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Terminology/Glossary of insolvency terms

Basic descriptions of key terms are listed alphabetically. Please click the letter below to move directly to that part of the list.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Glossary of Insolvency Terms for England and Wales

Administration order
An order made in a county court to arrange and administer the payment of debts by an individual; or an order made by a court in respect of a company that appoints an administrator to take control of the company. A company can also be put into Administration if a floating charge holder, or the directors or the company itself file the requisite notice at court.

Administration*
The corporate insolvency process commonly used where there is a prospect of continuation of all or part of the business as a going concern. A company can be put into Administration if a floating charge holder, or the directors or the company itself, file the requisite notice at court.

Administrative receiver
An Licensed Insolvency Practioner appointed by the holder of a debenture that is secured by a floating charge that covers the whole or substantially the whole of the company’s assets. The Licensed Insolvency Practitioner’s task is to realise those assets on behalf of the debenture holder.

Administrative receivership
The process where a Licensed Insolvency Practitioner is appointed by a debenture holder (lender) to realise a company’s assets and pay preferential creditors and the debenture holder’s debt. The right of a debenture holder to appoint an administrative receiver has been restricted by the Enterprise Act 2002.

Administrator
A Licensed Insolvency Practitioner appointed by the court under an administration order or by a floating charge holder or by the company or its directors filing the requisite notice at court.

Annulment
Cancellation.

Assets
Anything that belongs to the debtor that may be used to pay his/her debts.

Bankrupt*
A bankrupt is an individual against whom the Court has made a Bankruptcy order. The order signifies that the individual is unable to pay their debts and deprives them of their property (in favour of a Trustee), which is then realised for distribution amongst their creditors.

Bankruptcy restrictions order or undertaking*
A procedure introduced as of 1 April 2004 whereby a bankrupt who has been dishonest or in some other way to blame for their bankruptcy may have a court order made against them or give an undertaking to the Secretary of State which will mean that bankruptcy restrictions continue to apply after discharge for a period of between two to fifteen years.

Charge
Security interest taken over property by a creditor to protect against non-payment of a debt (such as a mortgage).

Company Directors Disqualification Act 1986
An Act of Parliament about the disqualification of directors.

Company Voluntary Arrangement (CVA)*
A procedure whereby a plan of reorganisation or composition in satisfaction of a company's debts is put forward to creditors and shareholders. There is a limited involvement by the Court and the scheme is under the control of a supervisor.

Compulsory Liquidation
Winding-up of a company after a petition to the court, usually by a creditor.

Contributory
Every person liable to contribute to the assets of a company if it is wound-up. In most cases this means shareholders who have not paid for their shares in full.

Creditor*
Someone who is owed money.

Creditors’ Voluntary Liquidation (CVL)*
The most common corporate insolvency process, it is commenced, usually at the behest of the directors, by resolution of the shareholders, but is subject to control by creditors, who can choose the liquidator.

Cross Border*
Refers to any legal/insolvency or trading process involving more than one country, and therefore more than one legal code.

Debtor*
Someone who owes money.

Debenture*
A document, usually under seal, issued as evidence of a debt or the granting of security for a loan of a fixed sum at interest (or both). The term is often used in relation to loans (usually from banks) secured by charges, including floating charges, over companies’ assets.

Debt Management*
Often used in relation to consumer debt to describe rescheduling, consolidation and other procedures short of formal insolvency that are offered by commercial debt management companies.

Director
A person who conducts the affairs of a company.

Disqualification
A procedure whereby a person has a court order made against them or gives an undertaking to the Secretary of State which makes it an offence for that person to be involved in the management or directorship of a company for the period specified in the order (unless leave has been granted by the court).

Dividend
Any sum distributed to creditors in an insolvency proceeding.

Enterprise Act 2002*
Primary legislation that introduced a new administration procedure and restricted administrative receivership with a view to promoting company rescue. It also amended personal insolvency procedures with a view to promoting entrepreneurism and reducing the stigma of bankruptcy.

European Insolvency Regulation*
A piece of European legislation directly applicable in all European Union member states except Denmark, which provides a framework for applying appropriate national laws in European cross-border insolvency proceedings.

Fixed charge
A charge held over specific assets. The debtor cannot sell the assets without the consent of the secured creditor or repaying the amount secured by the charge.

Floating charge
A charge held over general assets of a company. The assets may change (such as stock) and the company can use the assets without the consent of the secured creditor until the charge “crystallises” (becomes fixed). Crystallisation occurs on the appointment of an administrative receiver, on the presentation of a Winding-Up petition or as otherwise provided for in the document creating the charge.

Going Concern*
Basis on which Licensed Insolvency Practitioners prefer to sell a business. Effectively it means the business continues, jobs are saved and a higher price is obtained.

Guarantee
An agreement to pay a debt owed by a third party. It must be evidenced in writing for it to be enforceable.

Individual Voluntary Arrangement (IVA)*
A voluntary arrangement for an individual is a procedure whereby a scheme of arrangement of his affairs or composition in satisfaction of his debts is put forward to creditors. Such a scheme requires the approval of the Court and is under control of a supervisor.

Insolvency*
Defined as having insufficient assets to meet all debts, or being unable to pay debts as and when they are due. If a creditor can establish either test, he will be able to present a Winding-up Petition. For a Bankruptcy petition, inability to pay is the only available ground.

Insolvent Partnerships Order 1994 (IPO)*
An Order setting out the procedures for dealing with insolvency partnerships. The Order provides for Winding-Up an insolvent partnership as an unregistered company, with or without concurrent insolvency proceedings against individual partners; for the joint bankruptcy of individual partners, without Winding-Up the partnership as an unregistered company; and for the application of the administration and company voluntary arrangement procedures to insolvent partnerships.

Interim Order*
An individual who intends to propose a Voluntary Arrangement to his creditors may apply to the Court for an interim order that, if granted, precludes Bankruptcy and other legal proceedings whilst the order is in force.

Licensed Insolvency Practitioner*
An individual licensed by one of the Chartered Accountancy bodies, the Law Society, the Insolvency Practitioners’ Association or the Government's Insolvency Service. The only person who may act as an office holder in an insolvency. Persons claiming to be insolvency practitioners, but who do not hold a licence may not be able to help you. The status of anyone claiming to be a Licensed Insolvency Practitioner can be confirmed through The Insolvency Service.

Liquidation (Winding-Up)
Applies to companies or partnerships. It involves the realisation and distribution of the assets and usually the closing down of the business. There are three types of liquidation – compulsory, creditors’ voluntary and members’ voluntary.

Liquidator
The Official Receiver or a Licensed Insolvency Practitioner appointed to administer the liquidation of a company or partnership.

Member (of a company)
A person who has agreed to be, and is registered as, a member, such as a shareholder of a limited company.

Members’ Voluntary Liquidation (MVL)*
A solvent liquidation where the shareholders appoint the liquidator to realise assets and settle all the company’s debts, plus interest, in full within 12 months.

Nominee
A Licensed Insolvency Practitioner who carries out the preparatory work for a voluntary arrangement, before its implementation.

Officer (of a company)
A director, manager or secretary of a company.

Official Receiver
An officer of the court and civil servant employed by The Insolvency Service, who deals with bankruptcies and compulsory company liquidations.

Partnership Voluntary Arrangement*
The term used informally to describe the Company Voluntary Arrangement (CVA) procedure as applied to partnerships under the Insolvent Partnerships Order 1994.

Person
An individual or corporation.

Petition
A formal application made to a court.

Phoenix Company*
A company that rises from the ashes of a failed business, often with the same owners, management, staff, assets and customers, but leaving unpaid creditors behind.

Preferential creditor
A creditor who is entitled to receive certain payments in priority to floating charge holders and other unsecured creditors. These creditors include occupational pension schemes and employees.

Proof of debt
A statutory form completed by a creditor in a compulsory liquidation to state how much is claimed. The form is supplied by the Liquidator.

Proprietary Business*
The business of a sole trader.

Provisional liquidator
Official Receiver or Licensed Insolvency Practitioner appointed to preserve a company’s assets pending the hearing of a winding-up petition.

Proxy
Instead of attending a meeting, a person can appoint someone to go and vote in their place – a ‘proxy’.

Proxy form
Form that must be completed if a creditor wishes someone else to represent him or her at a creditors’ meeting and vote on his or her behalf.

Public examination
When a company is being wound up or in bankruptcy proceedings, the Official Receiver may at any time apply to the court to question the company’s director(s) or any other person who has taken part in the promotion, formation or management of the company or the bankrupt.

Realise
Realising an asset means selling it or disposing of it to raise money, for example to sell an insolvent’s assets and obtain the proceeds.

Receiver
The commonly used name for an administrative receiver. The term can also mean a person appointed by the court or with the power to receive the rents and profits of property. Receivers who are not administrative receivers do not need to be Licensed Insolvency Practitioners.

Receivership
A company in administrative receivership is often said to be “in receivership”.

Rescission
A procedure that cancels a Winding-Up order.

Release
The process by which the Official Receiver or a Licensed Insolvency Practitioner is discharged from the liabilities of office as trustee/liquidator or administrator.

Secretary of State*
The Secretary of State for Business, Innovation & Skills.

Secured Creditor
A creditor who holds security, such as a mortgage, over a person’s assets for money owed.

Security*
A charge or mortgage over assets taken to secure a payment of a debt. If the debt is not paid, the lender has a right to sell the charged assets. The commonest example is a mortgage over a property.

Shadow Director
A person who, without being formally appointed, gives instructions on which the directors of a company are accustomed to act.

Sole Trader*
An individual in business, not conducted through a company.

Statement of affairs*
A document verified by a statement of truth, completed by a bankrupt, company officer or director(s), stating the assets and giving details of debts and creditors.

Supervisor*
An Insolvency Practitioner appointed to supervise the carrying out of a Company Voluntary Arrangement or an Individual Voluntary Arrangement.

Turnaround*
The general process by which a company’s fortunes are ‘turned around’ using a combination of restructuring, refinancing etc. This may involve a formal insolvency process to protect the company from Creditor action or Administration but may not.

UNCITRAL
United Nations Commission on International Trade Law.

Unsecured creditor
A creditor who does not hold security (such as a mortgage) for money owed. Some unsecured creditors may also be preferential creditors.

Voluntary Arrangements*
See Individual Voluntary Arrangement (IVA) and Company Voluntary Arrangement (CVA).

Voluntary Liquidation
A method of liquidation not involving the courts or the Official Receiver. There are two types of voluntary liquidation – members’ voluntary liquidation for solvent companies and creditors’ voluntary liquidation for insolvent companies.

Winding-Up order
Order of a court, usually based on a creditor’s petition, for the Compulsory Winding-Up or Liquidation of a company or partnership.

Workout*
A general term that relates to any deferred payment to creditors, Bond holders or like which may be linked to performance, turnover, profits etc.
 

Glossary terms from the Insolvency Service © Crown copyright except where indicated*.


 

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