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Insolvency Terms Glossary

Insolvency Terms Glossary





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    A

    A legal procedure wherein a financially distressed company is placed under the control of an insolvency practitioner (administrator) to protect it from creditors while a plan is devised to save the business, maximise repayments to creditors, or orderly wind down the company.

    Administrative Receiver

    A licensed insolvency practitioner appointed by a secured creditor holding a floating charge over most or all of the company’s assets. The receiver’s role is to manage and sell these assets to repay the creditor, a process increasingly rare due to legal changes post-2003.

    Administrator

    An insolvency practitioner appointed to manage the company’s affairs during administration, aiming to save the company or maximise creditor returns.

    Arrears

    Arrears in a corporate insolvency context typically refer to missed payments on debts or obligations a company has failed to fulfil on time. This can include overdue loan repayments, unpaid supplier invoices, wages owed to employees, and taxes due to authorities.

    Assets

    Assets refer to all forms of property and rights owned by the company that can be used to settle its debts. These include tangible assets like real estate, machinery, inventory, and vehicles, as well as intangible assets such as intellectual property, accounts receivable, and goodwill. In insolvency proceedings, the company’s assets are identified, valued, and potentially sold or leveraged to repay creditors.

    B

    Bankrupt

    A legal status wherein an individual’s assets are controlled or sold by a trustee to pay off debts.

    A court order declaring an individual bankrupt, initiating the bankruptcy process and asset distribution.

    A licensed insolvency practitioner appointed by a secured creditor holding a floating charge over most or all of the company’s assets. The receiver’s role is to manage and sell these assets to repay the creditor, a process increasingly rare due to legal changes post-2003.

    Bond

    An insurance policy that insolvency practitioners are required to have, safeguarding the assets they handle.

    A government-backed loan introduced to help small and medium-sized businesses recover from financial setbacks, particularly during the COVID-19 pandemic, with favourable terms for repayment.

    C

    Charging Order

    A legal order that secures a creditor’s interest in a debtor’s property, ensuring priority in debt repayment.

    A formal agreement where a financially troubled company arranges to repay creditors over time, often at a reduced rate or over a longer period.

    A court-ordered process where a company is brought to an end, its assets liquidated to pay off debts.

    A person appointed by the court to hold and manage assets, often in legal disputes, not necessarily related to insolvency.

    Initiated by shareholders but controlled by creditors, this process liquidates an insolvent company to repay debts.

    D

    Debtor

    An individual or entity that owes money.

    Debenture

    A type of debt instrument not secured by physical assets or collateral but rather by the issuer’s general creditworthiness.

    A report assessing the behaviour and decisions of directors in the period leading up to a company’s insolvency, required for evaluating their responsibility and any misconduct.

    A report assessing the behaviour and decisions of directors in the period leading up to a company’s insolvency, required for evaluating their responsibility and any misconduct.

    Disqualification of Directors

    A process where directors are barred from holding corporate office due to misconduct or failure to meet legal obligations.

    The process of legally dissolving a company, erasing its existence and typically following liquidation or cessation of business.

    A legal document filed with Companies House to voluntarily strike off and dissolve a company, indicating it has ceased trading and is ready to be removed from the register.

    E

    F

    Fixed Charge

    A security interest attached to specific assets that cannot be disposed of without the charge holder’s consent.

    Floating Charge

    A security interest over a fluctuating body of assets, allowing the company to use the assets while the charge is in place.

    Conducting business with the intent to defraud creditors, a serious offense that can lead to legal penalties. 

    G

    H

    The UK government department responsible for the collection of taxes, the payment of some forms of state support, and the administration of other regulatory regimes including the minimum wage.

    I

    Individual Voluntary Arrangement (IVA)

    An agreement where an individual repays creditors over time under insolvency practitioner supervision, avoiding bankruptcy.

    The state where an entity cannot pay its debts as they come due or its liabilities exceed its assets.

    The primary legislation in the UK governing insolvency law and procedures. 

    A professional authorised to act in relation to insolvent individuals, companies, or partnerships.

    Interim Order

    A court order that temporarily halts legal actions against an individual or entity proposing a voluntary arrangement. 

    J

    K

    L

    Lien

    The legal right to keep possession of property belonging to another person until a debt owed by that person is discharged. 

    The process of winding up a company, selling its assets to repay creditors and distributing any remaining funds. 

    A licensed practitioner tasked with overseeing the liquidation process, selling company assets, and distributing the proceeds.

    M

    A process initiated by solvent company shareholders to wind up company affairs, distribute assets, and close the business.

    Mortgage

    A legal agreement where property or land is used as security for the repayment of a loan.

    A temporary suspension or delay in the legal rights of creditors to take action against a debtor company, providing the business with a period of relief to restructure or find a solution to its financial difficulties.

    N

    Nominee

    An insolvency practitioner appointed to oversee the proposal and arrangement of a CVA or IVA. 

    O

    Official Receiver (OR)

    A civil servant acting as an officer of the court and trustee/liquidator in bankruptcy and compulsory liquidation cases. 

    P

    A formal application made to a court for an order or judgment. 

    Preference

    An act of paying off a creditor or transferring assets to a creditor before others in anticipation of insolvency, which can be reversed by a court. 

    Proof of Debt

    A document allowing one person to act on another’s behalf, particularly in voting at meetings of creditors. 

    Proxy Form

    A licensed practitioner tasked with overseeing the liquidation process, selling company assets, and distributing the proceeds.

    Q

    R

    Receivership

    A type of corporate bankruptcy where a receiver is appointed by a court or creditor to manage the company’s assets. 

    Redundancy

    The process of reducing a company’s workforce because certain positions are no longer needed, often occurring in insolvency situations to cut costs and reallocate resources.

    S

    Secured Creditor

    A creditor with the advantage of security, such as a mortgage or charge over assets, giving them priority over unsecured creditors in debt repayment. 

    Shareholder

    An individual or entity that owns shares in a company, giving them partial ownership and usually the right to vote on corporate matters.

    Sole Trader

    An individual who owns and operates a business alone, bearing full responsibility for its debts and decisions without the legal distinction between personal and business assets.

    A formal demand for payment of a debt that, if not met, can lead to bankruptcy or liquidation proceedings. 

    Statement of Affairs

    A detailed document prepared by a company facing insolvency, listing all assets and liabilities to provide a clear financial snapshot to creditors and insolvency practitioners.

    T

    An agreement negotiated with HMRC allowing a business or individual to pay outstanding taxes over an extended period, helping manage cash flow and avoid insolvency.

    Turnover

    The total amount of revenue generated by a company from its normal business activities, usually measured over a specific period.

    Transaction at Undervalue

    A transaction made by an insolvent entity where assets are sold for less than their value, which can be challenged by creditors. 

    U

    Unsecured Creditor

    A creditor who does not have any specific security interest in the debtor’s assets and ranks behind secured creditors in debt repayment. 

    V

    Value Added Tax (VAT)

    A consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale, with the amount of VAT the user pays being on the cost of the product, less any of the costs of materials used in the product that have already been taxed.

    Agreements that allow a debtor to settle debts by paying only a proportion of the amount owed or by paying over a longer time. 

    Voluntary Liquidation

    The process initiated by the company’s directors or shareholders to voluntarily wind up the company’s affairs. 

    W

    The process of closing a company by selling its assets and distributing the proceeds to creditors and shareholders. 

    Winding-up Order

    A court order that initiates the compulsory liquidation or winding-up of a company

    A legal application to a court for a company to be placed into compulsory liquidation. 

    A situation where directors continue to trade despite knowing the company cannot avoid going into insolvent liquidation, creating potential personal liabilities. 

    X

    Y

    Z

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