Preview Questions Insolvency Specialist | Role Specific Skill

Question 1: In financial distress scenarios, how does the "cash flow test" for solvency differ from the "balance sheet test"?

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The cash flow test focuses on the company's ability to meet current liabilities with available cash flow, while the balance sheet test assesses overall asset-liability positions

The cash flow test evaluates solvency over a long period, whereas the balance sheet test focuses on short-term solvency

The cash flow test involves external market comparisons, while the balance sheet test uses internal company data

The cash flow test looks at the company's profit margins, while the balance sheet test considers asset values only

Question 2: What is the primary purpose of a "debtor-in-possession" (DIP) in Chapter 11 bankruptcy proceedings?

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The debtor is required to repay all debts immediately upon filing

The debtor must liquidate all assets under the court's supervision to pay creditors

The debtor retains control over their assets and operations while reorganizing under court supervision

The debtor loses all control of assets and is replaced by a court-appointed trustee

Question 3: How does "fraudulent transfer" apply in bankruptcy law?

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Fraudulent transfers are automatically legal under Chapter 11 and cannot be contested

Fraudulent transfers only apply to personal property and do not affect real estate transactions in bankruptcy

Fraudulent transfers only apply to non-commercial transactions and do not affect business bankruptcies

Fraudulent transfers are transactions made with the intent to hinder, delay, or defraud creditors, and can be reversed by the bankruptcy trustee

Question 4: What is the significance of "subordination" in insolvency law?

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Subordination only applies to unsecured creditors, who are automatically placed at the bottom of the priority list

Subordination automatically gives priority to secured creditors over unsecured creditors

Subordination allows certain creditor claims to be ranked lower in priority for repayment, typically in favor of higher-priority claims

Subordination is irrelevant in insolvency cases as all debts are treated equally

Question 5: In corporate restructuring, how is "asset stripping" viewed by the court and creditors?

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Asset stripping is encouraged, as it provides immediate liquidity to pay creditors

Asset stripping is only relevant in Chapter 7 cases and does not affect Chapter 11 restructuring

Asset stripping is allowed in most restructuring plans as long as the company continues to operate

Asset stripping is viewed negatively and may be reversed by the court if it is seen as an attempt to defraud creditors

Question 6: What is the first legal step an Insolvency Specialist should take when advising a company on corporate restructuring?

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The lawyer must assess if liquidation is preferable

The lawyer should negotiate with the company's creditors first

The lawyer must analyze the company's financial statements and determine whether restructuring is necessary

The lawyer should immediately file for bankruptcy