Deck 20: Managing a Business: Closing Down

Question 1

Receivership:

A)involves winding up a company.
B)indicates that the life of the business is coming to an end.
C)occurs when a person is appointed to manage an asset with a view to realising the asset and repaying a debt.
D)involves liquidating a company.

Answer 1

C

Question 2

A 'debtor's petition' is:

A)an application by an insolvent person to make themselves bankrupt voluntarily.
B)an application by one or more creditors for an order that the debtor be made bankrupt involuntarily.
C)an application by an insolvent person to oppose an application for bankruptcy.
D)an application by a secured creditor that a debtor's company goes into receivership.

Answer 2

A

Question 3

Lodging a declaration of intention to present a debtors petition is not a good option for a debtor who wants to:

A)take some time to negotiate with creditors.
B)have a short cooling off period to consider her options.
C)stop creditors from taking action to recover a debt for 7 days.
D)prevent a creditor from proving at a later stage that it is appropriate for the debtor to be made bankrupt.

Answer 3

D

Question 4

To qualify to make a creditor's petition, which of the following requirements need not be satisfied?

A)The creditor needs to be owed the statutory minimum amount of money.
B)The debtor must have committed an 'act of bankruptcy'.
C)The act of bankruptcy must have occurred within the last 6 months.
D)The creditor making the petition must be a secured creditor.

Question 5

In the context of bankruptcy law, 'voidable transactions' include:

A)free or less than market value property transfers to non-related entities in the two years prior to bankruptcy.
B)all transfers of property made in the five years prior to the bankruptcy if the transferee is unable to prove that the bankrupt was insolvent at the time.
C)transfers of property made to relatives or friends for consideration less than market value within the four years prior to bankruptcy.
D)transfers of property that were made when the bankrupt was solvent that have the effect of giving a creditor an unfair preference.

Question 6

After a sequestration order has been made the trustee in bankruptcy does not have an obligation to:

A)consider whether the bankrupt has committed any offences under the Bankruptcy Act 1966 (Cth).
B)determine whether the bankrupt has, in the past, made transfers of property that ought to be reversed.
C)notify creditors of the bankruptcy and evaluate what can be sold to pay debts.
D)give priority to the repayment of debts owed to members of the bankrupt's family.

Question 7

The bankruptcy process is initiated by means of:

A)an insolvent person's petition.
B)a secured creditor's petition.
C)a creditor or a debtor's petition.
D)the official receiver or trustee's petition.

Question 8

A 'sequestration order' is an order of the Court declaring:

A)an individual to be bankrupt.
B)a business to be under receivership.
C)the appointment of a liquidator to wind up a company.
D)the deregistration of a company.

Question 9

The Official Receiver of a bankruptcy district is not responsible for:

A)managing the assets of insolvent businesses.
B)issuing bankruptcy notices.
C)accepting debtor's petitions.
D)collecting and liquidating assets.

Question 10

Which of the following documents need not be filed with the Official Receiver at Insolvency and Trustee Service Australia (ITSA) in order for a person to become bankrupt voluntarily?

A)A personal insolvency agreement.
B)A debtor's petition.
C)A statement of affairs.
D)A formal acknowledgement that the debtor has read the prescribed information.

Question 11

A 'bankruptcy notice' is:

A)an order of the court declaring a person to be bankrupt.
B)a notice by the trustee in bankruptcy calling upon creditors to lodge a proof of debt
C)a notice to customers of the bankrupt person informing them of the bankruptcy.
D)a demand for repayment of a debt in the prescribed format, a failure to comply with which will be an act of bankruptcy.

Question 12

Bankruptcy proceedings are heard by:

A)the District Court.
B)the Federal Court.
C)the Supreme Court.
D)the High Court.

Question 13

On being made bankrupt, all the bankrupt person's assets will automatically vest in:

A)the trustee in bankruptcy.
B)the bankrupt.
C)the Federal Court.
D)the petitioning creditor.

Question 14

Which of the following categories of persons is not generally entitled to appoint a receiver?

A)An unsecured creditor
B)The holder of a floating charge over all of the business assets
C)A mortgagee
D)A secured creditor

Question 15

What is the role of the trustee in bankruptcy?

A)To manage a business when a secured debt remains unpaid.
B)To sell charged property on default by a debtor.
C)To sell a person's assets to repay their debts.
D)To manage property on behalf of the beneficiaries to a deed of bankruptcy.

Question 16

The idea that a bankruptcy is deemed to have commenced on the date of the first Act of bankruptcy within the 6 months prior to the presentation of the creditor's petition is a statement of the doctrine of:

A)relation back.
B)sequestration.
C)voidable transactions.
D)unfair preferences.

Question 17

The process in which a trustee is appointed to sell an individual's assets to repay their debts is called:

A)foreclosure.
B)receivership.
C)liquidation.
D)bankruptcy.

Question 18

What is the main objective of a receiver?

A)To better manage a business and get it out of trouble.
B)To sell the assets of a business and generate as much money as possible.
C)To manage a business and deal with its assets in a way that will enable it to repay a debt owed to the creditor by whom they were appointed.
D)To wind up the business.

Question 19

A person who is unable to pay their debts as and when they fall due is:

A)insolvent.
B)liquidated.
C)bankrupt.
D)broke.

Question 20

Which of the following is not a usual consequence of bankruptcy for the bankrupt person?

A)The person will remain bankrupt for a minimum of 10 years.
B)The person's name will be on the public bankruptcy record.
C)The person will usually be obliged to advise providers of credit that they are bankrupt.
D)The person will be prohibited from managing a company or from holding public positions without permission.

Question 21

Which of the following legal entities, if insolvent, may be 'liquidated'?

A)A sole trader
B)A partnership
C)A company
D)Any form of business

Question 22

What is a 'Part IX debt agreement'?

A)An alternative to bankruptcy
B)A bankruptcy offence
C)A voidable transaction
D)An unfair preference

Question 23

A 'void charge' is a charge granted by the company that is:

A)not enforceable against a liquidator.
B)voidable.
C)reversible.
D)uncommercial or unfair.

Question 24

What is the legal effect of the death of a partner?

A)The partnership comes to an end.
B)The partnership remains unchanged.
C)The partnership becomes illegal.
D)The partnership is wound up.

Question 25

A document prepared by a creditor that sets out the amount owed by the debtor and is lodged with the trustee in bankruptcy is called a:

A)bankruptcy notice.
B)proof of debt.
C)creditor's petition.
D)debtor's petition.

Question 26

A company can be wound up voluntarily by its:

A)employees.
B)directors.
C)shareholders.
D)CEO.

Question 27

Which of the following is not one of the rights and obligations of the trustee in bankruptcy?

A)To become the legal owner of all of the bankrupt's assets.
B)To take ownership of any of the bankrupt's property that is acquired by the bankrupt after the commencement of the bankruptcy.
C)To take control of all of the bankrupt's money and superannuation already paid to her.
D)To become the legal owner of any property disposed of by the bankrupt to family members in the 4 years prior to bankruptcy.

Question 28

Which of the following statements is not true of 'voluntary administration' under the Corporations Act 2001?

A)It refers to a voluntary winding up by a company's shareholders.
B)It provides the company a temporary 'safety zone' away from creditors.
C)It commences when an administrator is appointed.
D)It is an alternative to liquidation.

Question 29

Trustees in bankruptcy have extensive powers, but they cannot request the official receiver to:

A)personally release the bankrupt from particular debts where not to do so would be harsh and oppressive to the bankrupt.
B)summons a person to produce documents relating to the bankrupts affairs.
C)summons a person to give evidence relating to the bankrupt.
D)issue a search warrant providing access to premises and books relevant to the bankruptcy.

Question 30

How does liquidation differ from bankruptcy?

A)They are the same thing.
B)Companies are liquidated; individuals are made bankrupt.
C)Liquidation is not a formal legal process whereas bankruptcy is.
D)All businesses can be liquidated but not all business can be made bankrupt.

Question 31

What is the difference between a Part X personal insolvency agreement and a Part IX debt agreement?

A)Only a Part X agreement is a true alternative to bankruptcy
B)The Part X agreement caters to larger estates than the Part IX agreement
C)The Part IX agreement costs more to set up than the Part X agreement
D)Only the Part IX agreement is lawful

Question 32

'Winding up' is a statutory process whereby:

A)a receiver is appointed to manage a business in a way that will enable it to repay the debt owed to the business's creditor by whom they were appointed.
B)an insolvent individual's assets are sold to repay their creditors.
C)an insolvent company's assets are sold to repay the company's creditors.
D)an insolvent business's assets are sold to repay the business' creditors.

Question 33

When a bankrupt's assets are distributed amongst their creditors, which of the following groups of people are paid last?

A)Secured creditors
B)Unsecured creditors
C)Employees
D)The trustee

Question 34

What should the secured creditor of a company do when the company is being wound up?

A)Sell the security
B)Forgive the debt
C)Negotiate a debt repayment plan
D)Appoint a receiver

Question 35

The process of liquidating a company involuntarily is usually initiated by:

A)a creditor.
B)a debtor.
C)a shareholder.
D)a director.

Question 36

In the context of bankruptcy laws, an 'unfair preference' is:

A)the payment by a debtor of amounts owed to one creditor at the expense of the other creditors.
B)a payment of money by the bankrupt to a person with a close connection to the bankrupt individual (e.g.a partner, spouse or child) in the four years prior to bankruptcy.
C)any voidable transaction.
D)a transfer of property or payment to a related entity in the four years prior to bankruptcy.

Question 37

It is simpler to sell a business if the business structure is a:

A)company.
B)sole trader.
C)trust.
D)partnership.

Question 38

Another name for liquidation is:

A)receivership.
B)bankruptcy.
C)deregistration.
D)winding up.

Question 39

Which of the following acts on the part of a bankrupt person is not a bankruptcy offence?

A)Giving an unfair preference 2 years prior to becoming bankrupt.
B)Borrowing more than a prescribed amount of money without disclosing their status as an undischarged bankrupt.
C)Becoming a director of a company without court permission.
D)Gambling money in the 2 years prior to becoming bankrupt.

Question 40

A liquidator can reverse a transaction entered into by a company if it is a voidable transaction.However, there will be no obligation on the part of the payee under such a transaction to repay money to the liquidator if the transaction was:

A)an insolvent and uncommercial transactions.
B)made in good faith for valuable consideration when there was no reason to believe the company was insolvent.
C)an insolvent transaction with a related entity.
D)an unfair loan.

Question 41

A retiring partner's liability for debts of the partnership is limited to:

A)debts which they incurred personally.
B)debts incurred while they were a partner.
C)debts incurred with their express (and not implied or apparent) authority.
D)secured debts.

Question 42

A receiver:

A)oversees the winding up of a company.
B)manages the debtor's assets or business with a view to ensuring repayment of the debt.
C)distributes the estate of a bankrupt individual.
D)is the same thing as a liquidator.

Question 43

An administrator investigates the company's circumstances and advises the:

A)directors.
B)shareholders.
C)creditors.
D)debtors.

Question 44

Which of the following can be declared bankrupt?

A)A partnership
B)A sole trader
C)A proprietary company
D)A public company

Question 45

A voluntary winding up of a company officially commences when:

A)the company becomes insolvent.
B)the shareholders pass a special resolution to the effect that the company should be wound up.
C)the shareholders appoint a liquidator to wind up the company.
D)the shareholders appoint a receiver to wind up the company.

Question 46

The potential legal consequences for a company experiencing serious financial difficulty do not include:

A)receivership.
B)liquidation.
C)voluntary administration.
D)bankruptcy.

Question 47

The most common reason for business failure is:

A)the global recession.
B)financial mismanagement.
C)government over-regulation.
D)inflation.

Question 48

A 'partnership at will' is:

A)an open ended partnership that will not expire after a fixed period of time.
B)a single transaction partnership.
C)an ad hoc partnership.
D)a partnership formed in a will or other testamentary instrument.

Question 49

The basic stages in the process of selling a business do not usually include:

A)deregistration.
B)valuation.
C)due diligence.
D)settlement.

Question 50

A Court does not have the power dissolve a partnership on the grounds of:

A)the retirement of a partner.
B)the permanent incapacity of a partner to perform normal partnership duties.
C)wilful or persistent breach of the partnership agreement.
D)dissolution being a just and equitable option.

Question 51

An insolvent company may be subjected to:

A)a Part X agreement.
B)a Part IX arrangement.
C)liquidation.
D)bankruptcy.

Question 52

What is the legal effect of the core business of the partnership business becoming illegal?

A)The partnership is automatically dissolved.
B)Each partner has the option of leaving the partnership without notice.
C)The court is empowered to dissolve the partnership.
D)There is no legal effect.

Question 53

If the partners in a limited duration partnership continue to conduct business together after the expiry of the duration, the partnership will:

A)automatically dissolve.
B)be a 'partnership at will'.
C)have perpetual succession.
D)be wound up by a court.

Question 54

The liability of incoming partners for partnership debts is limited to:

A)all debts of the partnership.
B)debts incurred since they joined the partnership.
C)debts for which they have given a personal guarantee.
D)all unsecured debts.

Question 55

Before a company can be would up by its shareholders, its directors must make a declaration of solvency.This is a declaration that:

A)the shareholders believe that the company is insolvent.
B)the directors believe that the company will be able to pay all its debts within 12 months after the commencement of the winding up.
C)the directors believe that the company has no significant debts.
D)the directors believe that the company should not be wound up.

Question 56

A trust comes to an end:

A)when the trustee retires, dies, becomes incapacitated or is for any other reason unable to discharge their duties as trustee.
B)automatically, once the trustee has distributed all of the trust property to the beneficiaries in accordance with the trust.
C)whenever the beneficiaries choose to end it.
D)only by court order.

Question 57

An alternative to liquidation is:

A)a Part X arrangement.
B)voluntary administration.
C)a Part IX arrangement.
D)bankruptcy.

Question 58

When a business goes into receivership:

A)all of the assets of the business pass automatically to the receiver.
B)all the assets of the business are sold and the proceeds of sale are distributed to the creditors.
C)control of the business passes temporarily to the receiver.
D)it is an indication that the business is insolvent.

Question 59

A person is insolvent when:

A)they believe that they may not be able to pay all their debts.
B)they owe more money to creditors than they have in the bank.
C)they are unable to pay their debts as and when they become due and payable.
D)they make a loss three years in a row.