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Winding up is usually considered a first option because it facilitates the continuous operation of a company.
Winding up is usually considered a first option because it facilitates the continuous operation of a company.
False
The presumption of insolvency can be established three weeks after the service of a statutory demand.
The presumption of insolvency can be established three weeks after the service of a statutory demand.
True
Insolvency tests only consider the cashflow status of a company.
Insolvency tests only consider the cashflow status of a company.
False
Voluntary liquidation can only be initiated by an external party and not by the company itself.
Voluntary liquidation can only be initiated by an external party and not by the company itself.
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Failing to meet a statutory demand greater than $15,000 constitutes grounds for invoking winding up proceedings.
Failing to meet a statutory demand greater than $15,000 constitutes grounds for invoking winding up proceedings.
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The Pari Passu Principle ensures all unsecured creditors are paid equally in the event of liquidation.
The Pari Passu Principle ensures all unsecured creditors are paid equally in the event of liquidation.
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Estate costs have the lowest priority in the order of payments during liquidation.
Estate costs have the lowest priority in the order of payments during liquidation.
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Wages and salaries are ranked as the third priority for payment to creditors during insolvency proceedings.
Wages and salaries are ranked as the third priority for payment to creditors during insolvency proceedings.
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The last payments made in the priority order during liquidation are related to tax assessed.
The last payments made in the priority order during liquidation are related to tax assessed.
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Liquidators are responsible for covering the costs of proceedings without the need for court approval.
Liquidators are responsible for covering the costs of proceedings without the need for court approval.
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Members' voluntary winding up requires a simple majority of over 50% for the resolution to pass.
Members' voluntary winding up requires a simple majority of over 50% for the resolution to pass.
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In a creditors' voluntary winding up, a company's business must cease to operate immediately after the decision to wind up.
In a creditors' voluntary winding up, a company's business must cease to operate immediately after the decision to wind up.
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A liquidator can be appointed by either the members or the creditors during the winding up process.
A liquidator can be appointed by either the members or the creditors during the winding up process.
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No legal actions can be commenced against a company that is undergoing court winding up.
No legal actions can be commenced against a company that is undergoing court winding up.
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Insolvency set-off allows debts to be treated as extinguished once a winding up petition is filed.
Insolvency set-off allows debts to be treated as extinguished once a winding up petition is filed.
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Section 170 of the IRDA allows for any disposal of property by the company post winding up to be valid.
Section 170 of the IRDA allows for any disposal of property by the company post winding up to be valid.
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A creditor's meeting must be convened if the liquidator believes the company can not pay its debts.
A creditor's meeting must be convened if the liquidator believes the company can not pay its debts.
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Member's Creditors' voluntary winding up is determined solely by the creditors' decision.
Member's Creditors' voluntary winding up is determined solely by the creditors' decision.
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Winding up is generally considered a last resort because it results in the dissolution of a company.
Winding up is generally considered a last resort because it results in the dissolution of a company.
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The estate costs rule is the highest priority for payment during liquidation.
The estate costs rule is the highest priority for payment during liquidation.
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Insolvency can only be determined through the balance sheet insolvency test.
Insolvency can only be determined through the balance sheet insolvency test.
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All amounts due in respect of contributions payable are ranked as fifth in the order of payments in insolvency proceedings.
All amounts due in respect of contributions payable are ranked as fifth in the order of payments in insolvency proceedings.
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A statutory demand over $15,000 is pertinent for establishing grounds for winding up.
A statutory demand over $15,000 is pertinent for establishing grounds for winding up.
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Employee remuneration for vacation leave is ranked higher than amounts due to an employee during liquidation.
Employee remuneration for vacation leave is ranked higher than amounts due to an employee during liquidation.
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Liquidation can commence only through a court order and not voluntarily by the company.
Liquidation can commence only through a court order and not voluntarily by the company.
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Section 203 of the IRDA addresses the distribution of preferential payments among unsecured debts.
Section 203 of the IRDA addresses the distribution of preferential payments among unsecured debts.
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The presumption of insolvency will not apply if the company has disputed a debt on substantial grounds.
The presumption of insolvency will not apply if the company has disputed a debt on substantial grounds.
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The pari passu principle ensures that unsecured creditors are prioritized over secured creditors.
The pari passu principle ensures that unsecured creditors are prioritized over secured creditors.
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Profitability is the only consideration in determining a company's ability to pay its debts.
Profitability is the only consideration in determining a company's ability to pay its debts.
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Liquidators are responsible for paying costs associated with the proceedings, requiring prior court approval.
Liquidators are responsible for paying costs associated with the proceedings, requiring prior court approval.
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The last payments made in the priority order during liquidation relate to all amounts due in respect of workmen's compensation.
The last payments made in the priority order during liquidation relate to all amounts due in respect of workmen's compensation.
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The court has discretionary power to decline a winding up order based on specific grounds.
The court has discretionary power to decline a winding up order based on specific grounds.
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A liquidator's appointment needs approval from either the creditors or the members during the winding up process.
A liquidator's appointment needs approval from either the creditors or the members during the winding up process.
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The amount of tax assessed is the penultimate priority in the payment hierarchy during insolvency proceedings.
The amount of tax assessed is the penultimate priority in the payment hierarchy during insolvency proceedings.
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Unsecured creditors are prioritized over third parties entitled to insurance in the distribution of assets.
Unsecured creditors are prioritized over third parties entitled to insurance in the distribution of assets.
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Cashflow insolvency test examines the long-term financial stability of a company.
Cashflow insolvency test examines the long-term financial stability of a company.
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Court winding up is initiated solely by the shareholders of a company.
Court winding up is initiated solely by the shareholders of a company.
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Creditor's position prior to the commencement of liquidation is protected from claw back clauses.
Creditor's position prior to the commencement of liquidation is protected from claw back clauses.
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A company's members can initiate voluntary winding up only when they believe the company is solvent.
A company's members can initiate voluntary winding up only when they believe the company is solvent.
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In a creditors' voluntary winding up, the company may continue to operate its business until the winding up is complete.
In a creditors' voluntary winding up, the company may continue to operate its business until the winding up is complete.
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Section 165 of the IRDA states that a creditor's meeting must be called if the liquidator thinks that the company's debts cannot be paid.
Section 165 of the IRDA states that a creditor's meeting must be called if the liquidator thinks that the company's debts cannot be paid.
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Creditors can retain the benefits of any uncompleted execution after the winding up process begins.
Creditors can retain the benefits of any uncompleted execution after the winding up process begins.
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A liquidator's appointment during creditors' voluntary winding up is subject to a committee of inspection's approval.
A liquidator's appointment during creditors' voluntary winding up is subject to a committee of inspection's approval.
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Legal proceedings against a company under court winding up can be stayed under Section 129 of the IRDA.
Legal proceedings against a company under court winding up can be stayed under Section 129 of the IRDA.
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Insolvency set-off under Section 219 allows debts to be settled against each other during insolvency.
Insolvency set-off under Section 219 allows debts to be settled against each other during insolvency.
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A liquidator is not responsible for any costs associated with the winding up process unless approved by the court.
A liquidator is not responsible for any costs associated with the winding up process unless approved by the court.
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Section 170 allows for any transaction made by the company after winding up to be deemed valid.
Section 170 allows for any transaction made by the company after winding up to be deemed valid.
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Under Section 218, provable debts must be declared in the statement of affairs by the company executives.
Under Section 218, provable debts must be declared in the statement of affairs by the company executives.
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Study Notes
Liquidation Overview
- Liquidation is a last resort, dissolving a company.
- Part 8 of the IRDA governs winding up.
- Sections 126 and 161(6) of the IRDA detail commencement of winding up.
Winding Up by the Court (Compulsory)
- Company's Perspective: Winding up is chosen to avoid wrongful trading liability or when a genuine business failure occurs without investigatory concerns.
- Creditors' Perspective: Winding up is preferred when director mismanagement is suspected, allowing creditors to examine transactions. Winding up stops incurring further debts.
- Disadvantages: Winding up is irreversible, potentially highlighting company issues and causing harm. It's expensive and time-consuming, impacting other creditors vying for assets. The company may accrue further debts during the process. Creditors usually receive a fraction of the owed sum.
Insolvency and Winding Up
- Creditors can initiate compulsory winding up proceedings if a company is insolvent.
- Companies can file for creditors' voluntary winding up. The company acts, but the company wishes to be wound up.
- The liquidator is appointed by the company.
- A creditor can file for winding up if a company fails to pay a statutory demand. The sum owed must be $15,000 or more.
- Company must be unable to pay its debts under certain criteria (s125 IRDA).
Procedure for Winding Up
- Application process (usually by originating summons with affidavit).
- Publication of notice to the public.
- Court discretion to decline granting winding up orders under Section 128 of the IRDA's grounds.
- Various processes for establishing inability to pay debts (e.g., failure to meet statutory demand) as per s125(a),s125(b), and s125(c) IRDA.
Insolvency Tests
- Companies are assessed based on their cash flow. This is determined based on current assets exceeding current liabilities, allowing repayment without problems within 12 months.
- Balance sheet analysis provides another assessment method. Whether the company has assets to cover liabilities.
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Description
This quiz explores the critical concepts of liquidation and winding up as per the IRDA regulations. It covers the perspectives of both companies and creditors regarding the process, as well as the implications of insolvency. Understand the legal framework and potential consequences of winding up a company.
