Glossary of Insolvency Terms

Glossary of Insolvency Terms. – here to help you with the terminology used in the world of insolvency.

Hopefully, this will help you make the right decision for you.

Commonly used terms in insolvency:

Administration

Please visit our Administration page for further information.

Administrator

A person who controls a company, which has gone into administration.  An administrator must be a licensed insolvency practitioner.

Administrative Receiver/Administrative Receivership

An administrative receiver usually appointed by a lender (a bank) with a pre-Enterprise Act floating charge over the company’s assets. The administrative receiver then primarily acts, therefore, on behalf of the appointor, to recover their debt.

AGM

An Annual General Meeting (AGM) exists where company directors share information with shareholders about the past year’s performance, and often provide forecasts and plans for the future. Shareholders of that company remain therefore allowed to discuss their opinions and vote for any eligible changes, such as auditors and directors.

Annulment

The act of voiding or invalidating a decision taken.  Bankruptcy may then be annulled if demonstrated that the individual should not have been made bankrupt.

Arrears

A term used when a debt has not received payment on time and has become overdue. If the debt remains not paid, then action may be taken to reclaim the money.

Assets

Anything owned by the individual or company, which has a value either now or in the future. Examples include vehicles, shares, money in the bank or hand, property and book debts. Less obvious assets may be intangible, such as goodwill, patents, “brands” or equitable contracts.

Bailiff

Bailiff works on behalf of the court to collect a debt. Several types of bailiffs whose powers vary, and they act differently. Bailiffs can be instructed to seize goods for payment of debts if an individual or company fails to pay a debt. (such as through a County Court Judgement or CCJ): they can also be used to repossess the property.

Bankruptcy consequences

Consequences of bankruptcy include losing control of assets, restrictions on the ability to obtain credit, and not being allowed to act as a company director. Some occupations specifically indicate that becoming bankrupt constitutes a breach of employment terms, so we recommend you read your employment contract. Bankruptcy will also significantly and negatively impact your credit rating.

Bankruptcy order

A court order makes an individual bankrupt.

Bankruptcy petition

A creditor may only petition (creditor’s petition) for individual bankruptcy if the debt is unsecured, and for a quantifiable sum over £750.  Bankruptcy can also be petitioned for by a group of creditors if the combined sum is due to more than £750.  A debtor can also petition for their bankruptcy (debtor’s petition) if they remain aware they are unable to pay their debts. The proceedings will generally take place in a local court with bankruptcy jurisdiction. For more information, visit http://www.insolvency.gov.uk

Bankruptcy restrictions order or undertaking

A bankruptcy restriction order or undertaking where a restriction made against an individual. This could lead to bankruptcy restrictions continuing for between two and fifteen years.

BEIS – The Department for Business, Energy and Industrial Strategy (formerly DTI – Department of Trade and Industry)

Is the government responsible for trade and industry?  The Insolvency Service remains part of BEIS.

Book debts

Monies owed to an individual or company for goods supplied or services provided. Deemed “assets” – see above. Individuals or companies who owe the money remain referred to as debtors.

County Court Judgement (CCJ)

A County Court Judgement, a court action where an individual or company has been taken to court for non-payment of debts. The court may order the debt to be paid within a period of time. If the debt remains, further unpaid action can be taken to recover it – e.g. the use of a bailiff.

Glossary of Insolvency Terms. – Companies House

All UK limited companies and PLC’s (public limited companies) remain registered at Companies House. All the company information filed regarding these companies remains stored and available to the public.

Charging order

An order made by the court granting a charge over an interest in a property in respect of an unpaid debt. The charge, like a mortgage charge, in that the debtor may not dispose of the property without either satisfying the charge or obtaining the charge holder’s permission.

Credit rating

An assessment of creditworthiness used by banks and other lenders, expressed as a score. It can relate to either individuals or companies, and based on a combination of factors, but mainly past credit history.  An application for a loan or credit may stand or fall depending on the credit rating.  While taking credit and paying promptly will have a positive impact on a credit rating, the existence of CCJ’s or any defaults on paying debts will have a negative impact.

Creditor

Individuals or companies owed money. It can also be someone who will (or may) be owed money in the future due to an obligation already entered into, but not yet crystallised.

Company Voluntary Arrangement (CVA)

Please visit our CVA page.

Creditors Voluntary Liquidation (CVL)

Please visit our CVL page.

Glossary of Insolvency Terms. – Debtors

Individuals or companies that owe money to a third party for goods or services provided.

Debt relief order

An alternative (and similar in many ways) to bankruptcy, but where the amount of debt remains lower. Suitable for people who do not own their own home, have little surplus income, assets and less than £20,000 of debt. – for more information, visit http://www.insolvency.gov.uk.

Debts

Monies owed to an individual or company for goods supplied or services provided.

Directors

Company directors ultimately assume responsibility for the conduct of the company. This includes the day-to-day running, management, control and compliance of the company.

Dissolution

Three months after the striking of a company from the Registrar of Companies, that company will be formally dissolved at Companies House, ceasing to exist.

Distraint

The seizure of an individual’s or a company’s property to obtain payment of money owed. Often implemented by landlords to recover unpaid rent.

Factoring

A way to raise finance using book debts as security. A company issues an invoice for goods or services provided. The factoring company will advance the company a pre-agreed percentage of the value of the invoice. The company receives the remaining balance of the invoice (less the factoring charge) when the customer settles the invoice.

Glossary of Insolvency Terms. – Fixed and floating charge

This is security over company assets. The legal document usually used to create such charges is a debenture.

  • A fixed charge generally attaches to fixed assets, such as property, plant and equipment. They remain specifically mentioned in the document of charge, and the company cannot sell these assets without the permission of the lender.
  • A floating charge. Usually attached to a category of assets. The borrower does not require permission to sell these assets, and the charge relates to all assets caught within the charged category. A floating charge is often associated with current assets, including stock and work in progress. The company can deal with these assets in the normal course of business, whenever necessary, without any reference to the charge holder.
  • A floating charge attaches only when it “crystallises”. This occurs, for example, if a bank calls in its lending and demands full repayment. Once the charge crystallises, the company would not be able to use the assets without the permission of the charge holder.

Fraudulent trading

Where trade continues without any means of repaying debts and with the intention of defrauding creditors.

Going Concern

Where a business continues to operate and make a profit.

HMRC – Her Majesty’s Revenue & Customs

The government department that regulates and collects customs and duties, for example VAT and Income Tax. Separate departments historically dealt with these functions – HM Customs & Excise and the Inland Revenue.

Income payments agreement

Within a bankruptcy, this refers to an agreement between the bankrupt and their trustee in bankruptcy.  The bankrupt agrees to pay the trustee a proportion of their income for an agreed period.

Insolvency practitioner

An insolvency practitioner is a specialist with expertise in insolvency matters and licensed to take formal insolvency appointments.  Most insolvency practitioners in the UK are accountants or solicitors.

Insolvent

This when a company or individual cannot afford to repay their debts as and when they fall due.

A company or individual can also be considered insolvent if their liabilities exceed the value of their assets.

Interim order

If an individual of a company proposes a voluntary arrangement, they may apply for an interim order in court. This protects them against any legal action being commenced or continued against them by creditors while the voluntary arrangement is proposed.

Individual Voluntary Arrangement (IVA)

Please visit our IVA page.

Joint and Several Liability

If one or more parties enter into an agreement (such as a mortgage or rent agreement), then joint and several liability exist if all those parties named on the agreement remain liable in full for the debt due.  An example of this would be a joint mortgage, where the mortgage company can pursue either or both people named on the mortgage for the full amount outstanding.

A form of security (for example, a mortgage) to protect the lender’s repayment of debt.

Liabilities

Debts and obligations of the company or individual. Examples include bank loans, mortgages, credit and store cards.

Limited company

A limited company is a legal entity separate and distinct in law from its shareholders and directors.

Limited liability

The shareholders of a limited company remain legally responsible for its debts only to the extent of the amount of capital they have invested.

Glossary Of Insolvency Terms. – Liquidator

Is the appointed individual responsible for dealing with the winding up of a company?  The liquidator of a company must be a licensed insolvency practitioner.

Pension fund

A fund accumulated by contributions invested to secure the payment of pension plans in retirement.

Personal guarantee

This is a written guarantee by an individual or entity to repay the debt of a third party if that party is unable to meet that liability.

Public limited company (PLC)

A PLC is a company that may offer its shares for sale to the public on a stock exchange.

Preferential creditor

A creditor who, in the event of an insolvency event, would be entitled to receive a dividend payment in priority to non-preferential unsecured creditors. This includes employees for certain amounts.

Proxy

Where applicable, an individual needs not attend a meeting. They can appoint a third party to attend and vote in their place – a proxy.

Redundancy

Employees may be made redundant when their employment position no longer exists.  Redundancy occurs in insolvencies as businesses cease to trade or are materially restructured. Directors can claim redundancy.

Shareholders

Individuals or entities that have invested capital into a company in exchange for a share of ownership.

Statement of affairs

This is a statement of the assets and liabilities of a company or individual as at the date of the commencement of the insolvency process that the entity is subject to.  The statement of affairs should provide creditors with an understanding of the extent of that company or individual’s deficit.

Glossary of Insolvency Terms.- Sole trader

Unincorporated business owners who trade without a business partner.

Supervisor

When an individual or company enters a voluntary arrangement, a supervisor of that arrangement is appointed. The supervisor ensures that the agreed terms of the arrangement remain complied with. Failure to adhere to the terms of the arrangement could result in the supervisor failing the voluntary arrangement, resulting in liquidation or bankruptcy.

Trustee in bankruptcy

A trustee in bankruptcy is either the Official Receiver or a licensed insolvency practitioner.  The trustee has the duty to manage the affairs of the bankrupt’s estate.

Unsecured creditor

A creditor who does not possess registered security against an asset (a mortgage provider is a secured creditor). Some unsecured creditors may also be preferential creditors, for example former employees for unpaid wages.

VAT – Value Added Tax

Is a duty levied on the receipt of certain goods and services?  Business owners usually have to register for VAT if their taxable turnover exceeds the current VAT threshold set by the Government.

WUP – Winding up petition

A petition filed in the court for the compulsory winding up of a company due to an unpaid debt.

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