
What is meant by the liquidation process meaning?
When a company's commercial life comes to an end
152
What is the liquidator's task?
1. Collect in company assets
2. Sell assets
3. Determine amounts owed to creditors after identifying them
4. Pay creditors a dividend out of sale funds
5. If there is a surplus, pay to shareholders in accordance with the Articles rights
153
What is a term used interchangably with 'liquidation'?
Winding up
154
When may solvent company be wound up?
If the purpose it was incorporated for has been fulfilled or
No longer needed as part of corporate group restructuring
155
How are creditors of the same rank to be paid proceeds from sale of business and assets during liquidation?
Pari passu, i.e., sharing on equal and proportionate basis based on assets that are available
156
What two categories of liquidation are there?
1. Compulsory liquidation
2. Voluntary liquidation
157
What two categories is voluntary liquidation subdivided into?
1. Members' voluntary liquidation
2. Creditors' voluntary liquidation
158
What does dissolution do?
Bring the company's life as a legal person/entity to an end
159
When does dissolution occur in a compulsory liquidation?
Three months after the liquidator has filed a notice with Companies Registry stating winding up has been completed
160
When does dissolution occur in either of the compulsory liquidations?
Three months after the liquidator has filed the final accounts and return with Registrar of Companies at CH
161
What are the steps for the court-based process for compulsory liquidation?
1. Applicant presents winding up petition to court
2. Court grants petition
3. Official Receiver becomes liquidator
162
What power does the Official Receiver have for the purposes of choosing a person to become the liquidator of the company in their place?
To summon separate meetings of the company's creditors and contributories
163
Who can be an applicant when applying to the court for a compulsory liquidation?
- Creditor
- Company itself
- Directors
- Administrator
- Administrative receiver
- CVA Supervisor
- Secretary of State for Business, Energy & Industrial Strategy
164
What are the grounds whereby the court can order for the winding up of a company?
Set out in s.122 of IA 1986
Include main/common ones
1. Company is unable to pay its debts
2. Just and equitable for the company to be wound up
165
What happens following the court's satisfaction of the grounds for a winding up order?
- Granting of an automatic stay on commencing/continuing proceedings against the company
- Automatic dismissal of all employees
- Directors lose powers and are automatically dismissed from office
166
Does a members voluntary liquidation require a court order?
No
167
Does a creditors voluntary liquidation require a court order?
No
168
The company subject to a members voluntary order must be
a) solvent
b) insolvent
Solvent
169
The company subject to a creditors voluntary order must be
a) solvent
b) insolvent
Insolvent (unable to carry on its business)
170
What resolutions are required for a company to go into CVL and appoint liquidator?
Special to put company into CVL
Ordinary to appoint liquidator
171
How is the decision for a company to go into members voluntary liquidation ('MVL')arrived at?
By special resolution
172
How does the winding up of a company due to its purpose expiration in the Articles happen?
Shareholders resolution
173
What resolutions are required for a company to go into MVL and appoint liquidator?
Special to put company into MVL
Ordinary to appoint liquidator
174
When does the winding up of the company commence on a MVL?
When the special resolution is passed
175
What must a liquidator do if they consider the company as being unable to pay its debts?
Must change the members winding up into a CVL
176
What are the consequences for directors making a declaration of solvency and not having reasonable ground for their opinion?
Liable to a fine or imprisonment
177
Which voluntary liqudation will a company go into if a directors declaration of solvency has not been made?
CVL
178
What must the directors of the company do within 14 days of the special resolution of a CVL being passed?
Ask company's creditors to either approve the nominated liquidator or choose their own
179
Whose nomination of liquidator takes precedence between a creditors and a company's shareholders in a CVL?
Creditors
180
Who starts the CVL?
Who controls the CVL?
Shareholders start by shareholders resolution
Under effective control of creditors, who choose the liquidator
181
Who are the powers and fiduciary duties of a company's directors passed onto during the liquidation process?
To the liquidator
182
What are the qualifications of a liquidator?
- Qualified insolvency practitioner or
- Official Receiver
183
What do the liquidator's powers to manage the company include as a part of Sch 4 IA 1986?
- Sell any of company's property
- Execute deeds and other documents in name of company
- Raise money on the security of company assets
- Appoint agent to do business liquidator is unable to do
- Carry on business of company to the extent necessary for beneficial winding up of the company
- Pay debts and compromise claims
- Commence or defend court proceedings in company's name
184
What kinds of transactions can a liquidator exercise their power to avoid in fulfilling their duty to preserve the company's property and maximise the value of the company assets?
- Disclaim onerous property
- Apply to court to set aside transaction at an undervalue or a preference
- Apply to court to set aside or vary terms of extortionate credit transaction
- Claim that floating charge for no new or inadequate consideration is invalid
- Apply to court to set aside transaction that will defraud creditors
185
What is the statutory order of priority of dividends to credits, assuming there is a QFC granted on or after the Relevant Date?
1. Liquidator's fees and expenses of preserving and realising assets
2. Amount due to fixed charger creditor out of selling fixed charge assets
3. Liquidator's other remuneration, costs and expenses
4. Preferential creditors
5. Creation of prescribed party fund (if available) for unsecured creditors
6. Amount due to creditors with floating charges
7. Unsecured/trade creditors
8. Interest owed to unsecured creditors
9. Shareholders
186
What is the 'prescribed part fund'?
A 'ring-fenced' money reserved for unsecured creditos and doesn't flow into the pocket of loating charge holders
187
How much of the company's net property is ring-fenced in a prescribed part fund?
50% of the first £10k and 20% thereafter up to a max of £600k for floating charges created before 6 April 2020 and £800k for floating charges created after
