The world of insolvency can be, at best, confusing for the uninitiated. The various fields of restructuring and recovery are littered with technical terms, some straightforward and some completely baffling. This simple-to-use A-Z guide should act as a handy tool for all recovery staff.
A
Administration
The company's assets are placed under the control of an administrator who is a licensed insolvency practitioner. The aim is to either save the business or achieve a better realisation of assets on behalf of creditors than if the company went into liquidation without previously being in administration.
Administration order
A county court order to arrange and administer an individual's payment of debts. The debts must not exceed £5,000.
or
A court order appointing an administrator to take control of a company. The administrator must be a licensed insolvency practitioner. A company can also be put into administration if a floating charge holder, or directors of the company itself, file the necessary notice at the court.
When an administrator trades a company in administration, the business rates are due as an expense of the administration for the period of trading.
Administrative receivership
An enforcement remedy which floating charge creditors use when a company breaches the terms of its borrowing. The floating charge creditor may appoint an administrative receiver (who must be a licensed insolvency practitioner) to recover the money owed to the floating charge holder.
Many companies give a floating charge to banks as security for their borrowing. Administrative receivers have extensive powers to deal with the charged assets. The administrative receiver effectively takes over management of the business from the directors and continues to trade prior to selling the business and/or assets.
However, an administrative receiver can only be appointed in relation to a charge granted prior to 15 September 2003. As such, receiverships are a dying breed.
Annulment
The process whereby the court revokes a bankruptcy order. There are two grounds for an annulment.
'Payment in full': all bankruptcy debts, costs and expenses have been paid.
'Ought not to have been made': there was some technical reason why the bankruptcy order should not have been granted in the first place, e.g. if the debt was under £750.
B
Bankrupt/Undischarged bankrupt
A person declared insolvent by the court. Bankruptcy usually lasts for a maximum of one year unless the debtor has not co-operated with the official receiver and/or the trustee in bankruptcy.
Bankruptcy order
A court order that makes an individual bankrupt. A bankruptcy order can only be made on a debt of £750 or more. The order imposes certain restrictions on the bankrupt e.g. they cannot be a director of a limited company.
Bankruptcy restriction order/undertaking
Bankruptcy restriction orders (BROs) are usually applied when the official receiver believes a bankrupt may have been dishonest or reckless in his/her spending. BROs can last for periods of 2 to 15 years. In most cases the bankrupt agrees to the terms that would be imposed by an order. This is called a bankruptcy restriction undertaking (BRU) and covers the same period of time as the BRO.
C
Charging order
A court order securing a debt on the disposal of certain assets, i.e. property or securities, giving creditors security over the assets. The debt must exceed £1,000 in the case of council tax and the charge may only be granted on the property where the debt arose.
Company voluntary arrangement (CVA)
A procedure whereby a proposal is put forward to a company's creditors and shareholders in respect of a company's debts. The court has limited involvement and a supervisor controls the scheme. The company remains under the day-to-day control of the directors.
Compulsory liquidation
The winding up of a company by the court following the presentation to the court of a winding up petition by a creditor. The debt must be more than £750.
Court-appointed receiver
A person, not necessarily a licensed insolvency practitioner, appointed to take charge of assets. This is not strictly an insolvency process and may be used regardless of company formation, i.e. by a limited company or to settle a partnership dispute.
Creditor
An individual or corporate entity who/that is owed money.
Creditors' voluntary liquidation (CVL)
A shareholders' resolution is required to place a company into CVL. The shareholders nominate a liquidator. The creditors can ratify the shareholders' choice or appoint their own liquidator. The creditors can also elect a liquidation committee (comprising a minimum of 3 and maximum of 5 representatives).
See Voluntary liquidation.
D
Debtor
Someone who owes money. A person who has been made bankrupt may also be referred to as a debtor.
Debtscope
A free report for local authority clients outlining the recovery options available against an individual, partnership, or limited company – prepared by Smith & Williamson.
Debt relief order
A form of personal insolvency where the debtor has surplus income of less than £50 per month and debts of less than £15,000. Not binding on any creditor not included in the list of debts.
Disbursements
Payments made by the official receiver or office holder to third parties, for example fees paid to courts, bailiffs, lawyers and other agents.
Discharge from bankruptcy
Discharge from bankruptcy is normally automatic after one year, provided that the debtor has co-operated with the official receiver and/or the trustee in bankruptcy and has complied with requests for information.
Dividend
The money paid to creditors pro rata according to their debt. If there is a 100% dividend (which happens quite often in bankruptcy estates) creditors are also entitled to statutory interest on the dividend.
E
Estate
All assets owned by the debtor at the date of the bankruptcy order.
Equity
The amount that is available after the secured creditors' charges have been taken into account when a charged asset is sold.
F
Fixed charge
A form of security granted over a specific asset to prevent the debtor from selling it without the secured creditor's consent. This gives the secured creditor first claim on the proceeds of the sale and he/she can usually appoint a receiver to realise the assets in the event of a default in payments on the loan.
Floating charge
A form of security granted to a creditor over a company's general assets. These assets may change from time to time in the normal course of business, e.g. stock. The company can continue to use the assets but if a default occurs the charge crystallises and the secured creditor can realise the assets to recover his/her debt.
G
Guarantee
An undertaking given by a company or person to pay the liability of another party.
H
Hiatus period
The period during which an insolvency practitioner has been instructed but a formal insolvency process has not commenced.
High Court
The High Court of Justice, based on the Strand, London, and where the majority of Crown petitions are presented.
I
Income payments agreement (IPA)
A voluntary agreement whereby a bankrupt agrees to pay money towards his/her estate from post-bankruptcy earnings, for a fixed period.
Income payments order (IPO)
A court order forcing a debtor to pay a proportion of his/her income towards his/her estate from post-bankruptcy earnings for a fixed period.
Individual voluntary arrangement (IVA)
A procedure whereby an individual comes to an arrangement with his/her creditors in respect of his/her debts. This requires the approval of the creditors and is legally binding.
Insolvency
The inability of a company or person to pay debts as and when they fall due or where liabilities exceed assets.
Insolvency practitioner
A person authorised by one of the chartered accountancy bodies, the Law Society, the Insolvency Practitioners Association or the Secretary of State to act as office holder in an insolvency proceeding.
Insolvency Practitioners Association (IPA)
One of the licensing bodies for insolvency practitioners.
Interest
The right to, or share in, an asset.
Interim order
An individual who intends to propose a voluntary arrangement to his/her creditors may apply to the court for an interim order which, if granted, precludes bankruptcy and other legal proceedings while the order is in force.
J
Judgment
A decision made by the court which may include a determination of the liability to pay a debt.
L
Law of Property Act 1925 (LPA) receiver
A person (not necessarily an insolvency practitioner) whom a lender appoints to take charge of a mortgaged property where the loan is in default, usually with a view to selling it or collecting rental income for the lender. This is common in the case of property developers as their borrowings tend to be secured on specific properties.
Liability order
A court order issued when an individual fails to pay an outstanding debt, including costs, after a summons has been issued. The order will detail who is responsible for the debt, how much it is, what costs have been awarded and the date and place of the hearing.
A liability order gives councils the power to instruct bailiffs, deduct money from any earnings or benefits the individual may be receiving, commence insolvency proceedings, seek a charge over property or pursue a custodial sentence.
Liquidator
The insolvency practitioner or official receiver who deals with investigating the affairs of the company, reporting on the director's conduct, realising assets, determining creditor's claims and paying dividends.
M
Members' voluntary liquidation (MVL)
A solvent liquidation whereby the shareholders appoint a liquidator to realise the assets and settle all the company's debts within 12 months. It is often used to restructure companies or when a company has come to the end of it's useful life.
N
Nominee
The person chosen by an individual or corporate debtor to report on the proposals put forward to the creditors for an IVA or CVA.
O
Official receiver
The civil servant who heads up the regional offices of the Insolvency Service with responsibility for bankruptcies, compulsory liquidations and debt relief orders.
P
Petition
A written application to the court to commence a bankruptcy or compulsory liquidation procedure.
Proof of debt
The document submitted in an insolvency to establish a creditor's claim. It may be informal (e.g. via a letter) in voluntary liquidation or administration, or in a prescribed form (e.g. proof of debt form) in bankruptcy or compulsory liquidation.
Proxy
An authority given by a creditor or shareholder to another person (the proxy holder) to attend a meeting and speak and vote on the creditor's and shareholder's behalf.
Q
Questionnaire
All bankrupts are asked to complete a bankruptcy questionnaire, giving details of assets and liabilities. This is similar to a statement of affairs, which has to be provided by the directors of a limited company.
R
Reservation of title or retention of title agreement (ROT)
A mechanism for ensuring that ownership of goods remains with the supplier until the purchaser has paid the supplier in full. This is usually achieved by including special terms in the contract entered into between the supplier and the purchaser.
Restructuring
A term often used to describe a reorganisation within a business which may include the refinancing of a business.
S
Statutory demand
A written demand for the payment of a debt, giving the party that owes the money 21 days to pay the debt. A statutory demand may be used as the first step in commencing bankruptcy or compulsory liquidation proceedings.
Supervisor
The person appointed to supervise the implementation of the proposal for an IVA and CVA once the creditors (and in the case of a CVA also the shareholders) have approved it.
T
Trustee
In bankruptcy, the trustee is the official receiver or the insolvency practitioner.
or
Under a deed of arrangement, the trustee is the authorised insolvency practitioner appointed to deal with the estate of the person who entered into the deed.
U
Undischarged bankrupt
A person still subject to bankruptcy.
Unsecured creditor
This refers to any creditor who does not hold security in respect of their debt. Such creditors tend to not have special rights.
V
Voluntary liquidation
A procedure whereby the shareholders place a company into liquidation voluntarily, without the involvement of the court. There are two types of voluntary liquidation: members and creditors.
W
Winding-up order
An order of the court for a company to be wound up through a compulsory liquidation.
Winding-up petition
A petition presented to the court seeking an order that a company be wound up through compulsory liquidation.
Wrongful trading
An action taken against the directors or shadow directors of a company making them personally liable for the losses incurred by the company after the date on which insolvency is deemed to have been proved.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
