Insolvency Exam Questions and Answers.

Insolvency Exam Questions with Complete Solutions When a director makes a Declaration of solvency before a member's voluntary liquidation, for how many months are they stating that the company will be able to pay it's debts? - Correct Answers: 12 months When is a company deemed to be unable to pay it's debts for the purposes of a compulsory liquidation? - Correct Answers: Where a creditor is owed at least £750 Which of the following persons or bodies can petition to the court for a compulsory liquidation? - Correct Answers: The company itself When a liquidator is appointed he becomes an agent of which of the following? - Correct Answers: The company On a compulsory winding up of a company, who will the court usually appoint? - Correct Answers: The official receiver When a company goes into a creditors voluntary winding up, what is the maximum number of persons that can be appointed to serve on the liquidation committee? - Correct Answers: 5 When a company goes into creditors voluntary winding up, who ultimately has the right to appoint the liquidator? - Correct Answers: Creditors Which of the following is not a ground d for compulsory winding up under the insolvency act 1986? - Correct Answers: The company has not paid a dividend during the last two years Which of the following is a preferential creditor when a company goes into liquidation? - Correct Answers: Arrears of holiday pay due to employees Which of the following ranks lowest in a liquidation? - Correct Answers: Trade creditors Which of the following cannot appoint an administrator directly? - Correct Answers: A creditor who is owed £800 Which of the following is not an immediate and automatic consequence of administration? - Correct Answers: All employees are made redundant Which of the following statements regarding an administrator are correct? - Correct Answers: An administrator is the company's agent & and administrator must act in the best interests of all the company's creditors An administrator can pay out monies to which of the following without court approval? - Correct Answers: Secured creditors & preferential creditors Where directors make a false statement of solvency prior to a member's voluntary liquidation, which of the following have they committed under the relevant legislation? - Correct Answers: A breach of criminal law with criminal penalties Which of the following requires court approval before the appointment of an administrator? - Correct Answers: Creditors Which of the following is not an automatic consequence of a compulsory winding up order against a public limited company? - Correct Answers: Liquidation is deemed to start on the date of the issuing order In which procedure does a liquidation committee operate? - Correct Answers: Compulsory liquidation & a creditors voluntary liquidation M. C M. What are the two types of voluntary liquidation? - Correct Answers: Members voluntary liquidation - solvent M. C C. What are the two types of voluntary liquidation? - Correct Answers: Creditors voluntary liquidation - insolvent The aim of administration is? - Correct Answers: To rescue the company so that it may continue as a going concern The aim of Liquidation is? - Correct Answers: To wind up the company and bring it's life to an end Type of resolution needed for voluntary liquidation where fixed duration of company expires or articles provide the company should be wound up? - Correct Answers: Ordinary resolution (>50%) Type of resolution needed for voluntary liquidation for all other reasons? - Correct Answers: Special resolution (>75%) During a creditors voluntary liquidation, does has the prevailing nominee in regards to naming a insolvency practitioner? - Correct Answers: Creditors What does a liquidator do? - Correct Answers: Takes business from directors & sells assets off in order to settle creditors & shareholders In a creditors voluntary winding up, how many members and creditors are appointed to serve on the liquidation committee? - Correct Answers: 5 What is the purpose of the liquidation committee? - Correct Answers: To act as intermediaries between the creditors, members and liquidator When does a compulsory winding up order occur? - Correct Answers: When a petition for a winding up order is presented to the court S. T. C. I. D S) Possible grounds of petition for winding up order? - Correct Answers: Company has passed a special resolution to be wound up by court S. T. C. I. D T) Possible grounds of petition for winding up order? - Correct Answers: Public company has failed to gain a trading certificate within 12 months of incorporation S. T. C. I. D C) Possible grounds of petition for winding up order? - Correct Answers: The business has not commenced trading within a year of being incorporated S. T. C. I. D I) Possible grounds of petition for winding up order? - Correct Answers: The business is insolvent as unable to pay debts S. T. C. I. D D) Possible grounds of petition for winding up order? - Correct Answers: Dissatisfied member may petition to court for winding up if just and equitable - i.e. majority shareholders completely ignore the minority How much money does a creditor have to be owed to be able to petition to the court for a compulsory winding up order? - Correct Answers: £750 outstanding for 3 weeks C. O. D. M. C. C) Who can petition to the court for a compulsory liquidation? - Correct Answers: The company itself C. O. D. M. C. O) Who can petition to the court for a compulsory liquidation? - Correct Answers: Official Receiver C. O. D. M. C. D) Who can petition to the court for a compulsory liquidation? - Correct Answers: Department for Business C. O. D. M. C. C) Who can petition to the court for a compulsory liquidation? - Correct Answers: Member ( member / shareholder) C. O. D. M. C. Cr) Who can petition to the court for a compulsory liquidation? - Correct Answers: Creditor who is owed at least £750 When is liquidation deemed to have started? - Correct Answers: When petition was first presented Effect of winding up? - Correct Answers: Debt recovery against company is stopped, floating charges crystallise and the company ceases to carry on business Liquidator must repay the debts in what order mnemnoic? - Correct Answers: F. E. P. F. U. I. M. Liquidator must repay the debts in what order? - Correct Answers: 1. Fixed Charge holders 2. Expense of Liquidation 3. Preferential creditors (wages / holiday) 4. Floating Charge holders 5. Unsecured creditors (inc. HMRC) 6. Interest 7. Members Administration is used as an alternative to - Correct Answers: liquidation Example of a business that is in financial difficulty but entered into administration to be run as a going concern? - Correct Answers: Football club? C. F. D. C) Who can appoint an administrator? - Correct Answers: Court after petition (from creditor, directors or company) C. F. D. F) Who can appoint an administrator? - Correct Answers: Floating charge holder C. F. D. D) Who can appoint an administrator? - Correct Answers: Directors or company itself C. R. P. D c) Consequences for administration? - Correct Answers: Creditors rights over the company are suspended C. R. P. D R) Consequences for administration? - Correct Answers: Retention of title clauses are suspended C. R. P. D P) Consequences for administration? - Correct Answers: Petitions for winding up are dismissed C. R. P. D D) Consequences for administration? - Correct Answers: Directors continue in office The administrator is what? - Correct Answers: The company's agent but must act in the interest of company's creditors What does the administrator have the power to do? - Correct Answers: Remove and replace directors and employees How long does administration last? - Correct Answers: Usually 12 months