Deck 21: Insolvency and Liquidation

Question 1

The realisation of assets is accounted for in a company's records by using which of the following ledger accounts?

A)liquidation;
B)contributories reserve;
C)gain on sale;
D)consideration on sale.

Answer 1

A

Question 2

Under a court ordered winding-up a liquidator does not have the power to:

A)enter into legal proceedings on behalf of the company;
B)dispose of the property of the company;
C)use any legal methods to obtain money from a debtor;
D)fix the time when debts and claims must be proved.

Answer 2

D

Question 3

The basis for a voluntary winding-up of a company is:

A)an application filed with the court;
B)the company is unable to pay its debts;
C)the passing of a special resolution by the company to wind up;
D)an unpaid creditor applies for the winding-up.

Answer 3

C

Question 4

The party with the highest priority in a voluntary winding-up is:

A)the liquidator;
B)creditors secured via a floating charge;
C)workers compensation insurers;
D)employees.

Question 5

At the commencement of a members' voluntary winding-up,a written declaration must be provided by directors stating that all debts will be able to be paid in full within a period:

A)of no more than 30 days;
B)of not more than 6 months;
C)not exceeding 12 months;
D)more than one year but less than two years.

Question 6

The duties of the liquidator include:
I)realisation of the company's assets.
II)payment of creditors.
III)distribution of funds to shareholders.
IV)bring about dissolution of the company.

A)I,and II only;
B)I,II and III only;
C)II,III and IV only;
D)I,II,III and IV.

Question 7

A declaration of solvency is required to be signed by the directors of the company in order for:

A)the liquidation to proceed as a creditors' voluntary winding-up;
B)the liquidation to proceed as a members' voluntary winding-up;
C)the court to make an order for liquidation;
D)a liquidator to resign and the company to continue trading.

Question 8

For ordinary shareholders,what is the amount of the actual refund or call?

A)a refund of $5 000;
B)a refund of $3 750;
C)a call of $3 750;
D)a call of $30 000.

Question 9

Assuming a company is unable to pay all its debts,which of the following statements is incorrect regarding the order in which creditors are paid?

A)there is an order of repayment for preferential unsecured creditors;
B)there is an order of repayment for ordinary unsecured creditors;
C)all ordinary unsecured creditors rank equally;
D)deferred creditors debts rank after all unsecured creditors.

Question 10

Which of the following is not a way in which a receivership can end?

A)the receiver can resign
B)the receivership can progress to liquidation and the receiver can be appointed as liquidator
C)a voluntary administrator can be appointed to take over from the receiver
D)the receivership can progress to liquidation and a separate party can be appointed as liquidator

Question 11

What will be the deficiency or surplus apportioned to preference shareholders?

A)a surplus of $11 250;
B)a deficiency of $11 250;
C)a surplus of $18 000;
D)a deficiency of $18 000.

Question 12

In relation to the order of priority of payment of debts upon liquidation,which statement is correct?

A)ordinary unsecured creditors rank before preferential unsecured creditors;
B)preferential unsecured creditors rank before deferred creditors;
C)deferred creditors rank before ordinary unsecured creditors;
D)deferred creditors rank before secured creditors.

Question 13

For preference shareholders,what is the amount of the actual refund or call?

A)a refund of $8 750;
B)a call of $8 750;
C)a refund of $5 000;
D)a call of $11 250.

Question 14

Which of the following is not a ground under s.461 of the Corporations Act on which the court can order a winding-up?

A)the company has no members;
B)the company has not commenced business within six months of incorporation;
C)the court is of the opinion that it is just and equitable that the company be wound up;
D)the company has resolved that it be wound up by the court.

Question 15

When an administrator is appointed to a company they must give an opinion as to the best of three options available to creditors.Which of the following is not one of the options available?

A)to end the voluntary administration and return the company to the director's control
B)to end the voluntary administration and appoint a receiver.
C)to approve a deed of company arrangement through which the company will pay all or part of its debts and then be free of those debts
D)to wind up the company and appoint a liquidator

Question 16

The liquidator has the following timeframe to submit a preliminary report to ASIC after receiving the statement of affairs from the directors:

A)1 month;
B)2 months;
C)3 months;
D)6 months.

Question 17

After paying off all creditors in a liquidation there is $21 655 available for shareholders.Preference share capital is $20 000 and ordinary share capital is $20 625.The amount of the deficiency to be borne by ordinary shareholders is:

A)$18 970;
B)$20 625;
C)$20 000;
D)$21 655.

Question 18

The directors of a company have the following timeframe to submit a statement of the company's affairs to the liquidator after the making of the winding-up order:

A)7 days;
B)14 days;
C)21 days;
D)28 days.

Question 19

Which of the following is not entitled to make an application to the court for an insolvent company to be wound up?

A)the company itself;
B)an immediate past shareholder in the company;
C)a court appointed receiver;
D)ASIC.

Question 20

What will be the deficiency or surplus apportioned to ordinary shareholders?

A)a surplus of $27 000;
B)a deficiency of $27 000;
C)a surplus of $33 750;
D)a deficiency of $33 750.

Question 21

Explain the process that occurs under a creditor's voluntary winding up.

Question 22

Explain what liquidation is.

Question 23

What is the general principle regarding the priority of payments of debts in a liquidation?