SQE1 sample questions

Question 77

A private limited company is in insolvent liquidation. The liquidator has sold the company’s property and is distributing the proceeds to those entitled. The value of the company’s net property for the purposes of the Insolvency Act 1986 (‘the Net Property’) is £100,000. The liquidator has not yet made any distributions to the following creditors:

• the company’s bank, which is owed £110,000 and which holds a valid floating charge created six years ago over all the company’s property
• numerous unsecured creditors who together are owed a total of £50,000

The company only has ordinary shares in issue. The company’s three shareholders each paid £5,000 for their ordinary shares (£15,000 in total).

How should the liquidator distribute the Net Property?

A. The liquidator should ring-fence a prescribed part of the Net Property for distribution to the bank and distribute the balance to the unsecured creditors.

B. The liquidator should distribute all of the Net Property to the bank, because it is valued at under £800,000.

C. The liquidator should ring-fence a prescribed part of the Net Property for distribution to the unsecured creditors and distribute the balance to the bank.

D. The liquidator should distribute all of the Net Property to the bank, because the floating charge holder is not an associate of the company.

E. The liquidator should ring-fence a prescribed part of the Net Property for distribution to the shareholders and distribute the balance to the bank.