Law

How to Pass the ACA Law Certificate Level Module: Mastering Insolvency Law for Your ACA Exam Success

Paradigm Shift

— 2 min read

Understanding insolvency law is essential for anyone preparing for their ACA exams. This field involves navigating complex processes that ensure businesses and individuals manage debt effectively. In this post, we will break down key aspects of insolvency law to help you solidify your knowledge and succeed in your exams.

1. Administration

Purpose:

  • Rescue the company as a going concern.
  • Achieve a better outcome for creditors than winding-up.
  • Realise assets to pay preferential or secured creditors if the first two aims are not feasible.

Appointment of an Administrator:

  • Can be appointed by the court or out of court.
  • The court ensures the company cannot pay its debts and that administration will likely achieve its purpose.
  • By company: Ordinary resolution and court application showing inability to pay debts.
  • By directors: Requires a majority decision, with notice to a Qualifying Floating Charge Holder (QFCH).
  • By creditors/QFCH: Application with notice to other QFCHs, including statutory declarations.

Duties of the Administrator:

  • Take control of company property.
  • File notice with the Registrar within 7 days.
  • Submit proposals to creditors and members within 8 weeks.
  • Ensure the administration process completes or extends within one year.

Consequences of Administration:

  • Administrator takes over directors’ powers.
  • A moratorium prevents winding-up resolutions and security enforcement.
  • The company continues to trade under the administrator’s management.

Advantages:

  • Temporary relief from creditors.
  • Potential for business recovery.
  • Creditors may receive returns; QFCHs can appoint an administrator without court involvement.

2. Charges and Receivership

Administrative Receiver:

  • Appointed by a floating chargeholder.
  • Extensive powers but limited since the Enterprise Act 2002.
  • Administration and CVAs are preferred.

Fixed Charge Receiver (LPA Receiver):

  • Appointed for land when the borrower defaults.
  • Collects rent or sells the property but does not need to be an insolvency practitioner.
  • Provides a quick remedy for lenders.

Relationship:

  • Administration overrides administrative receivership.
  • Fixed chargeholders need consent during administration.

3. Company Voluntary Arrangements (CVA)

Definition:

  • A debt arrangement where creditors agree to take a limited repayment or receive payment over time.
  • Can involve debt-equity swaps.

Procedure:

  • Initiated with a nominee (qualified insolvency practitioner).
  • Proposal reported to court, approval sought from creditors.
  • CVA binding on unsecured creditors but not on secured or preferential creditors unless agreed.

Moratorium:

  • Temporary suspension of actions against the company to prepare proposals.

Trading Continuity:

  • The company can continue trading, and creditors may renegotiate terms.

4. Liquidation

Types:

  • Members’ Voluntary Liquidation (MVL): Solvent winding-up initiated by members.
  • Creditors’ Voluntary Liquidation (CVL): Initiated when directors cannot declare solvency.
  • Compulsory Liquidation: Court-ordered following a petition by creditors or members.

Role of the Liquidator:

  • Settle contributories.
  • Collect and sell assets, settle debts, distribute any surplus.
  • File reports and obtain court orders for dissolution.

Avoidance of Charges:

  • Unregistered charges are void.
  • Transactions at undervalue and preferences scrutinised.

Priorities in Liquidation:

  • Costs and expenses.
  • Preferential debts (e.g., wages, pensions).
  • Floating charges.
  • Unsecured creditors.
  • Deferred debts and member distributions.

5. Personal Insolvency

  • IVA (Individual Voluntary Arrangement): Similar to CVA, helps individuals manage debt.
  • Bankruptcy: Equivalent to liquidation for individuals, involves asset distribution and discharge.

Next Steps

To deepen your understanding of insolvency law and excel in your ACA exams, make use of comprehensive study resources and practice with real-world examples. Consider subscribing to our tailored learning plan for expert insights and structured content: Explore Our Subscription Plan. This will support your learning journey and prepare you for exam success.

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