Accountancy (Insolvency)
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This document summarizes key information about insolvency presented by three students - Nupur, Ritika, and Neha. It defines insolvency as when an individual or organization can no longer meet financial obligations. It outlines advantages of corporate voluntary arrangements, impacts of insolvency on directors and creditors, consequences of insolvency proceedings, types of government and personal insolvency, and debt restructuring processes. The document provides an overview of insolvency laws and procedures.
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Accountancy (Insolvency)
- 1. ACCOUTANCY INSOLVENCY AProjectWork…………
- 2. INTRODUCTION TO PRESENTERS NAME :NUPUR CLASS :B.COM (HONS) ROLL NO. :1405 COLLEGE :LBC NAME :RITIKA CLASS :B.COM (HONS) ROLL NO. :1245 COLLEGE :LBC NAME :NEHA CLASS :B.COM (HONS) ROLL NO. :1848 COLLEGE :LBC
- 3. MEANING OF INSOLVENCY When an individual or organization can no longer meet its financial obligations with its lender or lenders as debts become due. Insolvency can lead to insolvency proceedings, in which legal action will be taken against the insolvent entity, and assets may be liquidated to pay off outstanding debts.
- 4. ADVANTAGES They’re a great tool for extending or reducing debts that cant be repaid. They can help return a business to profitability, holding the creditors back while management do what’s needed to turn things around. All formal insolvency processes cause value to be lost, but CVAs lose less than others. Unlike other insolvency processes, you stay in control of the business. They’re less visible – but not entirely invisible – than other insolvency processes. CVAs are an incredibly flexible solution, they can contain anything you and your creditors agree.
- 5. IMPACT OF INSOLVENCY • We have outlined below, the effects of insolvency on the directors, advisers, secured and unsecured creditors, but also what actions each of those parties are likely to take when they suspect they are dealing with an insolvent company. • In the event of a company possibly being insolvent, each group of stakeholders should make themselves aware of some specific matters. These are outlined below. Directors • Section 588 G-Directors may be personally liable for debts incurred by the company if it trades while insolvent. • Section 588 V- A company may be liable for the debts of a subsidiary if it allows the subsidiary to trade while insolvent. • We have outlined below, the effects of insolvency on the directors, advisers, secured and unsecured creditors, but also what actions each of those parties are likely to take when they suspect they are dealing with an insolvent company. • In the event of a company possibly being insolvent, each group of stakeholders should make themselves aware of some specific matters. These are outlined below. Directors which are as follows in the next page:
- 6. Section 588 G-Directors may be personally liable for debts incurred by the company if it trades while insolvent. Section 588 V- A company may be liable for the debts of a subsidiary if it allows the subsidiary to trade while insolvent. Section 222 Of the Income Tax Assessment Act- A director may be held personally liable for unpaid taxes. Secured lenders. Insolvency is usually an event of default and may allow for the appointment of a receiver or voluntary administrator. Be aware that the value of the security is at risk. Security taken after a company is insolvent may be invalid, unless new monies are advanced. Unsecured creditors Section 588FA- Payment of accounts outside normal trading terms may be recovered as an unfair preference by a future liquidator if the liquidator can show that the creditor had a suspicion that the company was insolvent.
- 7. CONSEQENCES The principal focus of modern insolvency legislation and business debt restructuring practices no longer rests on the liquidation and elimination of insolvent entities but on the remodeling of the financial and organizational structure of debtors experiencing financial distress so as to permit the rehabilitation and continuation of their business. This is known as business turnaround or business recovery.
- 8. GOVERNMENT DEBT All governments would be in a state of insolvency unless they had assets equal to the debt they owed. If, for any reason, a government cannot meet its interest obligation, it is technically not insolvent but is "in default". As governments are sovereign entities, persons who hold debt of the government cannot seize the assets of the government to re-pay the debt. However, in most cases, debt in default is refinanced by further borrowing or monetized by issuing more currency.
- 9. DEBT RESTRUCTING • Debt restructuring is a process that allows a private or public company - or a sovereign entity - facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.
- 10. Insolvency regimes around the world have evolved in very different ways, with laws focusing on different strategies for dealing with the insolvent corporate. The outcome of an insolvent restructuring can be very different depending on the laws of the state in which the insolvency proceeding is run, and in may cases different stakeholders in a company may hold the advantage in different jurisdictions. LAWS
- 11. TYPES OF INSOLVENCY INSOLVENCY PERSONAL INSOLVENCY CORPORATE INSOLVENCY COMPANY VOLANTERY ARRANGEMENT
- 12. PERSONAL INSOLVENCY Bankruptcy • Bankruptcy can be achieved on a debtor or creditor's petition. Bankruptcy precludes an individual from being a director of a company. It also imposes certain restrictions on the bankrupt, not least the ability to obtain credit over £500.00 without first informing the supplier of that credit that the person is an undercharged bankrupt. • Bankruptcy remains very much the last resort on the basis that the bankrupt's estate vests in their Trustee in Bankruptcy on his/her appointment, this vesting includes any interest the bankrupt has in their matrimonial home. Individual Voluntary Arrangement ("IVA") • This is a contractual relationship under which a "Proposal" sets out what creditors will receive, i.e. a percentage of their debt over a period of time, in full and final settlement of their claim. In essence, it "ring fences" historical creditors and saves the individual from bankruptcy, unless the IVA fails. Informal Agreement • An informal agreement with creditors - is exactly as it sounds, creditors are approached and asked to agree a repayment plan spread over a period of time. The danger, of course, is that those creditors are not bound and can petition for bankruptcy at any time.
- 13. CORPORATE INSOLVENCY Liquidation • This can be a debtor driven Liquidation (Creditors Voluntary Liquidation) or a creditor driven Liquidation (Compulsory). A director's executive authority within the company is lost in liquidation, the Official Receiver or Liquidator is tasked with gathering in all the assets of the company and then paying a dividend to the creditors from those realizations. Administration • The popularity of the Administration process has arisen as a direct result of the Enterprise Act. It is appropriate where one or more of the following three purposes are achievable: • rescuing the company as a going concern, • achieving a better result for the company's creditors as a whole than if the company was wound up, and • realizing property in order to make a distribution to normal, secured or preferred creditors.
- 14. COMPANY VOLANTERY ARRANGEMENTS This is a contractual relationship between the company and its creditors under which the company "ring fences" those historical creditors and undertakes to pay them a percentage of their debt over a period of time, in a similar way to the IVA.
- 15. THANK YOU for watchingour presentation sincerely hope you allliked it.