IFA Insolvency & Financial Restructuring Flashcards

Which test for insolvency focuses on whether a company's total liabilities exceed its total assets?

Answer: Balance sheet test

The balance sheet test determines insolvency by comparing total liabilities against total assets; if liabilities exceed assets, the entity is technically insolvent.

Under Chapter 7 of the US Bankruptcy Code, what happens to the debtor's non-exempt assets?

Answer: Assets are liquidated by a trustee to pay creditors

In Chapter 7 bankruptcy, a court-appointed trustee liquidates the debtor's non-exempt assets and distributes the proceeds to creditors according to statutory priority.

What is a 'preference payment' in the context of insolvency law?

Answer: A payment made to a creditor before insolvency that may be reversed by a trustee

A preference payment is a transfer made to a creditor within 90 days before bankruptcy (one year for insiders) that may be avoided by the trustee to ensure equitable distribution among all creditors.

What is the 'automatic stay' that takes effect immediately when a bankruptcy petition is filed?

Answer: A temporary freeze on most collection actions and lawsuits against the debtor

The automatic stay immediately halts most collection efforts, foreclosures, and creditor actions against the debtor upon filing a bankruptcy petition, providing breathing room for the proceedings.

In a Chapter 7 liquidation, which class of creditors is paid FIRST from the estate's assets?

Answer: Secured creditors, to the extent of their collateral value

Secured creditors are paid first from the proceeds of the specific collateral securing their claims, up to the value of that collateral, before any unsecured or equity claims.

What does 'fraudulent conveyance' mean in insolvency proceedings?

Answer: A transfer of property made to hinder, delay, or defraud creditors

Fraudulent conveyance refers to a transfer of assets made with intent to defraud creditors, or made for less than fair value when the debtor was insolvent, which a trustee can reverse.

Which professional is typically appointed to administer a corporate liquidation under US bankruptcy law?

Answer: A Chapter 7 bankruptcy trustee

In a US Chapter 7 corporate liquidation, a bankruptcy trustee appointed by the US Trustee Program oversees the collection, liquidation, and distribution of estate assets.