Bankruptcy insolvency law Exam Questions with Complete Solutions.

Bankruptcy/insolvency law Exam Questions with Complete Solutions Objective of insolvency law - Correct Answers: 1. bankruptcy - protection from harassment - fresh-start balance debt to resources and earning capacity 2. winding up - preserve business partly - sanctions - corporate veil •Generally to both •Paripassuof creditors •Dealing fairly by secured creditors •Procedure for abuse What is the test of insolvency? - Correct Answers: 1. Balance sheet insolvency A net surplus or deficit in a person's assets and debts. -If there is deficit - that person is insolvent. In company context, its when investments have fallen in value ( even though still trading and paying its way) 2. Commercial Insolvency - not concerned with asset, but with liquidity. Based on cash flow. Person could have substantial assets but unable to pay debt. For company, it's when a wealth is tied up in property not readily realisable. 3. Ultimate Insolvency- final outcome of events. Debtor's assets have been sold •The outcome of if the assets were sold. •The *better* of the 3 = you have your debts and if everything you have have been sold --> turned into cash = you're considered ultimately insolvent if creditor receives less than 100p in the pound, estate was insolvent, Who can file a bankruptcy petition - Correct Answers: •Bankruptcy Ordinance (Cap 6) (BO) •Ss.3 - 11 S.3 - Who may present a bankruptcy petition. (1) A petition for a bankruptcy order to be made against a debtor may be presented to the court- (a) by one of the debtor's creditors or jointly by more than one of them; (b) by the debtor himself; (c) by the nominee of, or any person (other than the debtor) who is for the time being bound by, a voluntary arrangement proposed by the debtor and approved by his creditors; or (d) where a criminal bankruptcy order has been made against the debtor, by the Official Petitioner. if you're the debtor - u can only use s.10 •S.10 - (1) A debtor's petition may be presented to the court only on the ground that the debtor is unable to pay his debts. Procedure - Correct Answers: 1. Either creditor or debtor's petition 2. Court makes a bankruptcy order = official receiver becomes receiver of the bankrupt's assets 3. OR interviews the bankrupt 4. OR takes possession of bankrupt's assets and determines the amount of regular financial contributions he/she may be required to make 5. less than 200K = OR applies to court for summary procedure order and OR becomes trustee. no meeting of creditors - IF more than 200k assets, OR holds GM of creditors to consider appointment of trustee/creditors'committee 6. trustee raelises bankrupt's assets & collects regular financial contributions --> pays creditors bankrupt is normally discharged from bankruptcy 4 years after Bankruptcy Order s.6A of BO Know the statutory demand and how to satisfy - Correct Answers: in relation to s.6(C) grounds of creditor's petition (c) the debt..is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay; and s.6A: If a proper demand is not served/given - then there will be no demand = proceedings/procedure cannot be properly done First thing under s.6A in relation to demand - is that creditor must have done all that they can do/reasonably to notify debtor 2 cases Case 1 - Correct Answers: Re Wong Wai Chi - Money was owe by Wong to Bank of china -They sent a proper demand - demand to Mr. Wong in 2003 and tried to serve it -Found there's an error in the demand letter in terms of the amount -No acknowledgement at all from him -Then they advertise in chinesepaper and started proceedings -Wong argued there was no proper demand -Court: the bank did all that was necessary and all they could reasonable do and notifywongin this situation -b/c they did all that they can do as reasonable creditor -Therefore, demand advertised in news paper was considered as APPROPRIATE case 2 - Correct Answers: Fung Chau Won v HKCB Finance Ltd [2005] HKCU 215 In this case, there was creditor/debtor, when that was done, they issued it do old address Then debtor issued new address - if creditor searched it they'd find it But creditor didn't = in that situation, court HELD creditor did not do all that he could have done in relation to demanding = court held that it is not proper demand Know that it can start between creditor and debtor with amount of money owe more than 10k - Correct Answers: Grounds for creditor's petition A company or a person who is owed a sum of $10,000 or more by an individual or a firm may present a bankruptcy petition. (Section 6) Know the statutory demand and how to satisfy - Correct Answers: Rule 46 = all that is reasonable in relation to the demand you're making Rule 46 •"The creditor shall do all that is reasonablefor the purpose of bringing the statutory demand to the debtor's attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected." Rule 47 •(1) "The debtor may, within the period allowed by this rule, apply to the court for an order setting the statutory demand aside.(2) The period referred to in paragraph (1) is 18 days from the date of the service on him of the statutory demand or, where the demand is advertised in a newspaper pursuant to rule 46, from the date of the advertisement's appearance or (as the case may be) its first appearance." Effects of bankruptcy - Correct Answers: 1. If a petition order has started - it means that no other person can start action against One bankrupteralready started proceedings against you All the other creditors cannot start proceedings you/sue you etc 2. The Official Receiver becomes the provisional trustee 3. Control over assets 4. Restriction in practicing in certain profession and special notice if working in banking sector Duties of a bankrupted person - Correct Answers: Upon order and throughout the bankruptcy period. •Full cooperation with trustee. •Provide information of assets and financial dealings and any other information needed. •Stop using credit cards and accounts in banks. •Refrain from obtaining further credits/loans. •Communication with trustee. •Attend meetings. 1. You must deliver to OR your assets, attend the OR's office to provide info about your assets etc, fully corporate with OR/trustee throughout administration of bankruptcy, 2. Submit sworn statement of affairs to OR within 21 days of petition Rights of the creditors - Correct Answers: •To summon a general meeting of creditors for the purpose of appointment of trustee. •Obtain financial information of the bankrupt. •May request public examination of the bankrupt in open court. Discharging bankruptcy - Correct Answers: Four years - if no objection from the creditors or the Trustee. •S.30A(4) of BO Non-cooperation, unsatisfactory conduct, failure in preparing statements and information etc. •Extension will not exceed four years. It could last longer if you didn't cooperate or you broke the rules - may take longer than 4 years When does the 4 years starts? •S. 30A(10)(a) and s.30A(10)(b)(ii) of BO. •Rational of provisions: Re Hui HingKwok [1999] 3 HKC 683 at 687 The IVA ≠ bankruptcy - Correct Answers: •S.20H of the BO - State that a debtor can apply for an Individual Voluntary Arrangement ("IVA"). In IVA< You'll not be bankrupt and will still have chance of being bank manager etcand doing things you can't do if you're bankrupted But b/c if it is not bankruptcy proceedings, you'll not be entitled to the similar protection IVA is where you are saying I have a lot of creditors, I have difficulty paying debt and I don't want to be bankrupt = it is possible if you give me time and I pay my debts -Court is more mediating between you and all creditors -Usually creditors like this more b/c there may be bad debt if too long - creditors can lose money if you don't repay and can't repay -IVA is where they come tgtto conclude how to pay debt -If you breach IVA -They can sue you and then start bankruptcy proceedings -Creditor preserve right to sue and get money back under IVA (more advantageous) IVA procedure individual voluntary assessment - Correct Answers: 1.With assistance of nominee, debtor prepares a repayment proposal and applies to highcourt e hearing of application, nomiee submits report to high court 3. if interm order is granted = copy will be sent by debtor/nominee to Official Reciever OR asap 4. nominee holds meeting of creditors etc 5. if debtor's proposal accepted by majority = chairman reports to court within 7 days of meeting --> nominee implements voluntary arrangement + prepare annual reports to court, creditors, debtor --> once VA is compelted, nominee sends report to OR, creditors and debtor 5. if proposal not accepted, chairman reports to court within 7 days of meeting debtor cannot make a new applicatio in next 12 months •S.20K of BOprovides that the nominee may apply to the Court for directions in relation to any particular matter arising under the voluntary arrangement. - Correct Answers: •The role of the Court is limited to giving directions on matters relating to implementation and supervision. Winding up of companies - Correct Answers: