Deck 33: Insolvency and Liquidation

Question 1

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.

Answer 1

C

Question 2

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.

Answer 2

C

Question 3

A receiver should be:

A) an auditor or a director, secretary, senior manager or employee of the corporation.
B) an auditor or a director, secretary, senior manager or employee of the body corporate related to the corporation.
C) a registered liquidator.
D) a secured party in relation to any property of the corporation

Answer 3

C

Question 4

What is the timeframe within which the liquidator must submit a preliminary report to ASIC after receiving the statement of affairs from the directors?

A) 12 months.
B) 2 months.
C) 3 months.
D) 14 days.

Question 5

The administrator of a company under administration has power to do any of the following:

A) remove from office a director of the company.
B) appoint a person as director.
C) execute a document, bring or defend proceedings, or do anything else, in the company's name and on its behalf.
D) all the options are correct.

Question 6

Which of the following is a ground under s. 461 of the Corporations Act on which the court can order a winding up?

A) I and IV
B) I, II and III
C) II, III and IV
D) I, II, III and IV

Question 7

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 8

Which of the following statements is incorrect:

A) once a receiver is appointed, the company is required to submit to them a report as to affairs of the company within 14 days.
B) a receiver is required to open a special bank account and lodge a statement of receipts and payments every 6 months.
C) wages, superannuation contributions, the superannuation guarantee change, long service leave, sick leave and retrenchment payments are to be given priority over circulating security interests when the company is in receivership, but not yet in the process of being wound up.
D) a receiver is required to obtain permission from the company before selling any assets.

Question 9

Which of the following statements is incorrect:

A) receivers are normally appointed by the court or by secured creditors.
B) secured creditors have a 'charge' over some or all of the company's assets.
C) receivers are responsible to the company.
D) receivers have power to do whatever is necessary to achieve the objectives for which they were appointed.

Question 10

Which of the following is not a form of external administration prescribed by the Corporation Act:

A) liquidation.
B) receivership.
C) administration.
D) insolvency.

Question 11

An administrator may be appointed by:

A) the company's directors, but only when after the company becomes insolvent.
B) the liquidator, but only if the company is solvent.
C) a secured creditor who is entitled to enforce a charge on the whole of the company's property.
D) the company's shareholders as a way to dismiss the managers.

Question 12

Which of the following is not a general 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 three months of its incorporation.
C) The court is of the opinion that it is just and equitable that the company be wound up.
D) The company has by special resolution resolved that it be wound up by the court.

Question 13

Which of the following is a task of a liquidator under the Corporations Act?

A) To determine the creditors and order of priority of payment.
B) To bring about the dissolution of the company.
C) To take possession of the company's assets.
D) All of the options are correct.

Question 14

Which of the following is entitled to make an application to the court for an insolvent company to be wound up?

A) A court appointed receiver.
B) Employees of the company.
C) ASIC.
D) The company's external auditor.

Question 15

The role of an administrator is to:

A) control the company's business, property and affairs.
B) carry on the business and manage the property and the affairs of the company.
C) terminate or dispose of all or part of the business or the property of the company.
D) all the options are correct.

Question 16

Who is required to prepare the report as to affairs (Form 507)?

A) Members of the company.
B) Directors of the company.
C) Creditors of the company.
D) The liquidator.

Question 17

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

A) the company to issue more shares to its shareholders.
B) the liquidation to proceed as a members' voluntary winding up.
C) the court to make an order for liquidation.
D) the company to borrow more money from a bank.

Question 18

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

A) the company directors voting to wind up the company.
B) the company is unable to pay its debts.
C) the passing of a special resolution by the company to wind up.
D) a request from ASIC for the company to be wound up.

Question 19

When a company is unable to pay its debts when they fall due and payable, this is referred to as:

A) liquidation.
B) receivership.
C) administration.
D) insolvency.

Question 20

The receiver's role does not normally include:

A) collecting and selling enough of the charged assets to repay the debt owed to the secured creditor.
B) paying out the money collected in the order required by the Corporation Act.
C) reporting to ASIC any offenses or other irregular matters they discover in performing their duties.
D) liquidating the insolvent company.

Question 21

The details below were extracted from the accounting records of Great South East Ltd (a company in the process of liquidation).

Assume that the constitution of Great South East Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency.
What will be the deficiency or surplus apportioned to ordinary shareholders?

A) A surplus of $17 500.
B) A deficiency of $17 500.
C) A surplus of $67 500.
D) A deficiency of $67 500.

Question 22

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

A) Ordinary unsecured creditors are paid before preferential unsecured creditors.
B) Preferential unsecured creditors are paid before deferred creditors.
C) Deferred creditors are paid before ordinary unsecured creditors.
D) Deferred creditors are paid before secured creditors.

Question 23

A voluntary winding up may be put in place by either:

A) the company's members or creditors.
B) the company's directors or creditors.
C) ASIC or the company's members.
D) none of the above.

Question 24

The details below were extracted from the accounting records of Great South East Ltd (a company in the process of liquidation).

Assume that the constitution of Great South East Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency.
What will be the deficiency or surplus apportioned to preference shareholders?

A) A surplus of $22 500.
B) A deficiency of $22 500.
C) A surplus of $67 500.
D) A deficiency of $67 500.

Question 25

Under a members' voluntary winding up, the directors of the company are required to prepare which of the following documents?

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

Question 26

The journal entry to record the distribution of cash to shareholders includes which of the following?

A) Dr Shareholders' distribution.
B) Dr Liquidator's receipts and payments.
C) Cr Liquidation.
D) Cr Shareholders' distribution.

Question 27

Which of the following is an example of a deferred creditor?

A) Liquidator's remuneration.
B) Arrears of preference dividends.
C) Trade creditors.
D) Audit fees payable.

Question 28

Claims against a company whereby the creditor has a charge against specific property is known as a:

A) non-circulating security interest.
B) floating charge.
C) circulating security interest.
D) specific debt covenant.

Question 29

Which of the following is an example of a preferential unsecured creditor?

A) Liquidator's fee.
B) Arrears of preference dividends.
C) Trade creditors.
D) Audit fees payable for normal year-end audit prior to insolvency.

Question 30

Which of the following is not one of the main accounts used for liquidation?

A) Liquidator's distribution.
B) Liquidator's receipts and payments.
C) Shareholders' distribution.
D) Liquidation.

Question 31

Which of the following statements is incorrect?

A) If the company is limited by shares, members do not have to contribute more than the amount unpaid on the shares for which each is liable as a past or present member.
B) Past members must contribute money for company debts, which have been incurred after they cease to be members.
C) Most liquidations in Australia do not have sufficient funds to pay creditors.
D) In the absence of any guidance in the company's constitution, calls in advance with related interest will be repaid before any payments are made to shareholders.

Question 32

A voluntary winding up commences when:

A) the members of the company pass a special resolution to wind up.
B) an application is filed with the court by the company's external auditor.
C) the company is unable to pay its debts.
D) ASIC applies to the court for the winding up.

Question 33

Which of the following statements is correct?

A) all creditors' claims are admissible to proof against the company in liquidation
B) debts may be admitted by the liquidator without formal proof
C) the size of any debts is calculated for the purpose of the winding up as at the day on which the winding up is taken to have begun
D) all the options are correct.

Question 34

Which of the following is an example of an ordinary unsecured creditor?

A) Liquidator's remuneration.
B) Workers' injury compensation claims.
C) Trade creditors.
D) Retrenchment payments payable to employees of the company other than a director or a relative of a director.

Question 35

Which of the following is the journal entry recorded on realisation of the assets by the liquidator?

A) Dr Liquidator's receipts and payments Cr Liquidation
B) Dr Liquidation Cr Liquidator's receipts and payments
C) Dr Liquidator's receipts and payments Cr Revenue from sale of assets
D) Dr Shareholders' distribution Cr Liquidator's receipts and payments

Question 36

The details below were extracted from the accounting records of Great South East Ltd (a company in the process of liquidation).

Assume that the constitution of Great South East Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency.
For preference shareholders, what is the amount of the actual refund or call?

A) A refund of $17 500.
B) A call of $17 500.
C) A refund of $10 000.
D) A call of $22 500.

Question 37

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) pay the company's shareholders before paying the creditors.

Question 38

Under a voluntary winding up, a liquidator cannot:

A) exercise the power of the court of fixing a time when debts and claims must be proved.
B) exercise any power the Corporation Act confers on a liquidator in a winding up by the court.
C) make concessions on any debts except as under s. 477(2A) of the Corporation Act.
D) convene a general meeting of the company to obtain agreement for matters as the liquidator thinks fit.

Question 39

The details below were extracted from the accounting records of Great South East Ltd (a company in the process of liquidation).

Assume that the constitution of Great South East Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency.
For ordinary shareholders, what is the amount of the actual refund or call?

A) A refund of $10 000.
B) A refund of $7 500.
C) A call of $7 500.
D) A call of $60 000.

Question 40

The main purpose of the liquidation account is to:

A) show the capital amount due to contributories.
B) calculate the deficiency or surplus on liquidation.
C) show the final cash payment to each class of contributory.
D) record additional calls made on shareholders.