Sometimes, confusion can arise from some of the terms commonly used in Insolvency and Business Turnaround. The aim of this section therefore is to bring some clarity to the more commonly used words and phrases and to hep guide you through what each of these mean.
An 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 that appoints an administrator to take control of the company. A company can also be put into administration if a floating charge holder, or the directors or the company itself file the requisite notice at court.
An IP appointed by the holder of a debenture that 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.
The process where an insolvency practitioner is appointed by a debenture holder (lender) to realise a company’s assets and pay preferential creditors and the debenture holder’s debt. The right of a debenture holder to appoint an administrative receiver has been restricted by the Enterprise Act 2002.
An IP appointed by the court under an administration order or by a floating charge holder or by the company or its directors filing the requisite notice at court.
An Annual General Meeting is where the directors share information about the past year and also give forecasts for the future. Shareholders of a company are allowed to discuss their opinions and can vote for any eligible changes which can be made such as auditors and directors.
This is a term used when a debt has not been paid on time and the payments become overdue. If the debt is not paid then action may be taken against you to reclaim the money.
Anything that is owned by the individual or company which has a value either now or will have a value at some time in the future. Examples include vehicles, shares, money in the bank or in hand, property and book debts
This is an option a person may use if they do not pay their debts as and when they become due. They would lose control of their assets and would not be allowed to become a company director for the period of bankruptcy. Other occupations are also affected by bankruptcy and we recommend that you read your employment contract. Bankruptcy will also affect your credit rating.
A court order making an individual bankrupt.
Bankruptcy Restrictions Order or Undertaking
A bankruptcy restriction order or undertaking is where a restriction is made against an individual. This could result in bankruptcy restrictions continuing for a period of between 2 and 15 years.
BEIS – Department for Business, Energy and Industrial Strategy
Is a government department bringing together responsibilities for business, industrial strategy, science, innovation, energy, and climate change.
These are monies that are owed to an individual or company for goods supplied or services provided.
A CCJ (county court judgment) is a court action where an individual or company have taken you to court for unpaid debts. The court will order you to pay the debt within a period of time; if you don’t then they will be entitled to take further action.
Security interest taken over property by a creditor to protect against non-payment of a debt (such as a mortgage).
This is an order made by the court giving the trustee in bankruptcy a charge on your interest in their home. This will continue after they are discharged from bankruptcy.
All Limited companies and Plc’s are registered here. All information is stored and is available to the public. Companies House also incorporate and dissolve companies.
Company Directors Disqualification Act 1986
An Act of Parliament about the disqualification of directors.
Winding up of a company after a petition to the court, usually by a creditor.
Every person liable to contribute to the assets of a company if it is wound up. In most cases this means shareholders who have not paid for their shares in full.
Banks and financial services use this as a tool. If you were to request a loan from them they would check your credit rating. A good rating may result in them lending more money. A low score may mean a lesser amount is offered or the request refused. The rating is assessed on whether there are any CCJ’s or any defaults on paying debts.
This is anybody who is owed money. It can also be someone who will (or may) be owed money in the future due to some obligation that has already been entered into.
Creditors Petition (Bankruptcy)
A person can only be made bankrupt if the debt is unsecured and for a fixed sum that may appear unable to pay. Any individual owed more than £5,000 can petition to make you bankrupt.
CVA – Company Voluntary Arrangement
This route is usually taken by Directors who feel their company has a viable future and are willing to work hard to keep it alive. If this route is taken an arrangement is entered into with your creditors to repay a percentage of the sum owed to them over a period of time. Then the Directors will keep control of the Company and continue to trade as normal.
CVL – Creditors Voluntary Liquidation
The company will stop trading, all contracts will be terminated and assets sold. The shareholders of the company will decide to liquidate the company and will enlist the services of an insolvency practitioner to complete all the necessary arrangements.
A document in writing, usually under seal, issued as evidence of a debt or the granting of security for a loan of a fixed sum at interest (or both). The term is often used in relation to loans (usually from banks) secured by charges, including floating charges, over companies’ assets.
Debt Relief Orders (DROs)
Debt Relief Orders (DROs) are a way to deal with your debts if you owe less than £20,000, don’t have much spare income and don’t own your home.
These are individuals or companies that owe money to a third party for goods or services provided.
These are monies that are owed to an individual or company for goods supplied or services provided.
Deemed Consent Procedure
Shareholders of a company nominate a liquidator who is automatically appointed unless creditors object.
This is issued by a creditor before the commencement of legal action. It will allow you seven days to pay the amount stated. If this is not settled, then the creditor can take court action.
Directors are responsible for the running, management and control of a company. The limited liability of a company ensures directors are protected from personal risk; they must however act professionally and correctly to ensure this protection.
If a person is declared bankrupt or other insolvency offences have been committed it is illegal for that person to be the director or manager of a company and may be barred by the BEIS.
In order to commence dissolution proceedings the company must not have been trading for at least three months. The company can then be dissolved. This will legally break up a company that no longer wishes to trade.
This is used by landlords as a tool where there is unpaid rent. Where a landlord has agreed a payment plan for rent and this is not adhered to they have various options and can instruct an agent to enter the property and remove goods or assets to cover the value of the debt. This can usually be carried out within one week of a missed payment. They do not need a court judgement to implement these actions.
Any sum distributed to unsecured creditors in an insolvency.
Financial institutions provide this service. Companies receive payment for their unpaid sales invoices and the financial institution assist in the collection of the debts. The factoring company takes a percentage of this debt as a fee.
A charge held over specific assets. The debtor cannot sell the assets without the consent of the secured creditor or repaying the amount secured by the charge.
A charge held over general assets of a company. The assets may change (such as stock) and the company can use the assets without the consent of the secured creditor until the charge “crystallises” (becomes fixed). Crystallisation occurs on the appointment of an administrative receiver, on the presentation of a winding-up petition or as otherwise provided for in the document creating the charge.
Where trade continues without any means of repaying the debts and with the intention of defrauding creditors.
The Gazette or London Gazette is the official newspaper of record which contains various statutory notices and advertisements in respect of companies registered in England and Wales. It is published daily. Notices are accessible via www.thegazette.co.uk
Where a company is trading and making a profit.
An agreement to pay a debt owed by a third party. It must be evidenced in writing for it to be enforceable.
HMRC – Her Majesty’s Revenue & Customs
A government department who regulates and collects customs and duties for instance VAT and PAYE.
Income Payments Agreement
This is an agreement entered into with an individual’s trustee where the individual agrees to pay him or her part of their wages, salary or any other income. This would be for an agreed period of time.
An insolvency practitioner is usually an accountant or solicitor who has trained and specialised in insolvency. They are authorised by the Secretary of State or other recognised professional bodies.
This is when a company or individual cannot afford to repay their debts as and when they are due, or whose liabilities are greater than their assets.
If a person is proposing to do an IVA they can apply for an interim order in court. This protects them against any legal action which may be taken against them by anyone they owe money to.
Joint and Several Liability
If one or more person enters into an agreement (such as a mortgage or rent agreement), then all those named on the agreement are liable for the full amount. An example of this would be a joint mortgage where the mortgage company can pursue either or both people named on the mortgage for any amounts outstanding.
A form of security (eg a mortgage) to ensure payment of a debt.
Debts and obligations of the company or individual. An example of these would be bank loans, mortgages, credit cards or store cards.
A company with its own legal identity. This ensures the directors and shareholders are not liable for any of the company’s actions providing they are legal and proper.
Owners of a company have their liability for the company’s debts limited. Their liability is limited to the paid-up value of the shares they own i.e. it is limited to the amount they agreed to pay for the shares when they purchased them.
Liquidation (Winding Up)
Applies to 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.
The Official Receiver or an Insolvency Practitioner appointed to administer the liquidation of a company or partnership.
Meeting by Correspondence
A meeting by correspondence entails a creditor returning a proxy or voting form by a given date and time.
Member (of a Company)
A person who has agreed to be, and is registered as, a member, such as a shareholder of a limited company.
An IP who carries out the preparatory work for a voluntary arrangement, before its implementation.
Officer (of a Company)
A director, manager or secretary of a company.
An officer of the court and civil servant employed by The Insolvency Service, who deals with bankruptcies and compulsory company liquidations.
Contributions are paid and held to build up a fund to pay retirement pensions.
An individual or corporation.
This is a letter written by someone guaranteeing the payment of money lent to a third party (maybe a limited company). So if the company defaults on the repayments then the lender will call on the personal guarantee to repay either part or all of the remaining debt.
A formal application made to a court.
A public company may offer to sell its shares to the public. A public company must satisfy Companies House that at least £50,000 worth of shares have been issued and that each share has been paid up to at least one quarter of its face value.
A creditor who is entitled to receive certain payments in priority to floating charge holders and other unsecured creditors. These creditors include occupational pension schemes and employees.
Proof of Debt
A statutory form completed by a creditor in a liquidation to state how much is claimed. The form is supplied by the Liquidator.
OR/IP appointed to preserve a company’s assets pending the hearing of a winding up petition.
Instead of attending a meeting, a person can appoint someone to go and vote in their place – a ‘proxy’.
Form that must be completed if a creditor wishes someone else to represent him or her at a creditors’ meeting and vote on his or her behalf.
When a company is being wound up or in bankruptcy proceedings, the Official Receiver may at any time apply to the court to question the company’s director(s) or any other person who has taken part in the promotion, formation or management of the company or the bankrupt.
Realising an asset, means selling it or disposing of it to raise money, for example to sell an insolvent’s assets and obtain the proceeds.
The commonly used name for an administrative receiver. The term can also mean a person appointed by the court or with the power to receive the rents and profits of property. Receivers who are not administrative receivers do not need to be Insolvency Practitioners.
A company in administrative receivership is often said to be “in receivership”.
Redundancy is a form of dismissal. It could be that the company is down-sizing or closing a department or closing the whole company. As a consequence staff are then made redundant as there is no longer available employment.
A procedure that cancels a winding-up order.
The process by which the Official Receiver or an Insolvency Practitioner is discharged from the liabilities of office as trustee/liquidator or administrator.
Secretary of State
The Secretary of State for the Department for Business, Energy and Industrial Strategy.
A creditor who holds security, such as a mortgage, over a person’s assets for money owed.
A person who, without being formally appointed, gives instructions on which the directors of a company are accustomed to act.
Own stakes in Limited Companies. Shares can be purchased on the open market if it is a quoted PLC. They can vote on how a company is run and they earn a share of the profits as a dividend.
Statement of Affairs
A document, completed by a bankrupt, company officer or director(s), stating the assets and giving details of debts and creditors.
The owner of a small business, usually with few, if any, employees.
An IP appointed to supervise the carrying out of a company or individual voluntary arrangement.
The Trustee in Bankruptcy is either the Official Receiver or an Insolvency Practitioner and will take control of your assets. The Trustee’s main objective is to sell these assets and share the proceeds among the creditors.
The money a company takes for its services before any expenditure is deducted. It is not the profit of the company.
United Nations Commission on International Trade Law.
A creditor who does not hold security (such as a mortgage) for money owed. Some unsecured creditors may also be preferential creditors.
Order or a court to unfreeze its bank accounts or allow assets to be sold, after they have been frozen by a Winding-up Petition. If a validation order is granted, any transactions from the bank account then become valid. A validation order can also be used if the company wishes to sell any assets or property.
VAT – Value Added Tax
A duty levied on goods and services which are liable for VAT. If you run a business you will usually have to register for VAT if your taxable turnover exceeds a level set by the Government.
A virtual meeting may be a telephone conference call or through a video conference facility.
A method of liquidation not involving the courts or the Official Receiver. There are 2 types of voluntary liquidation – members’ voluntary liquidation for solvent companies and creditors’ voluntary liquidation for insolvent companies.
Winding Up Order
A Court Order, usually based on a creditor’s petition, for the compulsory winding up or liquidation of a company or partnership.