INSOLVENCY LAW

TUTOR QUESTION STUDENT NOTES

The multi-task questions that appear in Section B of the exam contain several tasks based on the same scenario. Read through the background
and the first Task for this question.

Background for Tasks 1, 2 and 3 Task 1

Action Days Ltd offers active short-breaks in the south of England. The What is the MAIN purpose of a company entering administration?
company recently leased five new 'mini coaches’ ahead of an
anticipated increase in business. The monthly lease cost for each A To rescue the company as a going concern
coach is £2,000, giving a monthly cost of £10,000. The business also
B To protect the business from creditors
has to pay staff costs of £15,000 per month. The increase in business
did not materialise. Action Days is currently generating £12,000 of C To prepare the company for liquidation
revenue per month.
D To protect the interests of employees
Lorna, the Finance Director is concerned about the situation. At the
next board meeting Lorna has requested the directors discuss the
possibility of putting the business into administration.

This Task is able to be answered directly from knowledge covered in our course, without the need to apply knowledge to the short scenario
provided.

The main purpose of administration is to rescue the company as a going concern, so the correct answer is: To rescue the company as a going
concern.
Moving on to Task 2. The same background applies.

Background for Tasks 1, 2 and 3 Task 2

Action Days Ltd offers active short-breaks in the south of England. The Which of the following statements is most likely to be correct?
company recently leased five new 'mini coaches’ ahead of an
anticipated increase in business. The monthly lease cost for each
coach is £2,000, giving a monthly cost of £10,000. The business also
has to pay staff costs of £15,000 per month. The increase in business
did not materialise. Action Days is currently generating £12,000 of
revenue per month.
Lorna, the Finance Director is concerned about the situation. At the
next board meeting Lorna has requested the directors discuss the
possibility of putting the business into administration.
A The court would not grant an administration order for Active
Days Ltd because the purpose of administration would not be
achieved
B The court would grant an administration order for Active Days
Ltd as this would reduce the chance of the company not being
able to meet its financial commitments
C The court would not grant an administration order for Active
Days Ltd as the company does not require protection from
creditors

D The court would grant an administration order for Active Days

Ltd because the purpose of administration would be achieved

For an administration order to be granted, the court must believe there is a reasonable prospect of the aim of administration being achieved.
The aim of administration is to save the company as a going concern. With Active Days currently generating a £13,000 loss per month, it seems
unlikely an administration order would be granted. Therefore, the correct answer is T​he court would not grant an administration order for Active
Days Ltd because the purpose of administration would not be achieved​.
Moving on to Task 3. Again, the same background applies.

Background for Tasks 1, 2 and 3 Task 3

Action Days Ltd offers active short-breaks in the south of England. The If an administration order was granted, who would assume control of
company recently leased five new 'mini coaches’ ahead of an the company?
anticipated increase in business. The monthly lease cost for each
coach is £2,000, giving a monthly cost of £10,000. The business also A The finance director
has to pay staff costs of £15,000 per month. The increase in business
B An insolvency practitioner
did not materialise. Action Days is currently generating £12,000 of
revenue per month. C A liquidator

Lorna, the Finance Director is concerned about the situation. At the D Creditors
next board meeting Lorna has requested the directors discuss the
possibility of putting the business into administration.

An administration order is an order of the court which puts an insolvency practitioner in control of the company with a defined programme for
rescuing the company from insolvency as a going concern.

Therefore, the correct answer is: An insolvency practitioner