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Insolvency introduces lots of technical terms that can be confusing. We hope the following is useful to you:

A

Adjudicator The person at the Insolvency Service who considers an online application for Bankruptcy.
Administration A major insolvency procedure for companies and partnerships. It can be implemented before a CVA hands the company back to the directors. The appointed Administrator is an officer of the Court and takes over management of the business but is likely to work closely with existing directors and staff. The primary objective is to rescue the company or, if that is not possible, achieve a better outcome for creditors than a Liquidation. The company is protected from creditors whilst this takes place.
Administrative Receiver An IP appointed in an Administrative Receivership.
Administrative Receivership A now rare insolvency procedure for a company. The Administrative Receiver takes control of the whole of the company’s assets under the terms of a lender’s floating charge security.
Administrator An IP appointed in an Administration.
Agricultural Receivership An appointment over certain of a farmer’s assets in accordance with the Agricultural Credits Act 1928.

B

Bankruptcy A formal insolvency procedure for individuals. It can result from the petition of the debtor or a creditor.
Bankruptcy Restrictions Order (BRO) A Court order made following an application by the Official Receiver extending the usual one year restrictions of a Bankruptcy for a period between two and fifteen years.
Bankruptcy Restrictions Undertaking (BRU) Like a BRO, the Bankrupt gives an undertaking to the Secretary of State to comply with Bankruptcy restrictions for a fixed period.
Bond Insurance cover taken out by the appointed IP in respect of most insolvency appointments.

C

Charge Security given by a borrower to a lender over defined assets.
Centre of main interests (CoMI) The European Regulation on Insolvency Proceedings defines CoMI as where a debtor conducts the administration of his interests on a regular basis. Usually where a company’s registered office is or where a debtor resides, but not necessarily so.
Committee of creditors An elected representative body of creditors, of between three and five individuals, who act to act as a sounding board for the appointed IP in an insolvency procedure. Usually responsible for determining the level of fees to be charged, it is not essential for a committee to be appointed.
Company Voluntary Arrangement (CVA) A rescue procedure for a company that usually aims to save the company and maximise the dividend for creditors. A formal offer (Proposal) is made by the directors of a company to pay creditors in full or in part over a fixed period. A Liquidator or Administrator may also put forward such an offer.
Compulsory Liquidation A Liquidation on the order of the Court following a petition by, usually, a creditor. The Official Receiver takes immediate control of any assets of the debtor, but an IP may be appointed later.
Creditor A person or company that is owed money.
Creditors’ meeting A meeting to which creditors are invited to attend that may be for several purposes, although they must be made clear in the paperwork giving notice.
Creditors’ Voluntary Liquidation (CVL) Winding up of an insolvent company following the passing of a resolution by its shareholders. An IP will be appointed as Liquidator although the creditors may later change this choice by a vote.
Crystallisation The process of a floating charge becoming fixed over the assets subject to the charge. The trigger for crystallisation will be an event specified in the charge or at the commencement of a Liquidation or the appointment of a Receiver.

D

Debenture Commonly used to describe a charge giving floating and, possibly, fixed charge security over certain assets.
Debtor A person or company that owes money (to their creditors).
Debt Relief Order (DRO) A debt solution open to individuals who are insolvent, have minimal assets, relatively low levels of debt and little surplus income.
Deed of Arrangement Rarely seen and effectively replaced by the IVA, a Deed of Arrangement under the Deeds of Arrangement Act 1914 allowed a person to come to terms with their creditors as an alternative to Bankruptcy.
De facto director An individual who acts as or holds themselves out to be a director of a company, whilst not formally registered as such at Companies House. A de facto director has the responsibilities of any other director.
De jure director An individual formally recorded at Companies House as a director.
Discharge The release from liabilities granted to a Bankrupt at the end of their period of Bankruptcy (whether or not extended by BRO or BRU). Usually 12 months from the making of the Bankruptcy order, it does not signal the return of Bankruptcy assets to the Bankrupt, although assets acquired after discharge cannot be claimed by the OR or Trustee.
Disqualification Following an application to Court by the Department for Energy and Industrial Strategy (DBEIS), a director found guilty of unfit conduct may be banned from being involved in the promotion, formation or management of a company for two to fifteen years.
Disqualification Undertaking An undertaking given by a director to DBEIS not to act as such for a fixed period between two and fifteen years without the need to go to Court.
Dividend The sharing of funds between creditors in an insolvency, in proportion to the levels of their debts.

F

Fixed charge Security over specific assets, such as property or shares.
Fixed charge Receiver An individual, not necessarily an IP, appointed by the holder of a fixed charge to realise the asset(s) subject to it.
Floating charge A charge on property that may, in the ordinary course of business, change. Eg stock. Such a charge may crystallise into a fixed charge.
Fraudulent trading Like wrongful trading, except it must be proved to criminal standards (beyond all reasonable doubt) that the director intended to cause a loss to creditors. It may result in imprisonment, a fine or personal liability for the losses.

G

Going concern A continuing business before or after restructuring has taken place.
Guarantee A legal commitment to repay a debt if the borrower fails to do so.

I

Individual Voluntary Arrangement (IVA) A rescue procedure for an individual that aims to avoid Bankruptcy and maximise the dividend for creditors. A formal offer (Proposal) is made by the individual to pay creditors in full or in part over a fixed period.
Insolvency Defined by the Insolvency Act 1986 as two tests: having insufficient assets to pay all debts or being unable to pay debts as and when they fall due.
Insolvency Act 1986 The basis legislation governing insolvency law and practice. The Act has been modified substantially subsequently.
Insolvency Practitioner (IP) A person authorised to act in insolvency matters. Insolvency appointments are personal to the IP and the individual must pass an exam to become licensed.
Insolvency Practitioners Association (IPA) A professional body that issues licenses to IPs. Rob Sadler is licensed by the IPA.
Insolvency Service The government department with responsibility for company and individual insolvencies in England and Wales.
Insolvent Partnerships Order 1994 (IPO 1994) Secondary legislation that governs insolvent partnerships in England and Wales.
Intensive care Commonly used to describe the phase in which a company is in a bank’s distressed business department. Often an IP is appointed to advise the directors outside of any formal procedure to try to turn around the company’s fortunes.
Interim Order Sometimes the initial stage of an IVA, where a Court order is granted to protect a debtor from their creditors whilst a proposal is put forward. It can be granted for 14 days and subsequently extended if the Court is satisfied by the Nominee that a meeting of creditors should be held to consider the proposal.

J

Joint estate The property of an insolvent partnership.
Judgement (1) The formal recognition of a due debt by a Court or (2) the decision of the Court following a trial.

L

Liquidation A very common procedure that brings a company to an end after the distribution of its assets. It may be solvent (MVL) or insolvent (CVL).
Liquidator The OR or IP appointed to wind up a company.
LPA Receiver A person, but not necessarily an IP, appointed under the Law of Property Act 1925 to take charge of property when a loan is in default.

M

Member In relation to a company a member is a shareholder or subscriber and for a partnership a member is any partner.
Members’ Voluntary Liquidation (MVL) The winding up of a company which can pay all its debts in full. Any surplus is distributed to shareholders.
Misfeasance A breach of duty in relation to a company, usually by its directors. A Liquidator, Administrator or Administrative Receiver can all be found guilty of misfeasance.
Moratorium The suspension, for a fixed period, of a creditor’s legal rights to act against a company or individual. A moratorium may be in effect prior to an Administration or a CVA and will be upon the granting of an Interim Order before an IVA.

N

Nominee An IP acting in relation to a Voluntary Arrangement prior to the creditors approving or rejecting the proposal.

O

Official Receiver (OR) A civil servant of the Insolvency Service. The OR is appointed first by the Court in any Bankruptcy or Compulsory Liquidation.

P

Partnership Voluntary Arrangement (PVA) A rescue procedure for a partnership that aims to avoid winding up and maximise the dividend for creditors. A formal offer (Proposal) is made by the partnership to pay creditors in full or in part over a fixed period.
Pensions Act 1995 section 75 A provision requiring the scheme’s liabilities to be valued as the cost of securing all members’ benefits on an annuity basis. It will normally result in a higher deficiency than on an ongoing funding basis.
Pension Protection Fund (PPF) A fund to provide compensation to members of eligible defined benefit pensions schemes after a qualifying insolvency event in respect of the employer.
Pensions Regulator The regulator’s role is to oversee and protect pension schemes and the PPF.
Petition A document presented to Court to request the Compulsory Liquidation of a company or the Bankruptcy of an individual.
Preference A potentially recoverable transaction where the debtor has deliberately chosen to pay creditor(s) to the detriment of everyone else.
Preferential creditor Payable ahead of unsecured creditors, now primarily arrears of pay and accrued holiday pay of employees and some unpaid pension contributions. HM Revenue & Customs lost preferential creditor status in 2003.
Pre pack An Administration where the deal to sell the company’s assets is struck prior to appointment and completed immediately thereafter by the Administrator.
Pre pack pool An independent body of experienced business people who will offer an opinion on the purchase of a business and/or its assets by connected parties to a company where a pre pack sale is proposed.
Prescribed part An amount set aside out of floating charge assets for the benefit of unsecured creditors. It only applies where the floating charge was created after 15 September 2003.
Provisional Liquidator Rarely seen, a Provisional Liquidator may be appointed by the Court between the presentation of the winding up petition and the Court hearing. It is usually only used where there is a perceived risk to the company’s assets.
Proxy A document by which a creditor authorises a person to represent them at a meeting of creditors. A company must appoint a proxy, which may be general, giving the proxyholder discretion to vote, or special, requiring them to vote as directed. The proxyholder may be the chairman of the meeting, although in some circumstances this may be a director of the debtor company and creditors may wish to consider whether they are comfortable with this.
Proxyholder A person holding a proxy given by a creditor. Often an IP.

R

R3 The Association of Business Recovery Professionals is a network of professionals working in insolvency and represents its members when liaising with government and the media. It has no statutory powers.
Retention (or reservation) of title Legal clauses in a supplier’s terms of business that seek to retain ownership of goods supplied until they are paid for. This is a complex area of law and advice should be taken immediately if it is relevant to you.

S

Secured creditor A creditor with security over some or all of a debtor’s assets and giving priority over unsecured creditors.
Security A charge or mortgage over assets taken to secure the repayment of a debt. The lender may have the right to appoint a Receiver or Administrator to recover the debt if not paid.
Shadow director A person who, whilst not a de facto or de jure director, is someone whose instructions those directors are used to following. They have all the responsibilities of any director.
Small company Defined to establish the entitlement of a company to seek a moratorium prior to proposing a CVA.
Statutory demand A formal notice requiring payment of a debt within 21 days. Failure to pay may result in a Bankruptcy or Compulsory Liquidation petition.
Supervisor An IP appointed in respect of an IVA, CVA or PVA following the acceptance of the proposal by creditors.

T

Transaction at undervalue A potentially recoverable transaction where the debtor has transferred or gifted an asset at a low value to the detriment of creditors.
Trustee An IP appointed in respect of a Bankruptcy, following and replacing the OR.
TUPE Regulations The Transfer of Undertakings (Protection of Employment) Regulations 2006 under which employees have their contracts of employment automatically transferred to the purchaser following a business sale.

U

Unsecured creditor A creditor that holds no security, but generally used to differentiate those creditors who are also not preferential.

V

VAT bad debt relief A relief available in respect of the VAT element of an unpaid debt. Available on any debt unpaid for more than six months or when the debtor becomes the subject of an insolvency procedure.

W

Winding up order An order made by Court for a company to be placed into Compulsory Liquidation.
Wrongful trading The continuation of trading by the directors of a company that has no prospect of avoiding insolvent Liquidation and further losses are incurred. The directors may be held personally liable for the increase in losses unless they can demonstrate that they have taken every step to minimise them.