Topic 6: Company Finance and Insolvency

A set of vocabulary flashcards covering share types, capital terminology, raising finance, and insolvency procedures including administration and liquidation.

Share

A transferable form of personal property, carrying rights and obligations, by which the interest of a member of a company limited by shares is measured.

Ordinary Shares

The default type of share which carries voting rights and rights to dividends only if declared, and entitles holders to capital and a share of surplus upon liquidation.

Preference Shares

Shares that usually carry a fixed, cumulative dividend and rank above ordinary shares for repayment of capital in liquidation if specified as carrying priority.

Redeemable Share

A share issued on terms that allow it to be bought back by the company at the option of the company or the shareholder.

Class Rights

Specific rights that attach to a certain group of shares with identical characteristics, which may be varied with the agreement of at least $75\%$ of that class.

Issued (Allotted) Capital

The nominal value of shares currently in issue; any part not issued is referred to as unissued.

Called Up Capital

The amount of money requested by the company in payment for shares issued.

Paid Up Capital

The amount of money actually received by the company for shares issued.

Equity Share Capital

The issued share capital excluding any part that carries a right to participate beyond a specified amount in a distribution.

Pre-emption Rights

Statutory rights requiring a company to offer newly issued shares for cash to existing shareholders pro rata to their existing holding.

Share Premium Account

An account where amounts received in excess of the nominal value of shares are transferred, subject to strict usage rules like paying up bonus shares or repurchasing debentures.

Straightforward Placing

A private placement of shares offered to select groups and individuals, limited to $5\%$ of issued share capital and not requiring pre-emption.

Open Offer

A pre-emptive share offer where rights cannot be sold, similar to a rights issue but offered to a select group.

Offer for Sale (IPO)

A public offer where shares are sold by the company to an issuing house, which then offers them to the general public.

CREST

The approved operator of an electronic system enabling shareholders to hold and transfer securities without the need for written instruments.

Capital Maintenance

The principle that companies should not be allowed to make payments out of capital to the detriment of company creditors.

Permissible Capital Payment

A payment by a private company to purchase its own shares out of capital, requiring a statutory declaration of solvency and a special resolution.

Debenture

A transferable company security legally defined as a written acknowledgement of indebtedness.

Fixed Charge

A security interest that attaches to specific assets upon creation, prohibiting the company from disposing of the asset without consent and ranking first in liquidation.

Floating Charge

A charge that hovers over a class of assets, allowing the company to deal in them until a crystallising event occurs.

Crystallisation

The event where a floating charge attaches to specific remaining assets, triggered by events such as inability to pay debts or liquidation.

Negative Pledge Clause (NPC)

A provision that prevents a floating charge from being overtaken by a subsequent fixed charge over the same asset.

Administration

An insolvency process aimed at rescuing a company as a going concern, managed by an administrator for a period typically up to $12\,\text{months}$.

Moratorium

A period during administration or CVA application where no legal proceedings or enforcement of security can commence against the company without consent.

Qualifying Floating Charge Holder (QFCH)

A holder of debentures secured by a floating charge over substantially the whole of a company's property who has the power to appoint an administrator.

Company Voluntary Arrangement (CVA)

A binding compromise agreement between a company and its creditors, such as a composition of debts or a scheme of arrangement, requiring approval from $75\%$ of creditors by value.

Members' Voluntary Liquidation

A winding-up initiated by directors when the company is solvent, requiring a statutory declaration of solvency and a special resolution.

Creditors' Voluntary Liquidation

A winding-up used when directors cannot make a statement of solvency, where creditors are involved in the selection of the liquidator.

Compulsory Liquidation

A court-ordered winding-up triggered most commonly by the inability to pay a debt of at least $£750$ within $21\,\text{days}$ of a formal request.

Official Receiver

The officer appointed by the court following a compulsory liquidation order to produce a statement of affairs and call meetings.

Transaction at an Undervalue

A transaction below market value within $2\,\text{years}$ prior to liquidation that may be invalidated by the court.

CIGA 2020

The Corporate Insolvency and Governance Act 2020, which introduced debtor-friendly measures and restructuring plans for companies in financial distress.

Receivership

The process by which a company's charged assets are realized and sold to pay off a specific secured creditor.