Insolvency Terms

This is a list of common insolvency terms, set out in everyday language. If you need further advice, or don't see what you are looking for, please get in touch.

• Administration 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 which appoints an administrator to take control of the company.
• Administrative Receiver - Insolvency practitioner (IP) appointed by the holder of a debenture, which is secured by a floating charge that covers the whole or substantially the whole of the company's assets. The IP's task is to realise those assets on behalf of the debenture holder.
• Administrative Receivership - the process where an IP is appointed by a debenture holder (usually a lender with a specific type of charge) to realise a company's assets and pay preferential creditors and the appointer's debt.
• Administrator - Insolvency Practitioner appointed under an administration order; by the court, company, directors or creditors.
• Annulment - means 'Cancellation'.
• Assets - anything that belongs to the debtor that may be sold to pay debts.  Some assets cannot be taken and sold, however.
• Bankruptcy is what happens to an individual who is insolvent; a company cannot be 'bankrupt'.
• Bankruptcy Order - a court order which makes an individual bankrupt.
• Bankruptcy Petition - an application by the debtor or one of the creditors to the court for the debtor to be made bankrupt.
• Certificate of Summary Administration - issued by the court in Bankruptcy where the debts are below £20,000.
• Charge - any security interest taken over property by a creditor who has lent money (such as a domestic mortgage or a company debenture).  The charge gives the creditor rights over the charged property and helps to protect the lending.  Charges need to be registered at Companies House to be valid.
• Charging Order - An order (Interim or Final) made by the court which a creditor a legal charge over the debtor's property.
• Company Directors Disqualification Act 1986 (CDDA) - the law setting out the disqualification of directors.
• Compulsory Liquidation - the winding up of a company after a court order, usually requested by a creditor.
• Creditor - someone to whom money is owed.  Creditors fall into different classes; they can be secured (for instance a creditor with a charge on a property such as a mortgage company) preferential (for instance an employee owed wages) or unsecured (for instance a trade creditor or service supplier).
• Debenture - like a domestic mortgage but for companies; any security interest taken over property by a creditor who has lent money.  The charge gives the creditor rights (eg a fixed charge or a floating charge) over the charged property and helps to protect the lending.  Charges need to be registered at Companies House to be valid.
• Debtor - someone who owes money to another.
• Debt Recovery - the process of obtaining payment for a debt.  The process can include issuing a statutory demand, obtaining a County Court Judgement, seeking a charging order, attachment of earnings, sending a bailiff, serving a bankruptcy petition or winding up petition, and obtaining a bankruptcy order or a winding up order.
• Director - person appointed by shareholders to manage the affairs of the company on their behalf.
• Discharge - the process which frees a Bankrupt from the restrictions of Bankruptcy and releases him or her from most Bankruptcy debts.
• Disqualification - a process making it an offence for a person to be involved in the management or directorship of a company for a period.
• Dividend - the sum distributed to creditors in an insolvency.
• Estate - the debtor's assets; which the Trustee in Bankruptcy can sell to pay creditors.
• Fixed charge - a right over specific assets (e.g. a piece of machinery). The debtor cannot sell the assets without the consent of the secured creditor.
• Floating charge - a right over general assets of a company (e.g. stock). The company can use the assets freely until some event makes the charge "crystallise". The charge will say what the events are - crystallisation usually occurs on insolvency.
• Guarantee - usually given by an individual (a 'personal guarantee') or a company (e.g. a holding company guarantee given to a lender to a subsidiary).  An agreement to pay a debt owed by a third party. It must be in writing for it to be enforceable.
• Income Payments Order - if a bankrupt has more money coming in than they and their family need to subsist, the Trustee in Bankruptcy can ask the debtor for an 'Income Payments Agreement' or ask the court for an 'Income Payments Order'.
• Individual Insolvency Register - the Insolvency Service, an Executive Agency of the Department of Trade & Industry maintains a central register of all individual insolvencies.  It lists everyone who is in an Individual Voluntary Arrangement or Bankrupt.
• Insolvency is a term strictly defined in the act (s123, s341(3)).  There are two definitions of insolvency which apply to individuals and businesses.  The first, called the 'balance sheet test' is whether the value of assets is less than the value of liabilities.  If the assets are less than the liabilities, the individual or business is insolvent.  In practical terms this is less important than the 'cash flow' test; can the individual or business pay their bills as they fall due?  If not, they are insolvent.
• Insolvency Act 1986 - sets out insolvency law applicable to individuals and all types of business in England, Wales and Northern Ireland.  The law is different in Scotland - our firm cannot act in Scotland.  The Insolvency Act comprises 444 main sections, 15 schedules and a range of supporting statutory instruments.
• Insolvency Practitioner - or 'IP' - an individual authorised to deal with insolvency appointments. They are authorised by one of a number of recognised professional bodies.
• Insolvency Services Account - a special account at the Bank of England into which money from the sale of assets in bankruptcies and compulsory liquidations is paid.
• Judgement Creditor - a creditor can apply to court for judgement. The court will examine the creditor's claim and hear any appeal by the debtor.  If the court are happy that the money is owed, they will give judgement. The judgement just shows that the amount of money is not in dispute; the creditor still has to take further steps to recover the money owed to him.
• Legal charge - any security interest taken over property by a creditor who has lent money (such as a domestic mortgage or a company debenture).  The charge gives the creditor rights over the charged property and helps to protect the lending.  Charges need to be registered at Companies House to be valid.
• Liquidation (also known as winding up) - a process for 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 an Insolvency Practitioner appointed to administer the liquidation of a company or partnership.
• London Gazette - a 'paper of record', an official publication which contains legal notices. Known to all who study for insolvency qualifications with the genius who is Neil Taylor as 'the world's most boring newspaper'.
• Member - shareholder of a limited company.
• Nominee - the IP who carries out work for a Voluntary Arrangement, before the meeting of creditors.
• Officer - a director or company secretary.
• Official Receiver - a civil servant who deals with Bankruptcies and compulsory liquidations.
• Petition - an application made to a court.
• Preferential creditor - a creditor who is entitled to a dividend in priority to other unsecured creditors. HM Revenue & Customs used to be a preferential creditors; since a change in law the most important preferential creditors are employees owed pay or holiday pay.
• Proof of Debt - the form completed by a creditor saying how much is claimed.
• Proxy - the form completed by a creditor if they wish to vote at a meeting without physical attendance. The Chairman of the meeting will then cast their vote in accordance with their instructions.
• Public Examination - an insolvency practitioner may apply to a court for a director or a bankrupt to be questioned in front of a judge.
• Realise - this means to sell a company's or individual's assets.  Creditors would receive the proceeds, after fees and costs.
• Receiver - usually used to mean an Administrative Receiver, but the term can also mean any person appointed to receive the rents and profits of a property.
• Receiver and Manager - the person appointed to protect the bankrupt's estate even before the Official Receiver becomes Trustee.
• Receivership - usually used to mean a company in Administrative Receivership.
• Release - the discharge of the Official Receiver or Insolvency Practitioner from office as Trustee, Liquidator or administrator.
• Secured creditor - a creditor with a charge on a property such as a mortgage company.
• Shadow Director - anyone who gives instructions on which the board of directors of a company are accustomed to act.
• Statement of Affairs - a summary of the financial position of an individual or a company.  A Statement of Affairs is sworn under oath.
• Summary Administration - If a Bankrupt files their own petition and the debts are less than £20,000, the court can issue a certificate of 'summary administration'. The Official Receiver will usually be the Trustee; a sort of 'bankruptcy lite'.
• Supervisor - the IP who carries out work for a Voluntary Arrangement, after the meeting of creditors.
• Trustee in Bankruptcy - an office holder, either the Official Receiver or an insolvency practitioner, who takes control of a bankrupt's assets. The Trustee's main >duties are to sell these assets and share the money out among the creditors, after fees and costs.
• Unsecured Creditor - a creditor without security or a preferential right, often a trade creditor or service supplier.
• Voluntary Liquidation - a liquidation process 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).  The liquidation is 'voluntary' in the sense that it is initiated by the company, rather than a creditor or the court.
• Winding up Order - an order of the court, usually following a creditor's petition, for the compulsory winding up or liquidation of a company or partnership.

Phew! Now you know as much as I do ....