Corporate Insolvency
- Created by: KG1999!
- Created on: 29-08-23 17:35
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- Corporate Insolvency
- Proving insolvency
- Cash flow test 1. Add fixed assets and current assets together. 2. Add both figures in brackets (creditors plus their bank). 3. Extra - if debts are owing to you then it must be taken off the debt.
- Not usually used as the company can argue the figures are out of date and hard to get accounts info
- Sch B1 IA 1986 – provides that if the directors appoint an administrator then the point of insolvency is the time at which the notice of intention to appoint is filed at Companies House.
- Insolvency
- ss122-123 IA 1986 based on company's ability to pay debts
- For creditors to apply to wind up a company they need to be owed more than £750 s123(10(a) and must release a statutory demand, or if they send bailiffs round but fail to recover, if company is unable to pay debts when they fall (cash flow test)
- Directors' Duties
- Promote success - shift this to creditors rather than company i.e. recover as much as possible for them
- Wrongful trading - s214 IA - if they knew they were insolvent no reasonable prospect to avoid insolvent liquidation or administration. Defence would be that they took every step to avoid potential losses to creditors.
- e.g. professional advice, pursuing/collecting debts, instalments, full minutes, updating accounts, minimising expenses. resigning
- Misfeasance - not liable for company debts on liquidation as separate legal personality but they may be ordered to repay to compensate for wrongful exercise of authority.
- Liquidation
- Liquidator appointed, collects assets and reviews past transactions, distributes assets to the creditors, company disolves
- Company ceases to exist
- Compulsory = commenced by 3rd party, Creditors' voluntary = response to creditor pressure, Members' voluntary = still solvent want to cease trading
- Voluntary - directors swear stat dec they can pay debts, GM held to pass resolutions, file at CH, liquidator takes over, collects and distributes assets, final member meeting, company dissolved after 3 months.
- Creditors' - directors recommend to members, they pass SR to commence and OR to appoint liquidator, creditors' meeting within 14 days (may choose liquidator), assets collected and distributed, final member meeting, company dissolved after 3 months.
- Compulsory - winding up petition in court, advertised in gazette, court hearing and winding up order, official receiver is the liquidator, directors present statement of affairs within 14 days, liquidation proeeds, final return filed, company dissolved within 3 months.
- Priority of Charges: 1. Fixed charge/mortgage (even if floating created before), 2. More than 1 fixed charge comes in order of creation, 3. More than one floating charge over same assets priority of order of creation, registered charge = no priority
- Registering a charge
- Within 21 days after created - MR01 form to CH. If over land also at HMLR - fail to register = void against creditors
- MR01 and also name charge in favour of, whether floating, whether Co prohibited from further charges that rank higher, any land, whether over tangible or intangible property
- Removing a charge
- When repaid may make a stat dec that debt has been paid and send MR04. If charge is released or property sold you MUST submit the form
- Entries at HMLR need to be removed
- Proving insolvency
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