Insolvency

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  • Created by: Ambxr_K
  • Created on: 05-04-22 18:00
Insolvency
Co. unable to pay debts’ as fall due: S. 123 IA 1986. Business can't make enough income to pay debts. Definition of inability to pay debts: Letter of demand, no payment 3 weeks after. Financially insolvent co. can't be rescued / supported, so wound up.
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2 types of Liquidation
1. Compulsory liquidation: court ordered
2. Voluntary liquidation:
Members’ voluntary liquidation (company solvent)
Creditors’ voluntary liquidation (company insolvent).
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Corporate Rescue
Approaches through which an insolvent but viable company may be rescued / supported to overcome financial difficulties. Eg., Administration, Voluntary Arrangements, etc.
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Methods of dealing with companies in financial difficulties
Not end of company: Receivership, voluntary arrangements, administration orders

End of company: Winding up. Voluntary (by members/creditors) or Compulsory (by court).
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Receivership IA 1986,Part III s.29.




Alternatives to liquidation
Enforces debenture against Co. if default /other breach of covenant. Court or secured creditors under fixed charge (appoint a receiver) or floating charge (appoint an administrative receiver= receiver + manager). Only floating before Enterprise Act 2002.
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Powers of Receiver and Administrative Receiver
Receiver takes charge of & realises assets under fixed charge.
Administrative Receiver has wider statutory powers (IA 1986) to borrow money, carry on company's business, sell company's property, transfer business of company to a subsidiary= hiving down.
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Priority of Claims under Receivership
Expenses of selling the property or other realisation.
Receiver’s expenses.
Preferential debts.
Secured creditors.
Unsecured creditors pro rata.
Capital distribution if any left.
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Company Voluntary Arrangements (CVA)
s.1(1) IA1986.


Alternatives to liquidation:
‘Composition of co. debts or a scheme of arrangement of its affairs.’ Creditors & co. compromise.= part-payment in satisfaction of co. debts OR scheme of arrangements of its affairs (= postponement/ re-scheduling of debts payments pending business sale.
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Who can propose CVA?



How do you propose CVA?
Director. Liquidator. Administrator


Proposal must nominate a nominee.
Terms of CVA in proposal, statement of company affairs.
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CVA Nominee
In 28 days of proposal notice. Report to court. Set creditors’ meeting (decide CVA approval, special resolution (in value)). Set members’ meeting (Insolvency Rules 1986 apply, majority(in value)). CVA effective if meetings or creditors in favour.
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Compulsory liquidation
By court order s122 IA 1986
Petition to court made by s124 IA 1986: Company. Directors. Creditor. Contributor. Liquidator.
Grounds for compulsory liquidation: Company can't pay its debts. It's just & equitable to wind company up.
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Two types of Trading
-Fraudulent Trading S123 IA 1986

-Wrongful Trading s124 IA 1986
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Upon Insolvency
Insolvency practitioner like liquidator, receiver, administrator, supervisor (in voluntary agreements), or trustee (in bankruptcy) takes control over business & employees should apply to this person for relevant forms.
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Administration v liquidation




Similarities
Qualified insolvency practitioner appointed. They displace the company’s existing board of directors. Now manages the company.
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Who can apply for Administration Order?
the company
its director/s
its creditor/s
all or any of them
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The court will make an Administration order:
Satisfied that company likely to be unable to pay its debts
Admin order = reasonably likely to achieve its purpose  
A qualifying floating charge holder may appoint an administrator.
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Ending administration
Automatic: 1 yr after administration began;
may be extended by court.
On application by the admin.: where objectives have been achieved.
Where person stops being an admin. he's discharged from liability in respect of any of his actions as admin.
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Other cards in this set

Card 2

Front

1. Compulsory liquidation: court ordered
2. Voluntary liquidation:
Members’ voluntary liquidation (company solvent)
Creditors’ voluntary liquidation (company insolvent).

Back

2 types of Liquidation

Card 3

Front

Approaches through which an insolvent but viable company may be rescued / supported to overcome financial difficulties. Eg., Administration, Voluntary Arrangements, etc.

Back

Preview of the back of card 3

Card 4

Front

Not end of company: Receivership, voluntary arrangements, administration orders

End of company: Winding up. Voluntary (by members/creditors) or Compulsory (by court).

Back

Preview of the back of card 4

Card 5

Front

Enforces debenture against Co. if default /other breach of covenant. Court or secured creditors under fixed charge (appoint a receiver) or floating charge (appoint an administrative receiver= receiver + manager). Only floating before Enterprise Act 2002.

Back

Preview of the back of card 5
View more cards

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