Glossary of Terms
This is a formal, court driven process, for dealing with insolvent companies. A licensed Insolvency Practitioner will act as the Administrator for the company, on behalf of all the company’s creditors, and will seek to sell the company’s business and assets in order to distribute the funds realised to the creditors.
Administration order
An administration order is the document sealed by the court granting an administration of a company.
Administrative receiver
The title given to the Licensed Insolvency Practitioner who is appointed to deal with the affairs of a Company which is placed into an Administrative Receivership.
Administrative Receivership
Like an Administration, it is a formal, court driven process for dealing with insolvent companies however the difference being that a chargeholder appoints the Insolvency Practitioner to act and therefore his duties (this time as the Administrative Receiver) are solely to the chargeholder and not the general body of creditors.
Administrator
The title given to the Licensed Insolvency Practitioner who is appointed to deal with the affairs of a company which is placed into Administration.
Annulment
This is the term given to the scenario when a person had been made Bankrupt but has since had his Bankruptcy reversed. This is usually done when it ought not to have been made in the first place or if the debtor’s debts have been repaid in full.
Bankruptcy
This is the formal insolvency process for dealing with an individual’s debts once they become insolvent. It is not a process used for companies however the term “Bankrupt” is used as an alternative word to “insolvent” for both individuals and companies.
Follow this link to see a more detailed explanation of this process.
Bankruptcy restriction orders or undertakings
This is where a Bankrupt has been ordered by court, or has agreed to, comply with the restrictions/terms of a Bankruptcy for periods after they have been discharged from Bankruptcy. For example the Bankrupt may be ordered to, or agree to, not act as a Director of a Limited Company for a period of 3 years as opposed to just the term of the Bankruptcy (max 1 year).
Business Recovery
The process of turning around or restructuring a financially distressed business with a view to making a profit.
Charge
The legal document entitling the person who registered it (at Companies House) to obtain higher rights over the assets which are mentioned in the charge document. For example, Banks, holding companies and investors will often seek to register charges in order to secure their position over the assets of the companies which they have lent monies to so these assets cannot be sold without their permission and so any proceeds of their sale must be forwarded to them first until ther debt has been repaid in full.
Company Officer
Either a director or company secretary as registered at Companies House.
Company Voluntary Arrangement (CVA)
A legally binding agreement between an insolvent company and its creditors to repay their debts as per the terms of a proposal document put to the creditors and agreed upon by them.
Follow this link to see a more detailed explanation of this process.
Composition of Debts
The title given to when an agreement is reached with a creditor to accept, in full and final settlement of their debt, a reduce sum and/or reduced interest on their debt.
Compulsory Liquidation
This is a formal insolvency process for dealing with an insolvent business but where the creditors of the insolvent company or the court have commenced the proceedings as opposed to it being done voluntarily by the directors of the company. This process is administered by either the Official Receiver (a government body) or an Insolvency Practitioner as per a rota system (if there are sufficient assets to be realised). Like other insolvency processes, the assets of the insolvent business are realised and debts recovered in order to pay these sums to its creditors wherever possible.
Click this link, and then scroll down, to see a more detailed explanation of this process.
Contributory
Any person with an interest in a company and who is liable to contribute to the assets if the company is wound up.
Creditor
A person or company who you/your business owe money to.
Creditors’ Committee
Between 3 and 5 creditors of an insolvent company who agree to act as members of a panel on behalf of the general body of creditors whereby more regular reports of the progress of an insolvent case are given to them and meetings are held in person and by correspondence with them to approve certain resolutions (such as remuneration, investigative points and costs).
Creditors’ Voluntary Liquidation (CVL)
This is a formal insolvency process for dealing with an insolvent business but where the decision to take this course of action has been taken voluntarily as opposed to it being done by the creditors or the court. Like other insolvency processes, the assets of the insolvent business are realised and the debts recovered in order to pay these sums to its creditors (wherever possible).
Follow this link to see a more detailed explanation of this process.
Debenture
A debenture is specific evidence of a debt whereby a fixed sum (often plus interest) is acknowledged. This debt is then often secured by way of a charge (as defined above).
Debt Management
The process of reaching an agreement with your creditors to repay their debts. This can either be in full plus interest or reduced sums in full satisfaction of the debts. It is more commonly used in practice as an informal IVA whereby the insolvent company or debtor pays an agreed sum to a debt management company who in turns takes a fee then forwards the balance to the creditors as per each agreement they have reached with each creditor.
Discharged from Bankruptcy
When the Bankrupt is no longer bound by the restrictions of their Bankruptcy.
Disqualification
When a court order has been made forbidding a person from acting as a director of a limited company for a specified period of time.
Dividend / Distribution
When sufficient assets of an insolvent company or debtor have been realised and are paid to the creditors of the insolvent company / debtor after fees and costs have been accounted for.
Fixed charge
A specific form of charge which secures only fixed assets (generally being freehold properties, intangible assets and immovable assets.
Floating charge
A specific form of charge which secures only assets considered floating charge assets (generally all assets apart from the above fixed charge assets).
Fraudulent Trading
The title given to trading when the company has carried on in business with the specific intent to defraud creditors. This is a criminal offence.
Individual Voluntary Arrangement (IVA)
A legally binding agreement between an insolvent debtor and their creditors to repay their debts as per the terms of a proposal document put to the creditors by them and agreed upon.
Follow this link to see a more detailed explanation of this process.
Insolvency
Most commonly where a company or a debtor is unable to pay their debts as and when they fall due or when their assets are worth less than their liabilities.
Follow this link to see a more detailed explanation of this.
Insolvency Practitioner
A person who has passed the Joint Insolvency Examinations and is licensed by a recognised professional body to act as an office holder of insolvency appointments.
Interim Order / Moratorium
Temporary protection from court from your creditors either continuing with or commencing legal actions against you / your company without the permission of the insolvency office holder or the court.
LPA Receiver
A person appointed to take control over a mortgaged property, usually who’s loan is in default. An LPA receiver works in accordance with the Law of Property Act 1925 and does not have to be a licensed Insolvency Practitioner.
Liquidation
See either the definition of Creditors Voluntary Liquidation or Compulsory Liquidation for the most common forms of insolvent Liquidation or Members Voluntary Liquidation for the definition of a solvent Liquidation.
Liquidator
The Licensed Insolvency Practitioner appointed to administer a Liquidation of an insolvent business.
Member
A shareholder of a company.
Members’ Voluntary Liquidation (MVL)
A formal process used to close down a solvent company and distribute its assets in the most tax efficient manner. Only a licensed Insolvency Practitioner can act as office holder of an MVL.
Follow this link to see a more detailed explanation of this process.
Nominee
The title given to the Licensed Insolvency Practitioner who is appointed to deal with the affairs of a company which is placed into a Company Voluntary Arrangement.
Office Holder
The Licensed Insolvency Practitioner appointed to act as either an Administrator of an Administration, an Administrative Receiver of an Administrative Receivership, a Liquidator or a Liquidation, a Supervisor of a Voluntary Arrangement or a Trustee of a Bankruptcy.
Official Receiver
A government official (usually an officer of the court or a civil servant) appointed to act on Bankruptcies and Compulsory Liquidations.
Partnership Voluntary Arrangement (PVA)
A Voluntary Arrangement (like a CVA and an IVA) but for Partnerships.
Follow this link to see a more detailed explanation of this.
Personal Guarantee
A commitment from an individual to repay a debt (usually in the event that their Company cannot repay the debt but this is not always the case).
Petition or Winding-up Petition
A formal application to court to force a creditor to repay their debt, dispute it and reach a solution or if unable to pay, to place the Company into Compulsory Liquidation (if presented against a Company) or place the individual into Bankruptcy (if presented against an individual).
Follow this link to see a more detailed explanation of this.
Preference
Where as a result of a payment made by an insolvent company or insolvent Individual a person or company has been placed into a better position than they would have been had the payment not been made. This will usually mean that one creditor has benefitted unfairly over and above other creditors. These transactions can be challenged.
Preferential Creditor
A creditor who ranks higher in status when dividends to creditors are paid from the realisations made from an insolvency process. It should be noted that H M Revenue & Customs are now no longer a preferential creditor but employees for wages and holiday pay are together with some pension entitlements and some subrogated wages payments to Banks.
Proof of Debt
The documentary evidence required to be completed and submitted for validation to prove a debt to a creditor.
Proposals
A document sent to creditors for approval together with certain statutory resolutions.
Provisional Liquidator
A person appointed to protect the assets of a Company if a petition to wind up the company has been presented but a Compulsory Liquidator has yet to be appointed. This more commonly used in cases where assets are perishable or in danger of theft or damage.
Proxy
The document required for completion by a creditor to confirm how they wish to vote on the resolutions stated, whether they wish to attend the meeting stated (or appoint someone else to act on their behalf) and to state who they wish to appoint to act as office holder of the stated insolvency case.
Realisations
The proceeds of any sales of the business, assets and debtors of an insolvent Company or debtor.
Receiver
The Licensed Insolvency Practitioner appointed to administer an Administrative Receivership of an insolvent business or individual appointed to act as an LPA receiver.
See Administrative Receivership above.
Retention of Title (or Reservation of Title)
The legal clause whereby ownership of goods supplied remains with the seller until such time as they have been paid for in full.
Secured Creditor
A creditor who holds security over an asset such as a mortgage, a charge or a debenture.
Shadow Director
A person who is not formally appointed as a director at Companies House however they give instructions on which the directors are accustomed to act.
Statement of Affairs
The financial document which summarises the assets and liabilities of the insolvent company / insolvent debtor.
Statutory Demand
A formal demand for payment of a debt of £750 or more whereby once served, the debtor has 21 days to pay the debt or dispute the debt. This can only be served by hand by a process server and if it remains unpaid after this period has ended a formal petition to wind up the company can be presented (if a company) or petition to make the debtor Bankrupt can be presented (if an individual).
Follow this link to see a more detailed explanation of this.
Supervisor
The title given to the Licensed Insolvency Practitioner who is appointed to deal with the affairs of a company or individual which is placed into a Voluntary Arrangement.
Transaction at an Undervalue
Where an asset has been given as a gift or for significantly less than its value. These types of transactions can be challenged.
Trustee
The title given to the Licensed Insolvency Practitioner or Official Receiver who is appointed to deal with the affairs of a company or individual that is placed into Bankruptcy.
Unsecured Creditor
A creditor who does not hold any form of security and is not a preferential creditor (as defined above).
VAT Bad Debt Relief
The process of reclaiming VAT from H M Revenue & Customs which you have been charged and have paid over to them on a debt which will not be paid to you.
Winding up / Winding up Order
A court order which places a Limited company into Compulsory Liquidation.
Wrongful Trading
The title given to trading when the director of a company in Liquidation ought to have concluded that there was no reasonable prospect of avoiding Liquidation however there has been no specific intent to defraud their creditors.
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