BL – May 2016 – L1 – SB – Q5b – Company Law

Identify six circumstances under which a company can be placed under receivership.

Question

State SIX circumstances under which a company can be placed under Receivership.

Answer

Inability to Pay Debts: When a company is unable to pay its debts as they become due.
Default in Repayment of Secured Loan: When the company defaults on the repayment of a secured loan, and the security agreement allows the appointment of a receiver.
Violation of Loan Covenants: Breach of covenants in a loan agreement that trigger the lender’s right to appoint a receiver.
Court Order: A court may appoint a receiver in cases where the company’s affairs are being mismanaged or there is a risk of the assets being dissipated.
Resolution by Creditors: If creditors pass a resolution due to concerns over the company’s financial stability.
Voluntary Appointment: The company’s board of directors may appoint a receiver voluntarily if they foresee insolvency issues and wish to preserve the company’s assets.