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SQE FLK 1 EXAM WITH COMPLETE SOLUTIONS 100% VERIFIED
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SQE FLK 1 EXAM WITH COMPLETE SOLUTIONS100% VERIFIED
What is the object of liquidation? - ANSWER To secure and realise the company's assets
and distribute them to the creditors.
What is Members Voluntary Liquidation and how does one commence it? - ANSWER
Company must be SOLVENT.
(1) Director's must make a statutory declaration that they can pay debts in full within 12
months after the commencement of winding up.
(2) 5 weeks later, special resolution to pass liquidation, ordinary resolution to appoint
liquidator.
(3) A notice of the special resolution must be in the London Gazette within 14 days of
being passed.
(4) Director's declaration must be delivered to the registrar within 15 days after the
resolution was passed.
What is a creditor's voluntary liquidation and how is it commenced? - ANSWER SR to
commence the CVL, and OR to appoint the liquidator (which is chosen by creditor).
CVL will be commenced where the directors statutory declaration (that the company
can pay its debts within 12 months from liquidation) is wrong or not filed.
When is a company treated as unable to pay their debts? - ANSWER - Statutory demand
for more that £750 has been unpaid for 21 days.
- Unpaid judgement debt
- Inability to pay debts as they fall due (cash flow test)
- Companies liabilities exceed their assets (balance sheet test)
,What are the consequences of winding up/ liquidation? - ANSWER Automatic stay of
proceedings, all employees automatically dismissed, directors loose powers and are
automatically dismissed from office.
What are the grounds for liquidation? - ANSWER - Inability to pay debts and just and
equitable to be wound up
Who can petition for compulsory liquidation? - ANSWER - Creditors, Company,
Directors, Administrator, Administrative Receiver, Supervisor of CVA, Secretary of
State for Business (on public policy grounds)
What is the statutory order of priority? - ANSWER (1) Fixed charge assets (pay off the
liquidators costs of preserving and realising the asset and the fixed charge creditor)
(2) Other liquidator fees and expenses
(3) Preferential creditors
(4) Prescribed part fund
(5) Floating charge asset holders
(6) Unsecured creditors
(7) Interest on debt
(8) Shareholders-usually preferential shareholders before ordinary
What is the prescribed part fund? - ANSWER Liquidator ringfences some money for
unsecured creditors, from any Qualifying Floating Charge Holder, i.e a creditor who has
a charge over most of the assets, to form part of the prescribed part fund.
Note, if a QFCH's debt is not paid off, they will be a unsecured creditor, but cannot claim
from the prescribed part fund.
What is a preferential Creditor? - ANSWER (1) First tier: employees for remuneration
due in the 4 months before winding up, subject to a maximum of £800 (any money above
this makes them an unsecured creditor)
,(2) Second tier: crown debts, PAYE, employee national insurance, tax, VAT.
When do you get a VAT refund from HMRC? - ANSWER When input VAT on supplies is in
excess of your output VAT, when you sell.
What is a defence to wrongful trading? - ANSWER That the directors took EVERY STEP
to minimise potential losses to the company's creditors based on their knowledge, skills
and experience, and that which may be REASONABLY expected of persons carrying out
the same functions.
<Objective Test-cum-Subjective test>
What are the elements of the offence of fraudulent trading? - ANSWER Any person who
is knowingly party to the carrying on of any business of a company with an INTENT TO
DEFRAUD creditors, for any fraudulent purpose.
This is judged subjectively.
What are the elements of the civil offence of wrongful trading? - ANSWER (1) At some
point before liquidation/ administration (point of no return), directors knew or ought to
have concluded there was NO REASONABLE PROSPECT of avoiding liquidation/
administration, and they continued trading which worsened the companies position.
(Insolvency is the balance sheet test; liabilities exceeds assets)
When can a liquidator or administrator claw back a transaction at an undervalue? -
ANSWER (1) Gift/ unequal consideration
(2) Made 2 years prior to insolvency
(3) Insolvent (insolvency is presumed with a connected person)
What is a defence to transacting at an undervalue? What if the transaction was made
, with a connected person? - ANSWER Transaction was entered in GOOD FAITH and
there was reasonable grounds for believing the transaction would BENEFIT THE
COMPANY.
If the transaction was entered into with a connected person, or a person who had notice
of the circumstances of insolvency, there will be a presumption that the transaction was
NOT entered into with good faith. In those circumstances, the onus will shift to the
subsequent purchaser to show that they acted in good faith.
What are the sanctions for TUV? - ANSWER The court can make any order it thinks fit
which will restore the company to the position as if it had not been made. An order
should not prejudice a purchaser who acted in good faith (remember, this won't apply
where they are connected or knew of insolvency)
When can a liquidator or administrator claw back money that has been given as a
preference? - ANSWER (1) The act was performed within the relevant time of 6 months
(or 2 years to a connected person);
(2) Insolvent
(3) Company was influenced by a DESIRE to prefer the creditor (subjective) (this is
presumed where the preference was given to a connected person)
What does the liquidator/ administrator need to establish in order to set aside a new
floating charge? - ANSWER (1) Floating charge must have been created within the
relevant period of one year pre- insolvency (or two years for connected persons)
(2) Insolvent (no need where there is a connected person)
When will a new floating charge be valid, even when made in the relevant time before
insolvency? - ANSWER If the floating charge is new money or fresh consideration is
provided.
In respect to overdrafts, every time the company draws on the overdraft this is
considered new money, and will be new debt.
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