Glossary of Insolvency Terms

Below are a list of commonly used terms that are used in insolvency procedures:

Administration

A company enters Administration so that the Administrator can achieve one of the statutory purposes of Administration in accordance with Paragraph 3 of Schedule B1 of the Insolvency Act 1986.

Administrative Receiver

The name given to the Insolvency Practitioner who is appointed to act when a company enters Administrative Receivership.

Administrative Receivership

Where the holder of a floating charge debenture appoints an Administrative Receiver in order to realize the assets of the company to pay back the debt owed to the debenture holder.

Administrator

The name given to the Insolvency Practitioner who is appointed to act when a company enters Administration.

Associates

Individuals or Companies who are associated to the insolvent company or individual, associates usually include family members, connected companies, employees.

Bankrupt

An individual that is subject to a Bankruptcy Order and has not been discharged.

Bankruptcy Order

An order made by the court when an individual is unable to pay their debts as and when they fall due.  A bankruptcy order can either be made upon a petition of a creditor who is owed money or by the individual themselves which is called a debtors petition.

Charge

A legal document which gives the creditor security over certain assets/property, once the assets/property are sold the creditor which has been given the charge is paid from the proceeds of sale.

Charging Order

When a creditor obtains a county court judgment (CCJ) in respect of an unpaid debt, the creditor can apply to the court for the CCJ to attach to the debtors property.  When the property is sold the CCJ is paid by the conveyancing solicitors, unless the debt has previously been settled.  Once charging order has been granted the creditor can apply to the Court for possession and sale of the property.

Company Directors Disqualification Act (1986)

The Company Directors Disqualification Act (CDDA) is the primary legislation which is used to disqualify an individual for being a director of a limited liability company. 

Company Voluntary Arrangement

A Company Voluntary Arrangement or CVA allows a company to reorganise or restructure its current debt obligations so that the company can continue to trade.

Composition

A composition is an agreement between the debtor and creditor which allows a reduced sum to be paid of the debt obligation in full satisfaction of the original amount owed.

Compulsory Liquidation

A company goes into compulsory liquidation when a winding up order is made by the Court.

Connected Persons

Individuals who are associated to either a director of an insolvent company or a debtor who is bankrupt or subject to an IVA.

 

Contributory

A person who is liable to contribute to the assets of an insolvent company.

Court-Appointed Receiver

Someone who is appointed by the Court in order to manage specific assets which are usually subject to a dispute

Creditors’ Committee

A committee made of between 3 and 5 creditors who are appointed to represent the interests of all the creditors of either the insolvent company or individual.  The members of the Creditors Committee can direct the appointed officeholder in his duties of investigating into the business and affairs of the insolvent.  The Committee can pass a number of required resolutions on behalf of the full body of creditors. 

Creditors’ Voluntary Liquidation

A creditors voluntary liquidation or CVL is a process initiated by the directors of the company to place the company into insolvent liquidation without the requirement of court proceedings.

Debenture

A debenture is a legal charge which is created in order to secure monies borrowed on all or part of a company's property.  The debenture should be registered at Companies House otherwise it may be voidable for non registration.

Deed of Arrangement

Deeds of Arrangement where in place prior to the implementation of IVA's, they have recently been withdrawn from legislation and are no longer available to use.

Disqualification of Directors

Directors disqualification can last anywhere between 2 to15 years. A disqualified director is prohibited from acting as a director of a company, taking part, directly or indirectly, in the promotion, formation or management of a company.

Extortionate Credit Transaction

This is applies to companies who are in liquidation and individuals who are bankrupt where by they have entered credit agreements which the interest levels are excessively high bearing in mind the circumstance that the credit was obtain.  Ultimately the appointed liquidator or trustee can apply to court for an order that the creditor to repays all sums that form part of the transaction.

Fixed Charge

This is a legal charge that is secured on specific assets, whereby the holder of the fixed charge has the power to sell the asset through the appointment of a fixed charge receiver in the event of a default.  The fixed charge creditor will be entitled to the first proceeds of sale.  Examples of a fixed charge are mortgages on property, debtors subject to a factoring agreement, motor vehicles subject to a hire purchase agreement, plant and machinery which is fixed to the premises.

Floating Charge

This is legal charge whereby the holder of the floating charge has security over assets which are not subject to a fixed charge. The holder of a floating charge can only enforce the security through the appointment of an Administrator or an Administrative Receiver (only where the charge was created prior to 15 September 2003 in most circumstances). Examples of assets subject to a floating charge are stock, plant and machinery, debtors not subject to a factoring agreement.

Fraudulent Trading

Where the directors or anyone who works for a company has carried on business with the intent to defraud creditors.  If an individual is found guilty this carries both a civil and criminal personal liability.

Going Concern

Where there is a sale of a business and the acquiring company intends to carry on the same kind of business as the seller.  In certain circumstances when there is a sale of a business at a going concern this may be exempt from VAT.
 

Guarantee

This is where another party be it a company or individual commits to repay the outstanding debt of another.  The usual circumstance is a director giving a personal guarantee is to repay the outstanding debt owed to a bank if any shortfall arises when the debt is called in and the company cannot pay.

Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement is a contractual obligation to compromise the individuals debt owed to their creditors in full and final settlement of all liabilities owed.

Insolvent

Where either a company or individual is unable to pay their debts as and when they fall due (cashflow test) or that their liabilities exceed the assets (balance sheet test).

Insolvency Act 1986 (IA 1986)

The primary legislation governing the process of dealing with any formal insolvency proceedings.

Insolvent Liquidation

When a company is either subject to a creditors voluntary liquidation or winding up of the court.

Insolvency Rules (IA 1986)

The secondary legislation detailing how the laws of the Insolvency Act 1986 is carried out.

Interim Order

A moratorium on any legal proceedings in the intervening period between issuing the IVA proposal to creditors and the creditors meeting.  An Interim Order can only be granted by the Court.

Judgment

A judgment is an Order granted by the Court.

Law of Property Act 1925 (LPA)

This is the legislation which governs the appointment of a fixed charge receiver also known as an LPA Receiver.

LPA Receiver

This is an individual who is appointed in order to sell the property subject to a fixed charge and also has the ability to collect rents owed and pay directly to the chargeholder.  You don’t need to be a licensed insolvency practitioner to act as an LPA Receiver. 

Licensed Insolvency Practitioner

A person who is authorized to act as an officeholder in the relevant insolvency proceedings, an Insolvency Practitioner can act as a Liquidator, Administrator, Administrative Receiver, Nominee, Supervisor, or a Trustee.  An insolvency license is issued by the recognized professional body.

Lien

Is the right to hold assets or documents of title until a debt has been settled. If a company is in liquidation or administration a lien cannot be enforced over books and records of the company.

Liquidation

The generic name given to a company which is in either creditors voluntary liquidation, members voluntary liquidation or compulsory liquidation.

Liquidation Committee

The same a creditors committee but only applies to companies in liquidation

Liquidator

The name given to the Insolvency Practitioner when a company is in liquidation.

Mareva Injunction

A world wide freezing injunction over the assets of a company or individual

Member

A shareholder of a company or a partner in limited liability partnership.

Members’ Voluntary Liquidation

A members’ voluntary liquidation is where the company is solvent and all creditors can be paid in full plus statutory interest within 12 months from the date of liquidation. 

Misfeasance

A legal remedy for a breach of fiduciary or any other duty when acting as director, an individual who has taken part, in the promotion, formation or management of a company, this also extends to an insolvency practitioner who acted as a liquidator or administrator of a company.

Mortgage

A legal charge that is given to securitize any borrowing against a property, the property cannot be sold without consent of the holder of mortgage.

Nominee

The name given to the insolvency practitioner whilst an IVA or CVA is being proposed to creditors.  The nominee will provide an opinion report on the proposals to creditors and act as the chairman at the meeting of creditors.

Office Holder

This is the generic name given to an insolvency practitioner who acts as a liquidator, administrator, administrative receiver, trustee, nominee or supervisor.

Official Receiver

A civil servant who acts as receiver and manager of every court appointed liquidation and bankruptcy until either a liquidator or trustee is appointed.  The Official Receiver will investigate into the reasons why a company has been wound up or an individual has been declared bankrupt and take the necessary action where appropriate.

Onerous Property

Petition

Preference

Preferential Creditor

Proof of Debt

Proving

Provisional Liquidator

Proxy

Proxyholder

Receiver

Receivership

Recognised Professional Body (RPB)

Reservation of Title

Secured Creditor

Security

Shadow Director

Special Manager

Statutory Demand

Supervisor

Transactions at an Undervalue

Trustee

Unsecured Creditor

Undischarged Bankrupt

VAT Bad Debt Relief

Voluntary Liquidation

Winding-Up

Winding-Up Order

Winding-Up Petition

Wrongful Trading