Administration – A procedure designed to save a company or achieve a more preferable result than liquidation, for creditors. If neither of these are possible the administration process realises property and other assets to ensure funds are distributed to certain creditors. This process is carried out by an insolvency practitioner and can be initiated by the directors of the company.
Administration Order – The step prior to a company being placed in administration is the issuing of a court order placing that company in the control of an administrator. This is in order to achieve the purpose of administration.
Arrears – A term which describes an amount of money that has built up from not paying invoices or payments to creditors. Arrears need to be paid and a creditor can take action if they are not.
Bankruptcy order – A court issues a bankruptcy order to signify that an individual cannot pay his/her debts and this makes him/her bankrupt. The order prevents access to his/her property and realises this for distribution to creditors.
Bankruptcy petition – An application made by a creditor or the debtor in question to issue a bankruptcy order. Any debt owed to a creditor must exceed £750 for a petition to be applied for.
Bond – Insurance cover set up by a licensed insolvency practitioner when appointed to deal with the insolvency of a company. The cover is needed to protect the process and the cost is payable from the estate of the company.
Charges (Fixed and Floating) – A secure creditor can secure a specific asset with a fixed charge to ensure a debtor can do nothing with it, without their permission. A floating charge is similar but can only be granted on a company, not an individual, and can be used against assets that may change in value, such as stocks during normal trading.
Companies House – Where limited companies and PLCs are registered and the vehicle which acts to incorporate and dissolve companies. Companies House also stores information such as accounts and directors and makes this information available to the public.
Compulsory Liquidation – The result of a winding up petition being presented to a court by a creditor which places a company into liquidation.
Creditors – A type of liability in the form of money outstanding. A creditor is a person or company who owes money to another company for previous services or goods provided.
CVA – A Company Voluntary Agreement is a procedure presented by the supervisor to creditors and shareholders of the plan to reorganise the company’s debts. This is a legally binding agreement and shows the structure of how the company will repay some or all of the debt.
CVL – Creditors Voluntary Liquidation. This is where shareholders of an insolvent company agree to cease trading, sell all their assets and terminate existing contracts. Although it is the company’s creditors who actually appoint a liquidator.
Debenture – A document which gives a creditor fixed and/or floating charges over assets of a company and acknowledges that debt. A debenture states the terms of the debt and is secured – in part or all – against a company’s assets.
Debtors – A person or company who owes money for goods or services and hasn’t yet paid for them. Such a debt is classed as a current asset.
Directors – People running the business and registered at Companies House who are protected from personal risk by limited liability under normal circumstances, but who might be required to provide personal guarantees.
Dissolution – The act of removing a company from Companies House (a minimum three months after trading has ceased) and therefore dissolving that company and it ceasing to exist as a legal entity. This can be reversed by applying to the court.
Going Concern – A term used to describe a company that continues to trade legitimately, make money and can hold its own in terms of costs
Guarantee – A legal agreement whereby a director or directors personally commit to repaying a debt if a principal borrower, such as a lender funding their company, defaults and fails to pay it
HMRC – Her Majesty’s Revenue and Customs – the Government body which collects PAYE, National Insurance contributions and VAT.
Insolvent – Where a company has insufficient assets to meet all debts, or is unable to pay debts when they fall due as their liabilities exceed assets. A creditor seeks to establish if a company is insolvent in order to trigger a winding-up petition to claim money it is owed.
Interim Order – A court order that precludes bankruptcy and other legal proceedings and protects a creditor from legal action while they prepare a voluntary arrangement.
IVA – This is similar to a CVA, but here an individual presents a document that seeks to arrange with their creditors how debt will be repaid. The IVA is voted on by creditors and a 75% approval – by value – is required to pass it.
Joint & Several Liability – This is used in partnerships to identify that all partners are liable for debts in full or in part, depending on their ability to pay. This allows creditors or liquidators to repay debt by identifying the individual partner most likely to be able to pay, or those partners who are not individually declared bankrupt.
Liability – An amount of money or debt that is owed to somebody, ie. anything that has value, such as a mortgage, loan or cash debt.
Liquidation – Where liabilities are settled by realising and distributing a company’s assets. Where a surplus exists this is distributed to shareholders. Once this is complete the company is removed from the Companies House register.
MVL – Members’ Voluntary Liquidation – The process of liquidation initiated by a company’s shareholders – known as a solvent liquidation.
Moratorium – A period of grace which protects a person or company and is usually for the purpose of straightening out the business and allowing debts to be repaid or re-structured.
Official Receiver – An officer of the court who is appointed to deal with a bankruptcy or compulsory liquidation, and is responsible for collecting and protecting assets and investigating causes of the bankruptcy or insolvency.
Partnership – A relatively small business where there is more than one owner who can own different amounts of the business and share liability.
Preferential Creditor – Creditors, defined by schedule B of the Insolvency Act 1986, who receive a preferential right to payment upon the debtor’s bankruptcy.
Proxy – Where a creditor issues authority to another person – known as a proxy holder – to represent that person at a meeting. This can include attending, speaking or voting in that meeting and can be ‘general’ – ie. giving the proxy holder discretion to vote as they like – or ‘special’ – meaning the holder must vote as directed by the creditor.
PVA – Same aims and benefits as a CVA and IVA but used by a company’s partners, who have joint and several liability for debts.
Receivership – A general term applied when a person is appointed as a receiver over certain assets, ie. by a bank to collect and administer a company’s assets when payment is defaulted on. When in receivership, the company loses control of the business while the receiver attempts to either liquidate the company or sell it.
Secured Creditor – A creditor who is paid before ordinary creditors because it holds security over the company’s assets – ie. a bank or other financial institution.
Sole Trader – A small business owner, usually with few employees, who has sole responsibility for day-to-day operations and is wholly liable for any debts.
Statutory Demand –This is a formal notice, issued after a creditor has obtained judgment from a court, that a debt must be repaid, and if not, bankruptcy or liquidation proceedings will commence. A statutory demand must be for a debt exceeding £750 and must allow 21 days for repayment.
Supervisor – A licensed insolvency practitioner who is appointed by creditors to supervise a voluntary agreement approved by creditors. A supervisor collects payment of a CVA and ensures contributions are maintained. If payments default, a supervisor can abort a CVA and trigger liquidation/bankruptcy.
Turnaround Practitioner – A specialist advisor who works with companies approaching insolvency, and assists them in turning around their fortunes.
Trustee – In insolvency terms, a trustee is the person trusted by an individual debtor to deal with a repayment, ie. an official receiver or a licensed insolvency practitioner.
Unsecured creditor – A creditor who holds no security in relation to the debtor, such as a small supplier. This creditor will rank last in priority where a dividend is likely to be paid and therefore may never receive anything.
Winding Up Order – An order made by the court for a company to be placed into compulsory liquidation.
Wrongful trading – When a director or directors continue trading when they know there is no reasonable prospect of avoiding insolvency or meeting the company’s liabilities. They are simply adding to the potential losses for creditors and can therefore be sued by a liquidator.