Insolvency — practice questions

Correct answer: B. Clauses 2, 3/1, 4/3 and 4/5: Insolvency (Iflas) exists when a person’s due debt exceeds his assets, and a debtor in that state has a moral obligation to refrain from actions harming creditors even before any declaration. The declaration of insolvency (Taflees) is a judge’s declaration preventing the debtor from disposing of his assets, and the court has the sole authority to make it, on application by creditors or by the debtor himself, unless the court considers the debtor’s application fraudulent.

Correct answer: D. Clauses 4/3 and 4/4: A declaration requires an application by creditors demanding that a debtor whose due debts exceed his assets be declared insolvent, or an application by the debtor himself, except where the court considers it fraudulent. Creditors of undue debts have no present right to demand a declaration (Clause 5/5/1). Applicant creditors need not prove that they are the sole creditors; another creditor appearing before distribution shares pro rata.

Correct answer: A. Clauses 5/1 to 5/4: After a declaration of insolvency, the debtor’s acts of sale, gift or endowment have no legal effect, except acts relating to previous transactions such as terminating a defective contract or exercising an option; this also applies during the period of uncertainty preceding the declaration, as assessed by the competent authority. His admissions of liability have no effect on the sequestered assets, and his subsequent transactions attach to his future liability, their counterparties not sharing in the sequestered assets.