Administration Order
a) A Court order placing the company that is, or is likely to become, unable to pay its debts under the control of an administrator following an application by, inter alia, the company, its directors or a creditor. The purpose of the order is the rescue of a company as a going concern, achieving a better result for creditors than available on liquidation, or realising property to enable a distribution to one or more secured or preferential creditors,
b) The administration of the insolvent estate of a deceased debtor;
c) County Court process permitting an individual with modest debts to pay them off by instalments. No insolvency practitioner is involved.
Administrative Receiver
An insolvency practitioner appointed by the holder of a floating charge covering the whole, or substantially the whole, of a company's property. He can carry on the company's business and sell the business and the other assets comprised in the charge to repay the secured and preferential creditors. Administrative receivers can only be appointed in exceptional circumstances under charges created after 15 September 2003.
Administrative Receivership
The legal state of a company when a person is appointed as an administrative receiver of its property and undertaking.
Administration
The legal status of a company subject to an administration order or an 'Out of Court' appointed administrator.
Administrator
An insolvency practitioner appointed either by the Court under an administration order or 'Out of Court' by the board of directors or the holder of a qualifying floating charge. The administrator will need to produce proposals for approval by the creditors to achieve the specified purposes.
Agricultural Receivership
A specialist remedy to take control of the assets of a farmer under the Agricultural Credits Act 1928.
Annulment
A process which cancels a bankruptcy order. An order of annulment can only be made by the Court.
Associates
Associates of an individual include family members, relatives, partners and their relatives, employees, employers, trustees in certain trust relationships and companies which the individual controls. Associates of companies include other companies under common control (see also connected persons).
Bankruptcy
Bankruptcy is the process of dealing with the estate of an individual who has been made bankrupt.
Bankruptcy Restrictions Orders/Undertakings
An order/undertaking whereby a bankrupt can be restricted from certain activities for a period of up to 15 years from the making of the bankruptcy order.
Bond
Quasi fidelity insurance needed by a person who acts as an insolvency practitioner.
Break-Up Sale
Dismantling of a business. Trading ceases and the assets are sold off piecemeal.
Charge
The appropriation of real or personal property for the discharge of a debt without giving the creditor any property in, or possession of, the subject of the security.
Charging Order
Court order placing restrictions on the disposal of certain assets, such as property or securities, and giving priority of payment over other creditors.
Company Directors Disqualification Act 1986
Statute dealing with the disqualification of directors, including reporting requirements by insolvency practitioners.
Company Voluntary Arrangement
A procedure under the Insolvency Act whereby a plan of reorganisation or composition in satisfaction of the company's debts is put forward to creditors and shareholders. There is limited involvement by the Court so that the scheme, once approved, binds all creditors. A supervisor is appointed to oversee implementation of the scheme.
Composition
An agreement between a debtor and his creditors whereby the compounding creditors agree with the debtor and between themselves to accept from the debtor payment of less than the amounts due to them in full satisfaction of their claims.
Compulsory Liquidation
A compulsory liquidation of a company is liquidation ordered by the Court. This is usually as a result of a petition presented to the Court by a creditor and is the only method by which a creditor can bring about a liquidation of its debtor company.
Connected Persons
Directors or shadow directors of a company and their associates, and associates of a person.
Court-Appointed Receiver
A person, not necessarily a licensed insolvency practitioner, appointed to take charge of assets usually where they are subject to some legal dispute.
Creditors' Committee
A creditors' committee is formed to represent the interest of all creditors in supervising the activities of an administrator or trustee in bankruptcy, or receiving reports from an administrative receiver. It consists of between 3 and 5 creditor members.
Creditors' Voluntary Liquidation
A liquidation that is commenced by resolution of the shareholders, but is under the effective control of creditors, who can choose the liquidator at a meeting convened pursuant to Section 98 of the Insolvency Act 1986.
Debenture
A document stating the terms of a loan, usually to a company. Debentures may be secured on part or all of a company's assets, or they may be unsecured. In the context of a floating charge, the lender is often referred to as the debenture holder.
Declaration of Solvency
Forming part of the members’ voluntary liquidation process, a statutory declaration confirming that the directors have made a full inquiry into the company's affairs and that, having done so, they believe that the company will be able to pay its debts in full within 12 months from the start of the winding up. The declaration will include both the assets and liabilities as at the latest practicable date before making the declaration and must be signed by a majority of the company's directors.
Deed of Arrangement
Method for an individual to come to terms with creditors short of formal bankruptcy, now almost completely replaced by voluntary arrangements.
Discharge from Bankruptcy
A process which releases a debtor from the formal bankruptcy procedure and from most of the debts owed at the date the bankruptcy order was made.
Disqualification of Directors
A director found to have conducted the affairs of an insolvent company in an 'unfit' manner may be disqualified, on application by the Department of Trade and Industry to the Court, from holding any management position in a company for between 2 and 15 years. To avoid the costs of Court action it is also possible for 'unfit' directors to give an undertaking not to act as a director for a period agreed with the DTI. Breach of such an undertaking carries the same penalties as breach of a disqualification order.
Distribution in Specie
The distribution of an individual's or company's assets in a non-monetary form.
Enterprise Act 2002
An Act which contains measures that reform competition law, strengthen consumer protection and modernise the Insolvency Act. The provisions on corporate insolvency and the abolition of Crown preference came into force on 15 September 2003. The individual insolvency provisions and those reforming The Insolvency Service's financial regime came into force on 1 April 2004.
European Regulation on Insolvency Proceedings 2000
The Regulation came into force on 31 May 2002 in all member states of the European Union, except Denmark. The Regulation only applies where the 'centre of a debtor's main interests'is situated within a member state (usually presumed to be the place of the registered office). Whilst the Regulation does not attempt to harmonise the insolvency laws of the member states it does make important changes governing the relationship between different insolvency procedures within the EU.
Extortionate Credit Transaction
A transaction by which credit is provided on terms that are exorbitant or grossly unfair compared with the risk accepted by the creditor. Such a transaction may be challenged by an administrator, liquidator or trustee in bankruptcy.
Fast Track IVA
An individual voluntary arrangement which is proposed by the individual through the O.R., rather than through a licensed insolvency practitioner. The individual must already be subject to a bankruptcy order before such an arrangement can be proposed. Unlike a normal IVA the creditors are not permitted to 'modify' the proposal.
Fixed Charge
A form of security granted over specific assets which generally do not change on a day to day basis in the ordinary course of business (e.g. freehold property, goodwill), preventing the debtor dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim on the proceeds of sale, and the creditor can usually appoint a receiver to realise the assets in the event of default.
Floating Charge
A form of security granted to a creditor over general assets of a company which may change from time to time in the normal course of business (e.g. stock). The company can continue to use the assets in its business until an event of default occurs and the charge crystallises. If this happens, the secured creditor can realise the assets to recover its debt, usually by appointing an administrative receiver or administrator, and obtain the net proceeds of sale subject to the prior claims of the preferential creditors.
Fraudulent Trading
Where a company has carried on business with intent to defraud creditors, or for any fraudulent purpose. It is a criminal offence and those involved can be made personally liable for the company's liabilities.
Going Concern
Basis on which insolvency practitioners usually prefer to sell a business. Effectively it means the business continues, and a higher price is often obtained.
Guarantee
A legal commitment to repay a debt if the original borrower fails to do so. Directors may give guarantees to banks in return for the bank giving finance to their companies.
Income Payments Order/Agreement
Court order or out of Court agreement which provides for part of a bankrupt's income to be paid to the trustee. The duration of an IPO/IPA is up to 3 years from the date of the bankruptcy order.
Individual Voluntary Arrangement
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. Once approved, the scheme binds all creditors and is controlled by a supervisor.
Insolvent
Defined alternatively as having total assets worth less than total liabilities, or being unable to pay debts as and when they fall due. If a creditor can establish either test, he will be able to present a winding up or bankruptcy petition.
Insolvency Act 1986
Primary legislation governing insolvency law and practice. Extensively amended by the Enterprise Act 2002, many other statutes and statutory instruments are also relevant.
Insolvency Services Account
Account maintained by the Department of Trade and Industry, through which funds must be passed in certain liquidations and bankruptcies.
Insolvent Liquidation
A company goes into insolvent liquidation if it enters liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the liquidation.
Insolvent Partnerships Order 1994 (IPO)
An Order setting out the procedures for dealing with insolvent partnerships.
Insolvency Practitioner
Person licensed by one of the chartered accountancy bodies, the Law Societies, the Insolvency Practitioners Association or the Department of Trade and Industry. The only person who may act as an office holder in an insolvency proceeding.
Insolvency Rules 1986
The Insolvency Rules 1986, as amended, provide the detailed working procedures for the provisions of the Insolvency Act 1986.
Interim Order
An individual who intends to propose a voluntary arrangement to his creditors may apply to the Court for an interim order which, if granted, precludes bankruptcy and other legal proceedings being started or continued whilst the order is in force.
Law of Property Act 1925
Governs transactions in law and property. Contains statutory powers of receivers appointed under a fixed charge.
LPA Receiver
Law of Property Act 1925 receiver: a person (not necessarily an insolvency practitioner) appointed to take charge of a mortgaged property by a lender whose loan is in default, usually with a view to sale or to collect rental income for the lender. Common in the case of the failure of a property developer, whose borrowing will largely be secured on specific properties.
Lien
Right to retain possession of assets or documents in settlement of a debt.
Liquidation
Process whereby a company has its assets realised and distributed to satisfy, insofar as it is able, its liabilities and to repay its shareholders. The term winding up is also used. Liquidation is a terminal process and is followed by the dissolution of the company.
Liquidation Committee
Committee of creditors and sometimes shareholders who receive information from a liquidator and sanction some of his actions. It consists of between 3 and 5 creditor members.
Liquidator
Insolvency practitioner appointed to wind up a company or partnership.
Members' Voluntary Liquidation
Solvent liquidation where the shareholders appoint the liquidator to realise assets and settle all the company's debts in full, together with statutory interest, within 12 months.
Misfeasance
Breach of duty or misapplication of funds or property of a company by its directors or managers.
Moratorium
Implemented during the period leading up to a CVA (or partnership voluntary arrangement) precluding insolvency and other legal proceedings being started or continued against the company whilst it remains in force. The term is also used to describe the protection afforded to a company in administration from, inter alia, enforcement creditors.
Mortgage
A transfer of an interest in land or other property by way of security redeemable upon performing the condition of paying a given sum of money.
Nominee
An insolvency practitioner appointed to consider proposals of a debtor in an individual, company or partnership voluntary arrangement.
Office Holder
A liquidator, provisional liquidator, administrative receiver, administrator, supervisor of a voluntary arrangement, or trustee in bankruptcy.
Official Receiver (‘O.R.’)
Officer of the Court, civil servant, member of the DTI Insolvency Service, who deals with bankruptcies and compulsory liquidations.
Onerous Property
The term onerous property in the context of a liquidation or bankruptcy applies to unprofitable contracts and to property that is unsaleable or not easily saleable or that might give rise to a continuing liability. Such property can be disclaimed by a liquidator or a trustee in bankruptcy, e.g. a lease.
Partnership Voluntary Arrangement
A procedure whereby a proposal is put forward to creditors for a composition in satisfaction of the partnership's debts through a scheme of arrangement. Such a scheme requires the approval of the Court and may be proposed in conjunction with individual voluntary arrangements in respect of each of the partners. An application for an administration order may precede the proposal in order to protect the partnership assets.
Petition
A written application to the Court for relief or remedy.
Preference
A payment or other transaction in the 6 month period (or 2 years for connected parties) preceding a liquidation, administration or bankruptcy, which places a creditor or guarantor, in a better position than they would have been otherwise. The office holder may recover sums which are found to be preferences.
Preferential Creditor
Defined in Schedule 6 of The Insolvency Act 1986. Has priority over creditors whose debts are secured by a floating charge and unsecured creditors, when funds are distributed by a liquidator, administrative receiver or trustee in bankruptcy. The main categories are arrears of wages (up to a maximum of £800), all outstanding holiday pay, and arrears of contributions to an occupational pension scheme subject to certain restrictions. PAYE, national insurance continuations and VAT are no longer preferential.
Proof of Debt
Document submitted by a creditor to the insolvency practitioner giving evidence of the amount of the debt.
Provisional Liquidator
Insolvency practitioner appointed to safeguard a company's assets after presentation of a winding up petition but before a winding up order is made.
Proxy
Document whereby a person or company authorises another to represent them at a meeting. The proxy may be a general proxy, giving the holder discretion as to how he votes, or a special proxy requiring him to vote as directed.
Proxyholder
Person who attends a meeting on behalf of another.
Qualifying Floating Charge
A charge is a qualifying floating charge if it is created by an instrument which:
- states that paragraph 14 of Schedule B1 to IA 1986 applies to the floating charge;
- purports to empower the holder of the floating charge to appoint an administrator of the company;
- purports to empower the holder of the floating charge to make an appointment which would be the appointment of an administrative receiver within the meaning given by section 29(2) IA 1986; or
- purports to empower the holder of a floating charge in Scotland to appoint a receiver who on appointment would be an administrative receiver; and
- which, either on its own or with other security, relates to the whole or substantially the whole of the company’s property.
Receiver
Often used to describe an administrative receiver, who may be appointed over a company's assets. More accurately, a receiver is the person appointed by a secured creditor holding a charge over certain assets of a company in order to take control of those assets for the benefit of the secured creditor.
Receivership
The general term applied when a person is appointed as a receiver or administrative receiver.
Recognised Professional Body
An organisation approved by the Secretary of State as being able to authorise its members to act as insolvency practitioners (see Insolvency Practitioner).
Relevant Date
The commencement date of the insolvency proceedings.
Reserved Fund (also known as the Prescribed Part)
Under the Enterprise Act 2002 the order of payment to classes of creditors was altered in cases where a floating charge was created after 15 September 2003. A sum of money, instead of being paid to e.g. a bank under its floating charge, is ring fenced for contribution towards the claims of the unsecured creditors. The prescribed part is calculated as follows: 50% of the first £10,000 of the sum, plus 20% of the remaining balance, up to a maximum of £600,000.
Retention of Title
A provision under a contract for the supply of goods which purports to reserve ownership of the goods with the supplier until the goods have been paid for.
Scheme of Arrangement
A compromise or arrangement between a company and its creditors or members or any class of them under section 425 of the Companies Act 1985.
Secured Creditor
A creditor with specific rights over some or all of the debtor's assets in the event of insolvency or other default. In essence, the secured creditor gets paid first.
Security
A charge or mortgage over assets taken to secure payment of a debt. If the debt is not paid, the lender has a right to sell the charged assets. Security documents can be very complex. The most common example is a mortgage over a property.
Shadow Director
A person who is not formally appointed as a director, but in accordance with whose directions or instructions the directors of a company are accustomed to act. However, a person is not a shadow director merely because the directors act on advice given by him.
Special Manager
A special manager is a person appointed by the Court in a compulsory liquidation or bankruptcy to assist the liquidator, O.R. or trustee in managing the insolvent's business. He does not need to be an insolvency practitioner.
Statement of Affairs
A statement of assets (usually including details of both book and estimated to realise values) and liabilities at a given date, usually prepared by the directors in corporate insolvency proceedings or the individual in personal insolvency proceedings.
Statutory Demand
A formal notice requiring payment of a debt exceeding £750 within 21 days, in default of which bankruptcy or liquidation proceedings may be commenced without further notice.
Supervisor
Insolvency practitioner appointed by creditors to supervise the way in which an approved voluntary arrangement is put into effect.
Transaction at an Undervalue
A transaction at an undervalue can be described either as a gift or a transaction in which the consideration received is significantly less than that given. In certain circumstances such a transaction in the 2 years prior to insolvency can be challenged by an administrator or liquidator. A trustee in bankruptcy can challenge such transactions occurring in the 5 years before insolvency.
Trustee
Quite apart from its common usage, (under the Trustee Act 1925), this is a term used for a variety of insolvency appointments, including the insolvency practitioner appointed in an English bankruptcy; a Scottish sequestration; a Deed of Arrangement; a Scottish trust deed and an administration order of the affairs of a deceased debtor.
Unsecured Creditor
Strictly, any creditor who does not hold security. More commonly used to refer to any ordinary creditor who has no preferential rights, although, in fact, preferential creditors are also technically unsecured.
VAT Bad Debt Relief
The relief obtained from H M Revenue & Customs in respect of the VAT element of an unpaid debt. It can be claimed on debts over 6 months old that have been written off in the creditor's books.
Voluntary Liquidation
See creditors'voluntary liquidation and members'voluntary liquidation.
Winding up
See liquidation.
Winding-up Order
Order made by the Court for a company to be placed in compulsory liquidation.
Winding-up Petition
A winding-up petition is a petition presented to the Court seeking an order that a company be put into compulsory liquidation.
Wrongful Trading
Applied to companies in liquidation where a director allowed the company to continue trading in circumstances where he should have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation. The directors involved may be made personally liable to make a contribution to the company's assets if they have not taken all steps necessary to minimise the loss to creditors.