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Summary SQE 1 and 2 Business Law Notes Summaries
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Corporate Insolvency:Company is insolvent if it is deemed unable to pay its debts:
1. A creditor has served a statutory demand for an outstanding sum of £750 or more, and the company does not pay this within 21 days of service.
2. A creditor has obtained judgement against the company and has tried to enforce that judgement, but the debt still has not been paid
3. it can be proved to the court that the company is unable to pay its debts as they fall due (cash flow test)
4. It can be proved to the court that the company’s liabilities EXCEED its assets (balance sheet test)
LIQUIDATION ADMINISTRATION ALTERNATIVES
Compulsory Creditors Members Company Voluntary Arrangements
Liquidation Voluntary Voluntary
Liquidation Liquidation CVA is a written agreement which binds all
parties. CVA creditors agree to wait longer to
What is where a third commenced by commenced by a where an administrator is appointed to run the company and make changes necessary receive what they are owed or accept part
it? party commences the company SOLVENT to improve financial performance. payment.
insolvency itself when it is company, because OR, aim to get company into a position where it can be sold.
proceedings insolvent, usually it wishes to cease Usually if company is fine, but undergoing cash
against the from pressure trading or its Statutory moratorium, meaning it is NOT possible for anyone to commence legal action flow difficulty. Aim is to prevent liquidation.
insolvent from creditors dormant and wants against company, without administrators consent.
company to bring affairs to an Schemes of Arrangement
end
Restructuring Plans
when is it when the company is unable to pay its debts. when the company wants to be RESCUED as a going concern. Aiming to achieve a
used? better resulting for the company’s creditors as a whole. If not, they sell for the best CIGA 2020
price. arrangement between company and creditors.
Court decides on plan at a court hearing, with
Powers? 1. Carrying on companys business 1. removing and appointing directors meetings between creditors and shareholders.
2. commencing and defending litigation 2. paying creditors If 75% vote, plan is approved.
3. investigating companys past transactions 3. calling meetings of creditors and shareholders
4. investigation directors conduct 4. dealing with property that is subject to floating charge Free-standing Moratorium
5. collecting and distributing the companys assets 5. dealing with property that is subject to a fixed charge (with permission from
6. doing all that is necessary to facilitate winding up court) Company is protected from actions by creditors
6. investigating and applying to have company's past transactions set aside or relating to pre-moratorium debts, but it must
challenged pay its moratorium debts in full.
7. commencing fraudulent or wrongful trading proceedings Lasts 2 business days.
20
Informal agreement with creditors
Court Route Out of Court Route
Process directors lose their powers and their appointments are
terminated. court can make an by Company or Directors By QFCH
Liquidator takes over running the company. administration order, if it
is satisfied that the purpose is to make it easier qualifying floating charge,
as liquidation progresses, liquidator will sell companys company is likely to to rescue a company where charge document
assets and distribute the money to the companys creditors. BECOME unable to pay states that they have the
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