SECURED CREDITOR

The position of the secured creditor in a liquidation or administration

Abstract

The continuous existence of a company is necessary in order to make the economy of a country more stable. Inevitable for every state to have a sound, transparent and flexible corporate insolvency law that will reflect the changes in national and international market development. Corporate insolvency encompassed a series of important steps, process, and procedures in order to give insolvency an effect.

Insolvency reforms therefore must be always a goal for every state. The paper objectively identifies the dilemmas of the current corporate insolvency law with emphasis given on aspects of directorship, receivership, schemes of arrangement, voluntary administration and liquidation. For the directors, the author discovered that sanctions must be given to intentional failure to acknowledge signs of insolvency.

In receivership, there must be regulations on the extent of control and the reporting framework. A closed-loop involvement must take place in deciding for the most suitable scheme of arrangement. The degree of the power of directors must be scrutinized in lieu of voluntary administration. Pooling mechanisms for unsecured creditors is addressed in area of liquidation.

Table of Content

Chapter 1: The meaning of Liquidation/Insolvency4

Liquidation/Insolvency4

The money flow test6

Balance sheet test8

Legal activity test8

Chapter 2: The Secured Creditor10

Secured Creditor10

Bankruptcy and the Secured Creditor Advantage10

Chapter 3: Circulation of the assets of an insolvent14

Chapter 4: The position/treatment of protected creditor in Liquidation/Administration18

Review of empirical findings21

The going anxiety notion in auditing24

Chapter 5: Conclusion and recommendation27

The Process of Insolvent Liquidation for Closing Down a Business27

References33

Chapter 1: The meaning of Liquidation/Insolvency

Liquidation/Insolvency

Insolvency, bankruptcy and liquidation are the three terms that people generally have a tendency to use interchangeably. But, each connotes specific meaning that creates a different impact on the concern related. Typically, all the troubles begin with insolvency, may extend to bankruptcy, which might end up in liquidation (Afifi, 1984, 66).

When the business entity fails to pay the amount due to the creditors, it is considered insolvent. Insolvency also emerges when the fair market value of the assets fall a lot lower than the liabilities revealed in the balance sheet. When a business entity is declared as insolvent, it can employ the existing cash reserves to pay off the creditors or may sell some of its assets to get over the situation. Insolvency can be initiated by the external components like the unfavorable government principles, general market status, higher market rates, as well as interior components like inefficient management, failed goods and services, etc. Insolvency require not habitually outcome in bankruptcy (Betker, 1996, 11).

Bankruptcy arises when the creditors or the company documents to the United States Bankruptcy Court for bankruptcy, wherein the government law rules method to be pursued and the state laws dictate the house rights. When the liability difficulty arises after a restrict, the creditors may invoke a bankruptcy method to reimburse for the decrease acquired by them. As a answer to bankruptcy, the business entity might be suggested with the answer of restructuring or liquidation. Restructuring can be prescribed restructuring or casual ...