Insolvency Exam Questions and Complete Solutions.

Insolvency Exam Questions with Complete Solutions What is the importance of legislation? (3) - Correct Answers: - to protect the rights of creditors as well as business owners - to outline the obligations of debtors - provide a fair and ordinary discharge of financial affairs when a debtor (individual or business) is unable to repay their debts. Who does bankruptcy apply to? - Correct Answers: Individuals What are 4 reasons for bankruptcy? - Correct Answers: - poor investments - overuse of credit cards - poor business management - being a garantor or guarantee for debts What governs bankruptcy in Australia? - Correct Answers: The bankruptcy act 1966 - commenwealth law Who steps in and helps a bankrupt indiviudal? - Correct Answers: The state will employ an administor from the Insolvency and Trustee service who will help manage your debtors and assets. What are the 2 types of bankruptcy? - Correct Answers: Voluntary and Involuntary How does voluntary bankruptcy happen? - Correct Answers: By a debtors petition - debtors declare themselves bankrupt How does involuntary bankrupty happen? - Correct Answers: Creditors petition -debtor owes $2000 or more -creditor can apply to have a debtor declared bankrupt What are the 4 acts of bankruptcy according to the Bankruptcy Act 1966? - Correct Answers: -informs creditor of inability to pay a debt owed -absconding (running away from debts, changing adress or leaving country) -Failing to pay an amount under a court order -Failing to submit a debtors petition after agreeing to do so What are the 7 impacts of Bankruptcy? - Correct Answers: - converts the creditors debts into rights - loss of nearly all property - the bankrupt cannot carry on a business or be a partner in a business -when borrowing credit, must inform the person that they are bankrupt and not borrow money over a set limit -may be prevents from certain fields of employment -must inform trustee of any chang in details like address, name -must apply to travel overseas How long does bankruptcy usually last? - Correct Answers: 3-5 years What are the 2 ways bankruptcy can end? - Correct Answers: Discharge - automatically occurs after 3 years and there are no objections Annulment - cancelled or set aside if the creditors agree or debts are paid or the court orders this What is insolvency governed by? - Correct Answers: The Corporations Act 2001 What is insolvency? - Correct Answers: When the company is unable to pay its debts as they become due. - the assets are not sufficient in amount to cover all the liabilities What is the main aim of insolvency law? - Correct Answers: To provide a fair and orderly process for disolving the company What are the 4 factors considered when deciding on insolvency? - Correct Answers: - When are the companies debts due and payable? - How liquid are the companies assers and how quickly can they be sold to pay debts? - What is the expected net cash flow from ongoing business activities? - What arrangements have been made with the company bankers and shareholders regarding future finance to assist with their liquidity problem? Wht are the 3 types of extenal administration for insolvent companies? - Correct Answers: - Voluntary Administration - Receivership - Liquidation Done by an independent, qualified insolvency practitioner who takes over the management of the insolvent company What is Voluntary Administration? - Correct Answers: When the company directors or creditors can ask for the appointment of a Voluntary Administrator to take over and investigate their affairs What is the aim of Voluntary Admnistration? - Correct Answers: To increase the possibility of continuing the company business in a successful way If this is not possible, they have two options: - enter into a deed of company arrangement - proceed to winding up the company