Question 1

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

Accepted Answer

The general principle regarding priority of payment of debts in liquidation is that all debts and claims proved in a winding up rank equally and if the property of the company is insufficient to meet them in full they shall be paid proportionately.However there are many exceptions allowed to this rule.For instance creditors are divided into specific groups - secured,preferential,ordinary unsecured,and deferred.

Question 2

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:

Accepted Answer

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

Question 3

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

Accepted Answer

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 
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 C

Question 4

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

Accepted Answer

A) a surplus of $27 000; 
B) a deficiency of $27 000; 
C) a surplus of $33 750; 
D) a deficiency of $33 750. 
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 5

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

Accepted Answer

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. 
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 6

Explain what liquidation is.

Accepted Answer

A liquidation process or a winding up is

Question 7

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.

Accepted Answer

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

Question 8

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?

Accepted Answer

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. 
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 9

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:

Accepted Answer

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

Question 10

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

Accepted Answer

Where a creditors' voluntary winding up

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

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

Question 13

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

Accepted Answer

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. 
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 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?

Accepted Answer

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. 
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

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

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

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:

Accepted Answer

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. 
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 18

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

Accepted Answer

A) a refund of $5 000; 
B) a refund of $3 750; 
C) a call of $3 750; 
D) a call of $30 000. 
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 19

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

Accepted Answer

A) a surplus of $11 250; 
B) a deficiency of $11 250; 
C) a surplus of $18 000; 
D) a deficiency of $18 000. 
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 20

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

Accepted Answer

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. 
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.

Exam 21: Insolvency and Liquidation

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

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:

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

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

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

Explain what liquidation is.

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.

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?

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:

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

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

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

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

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

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

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

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:

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

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

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

Nature and Regulation of Companies

Financing Company Operations

Company Operations

Fundamental Concepts of Corporate Governance

Fair Value Measurement

Accounting for Company Income Tax

Property, Plant and Equipment

Leases

Intangible Assets

Business Combinations

Impairment of Assets

Disclosure: Legal Requirements and Accounting Polices

Disclosure: Presentation of Financial Statements

Disclosure: Statement of Cash Flows

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Accounting for Investments in Associates

Filters