Terms often used in dealing with debt and insolvency

Administration

The company is placed under the control of an administrator (who must be a licensed insolvency practitioner) which can require an application to Court by the company, its directors or a creditor. The purpose of an administration is to rescue the company's business or allow a better realisation of its assets. The company is protected from action by its creditors during the administration and the administrator will present his proposals for approval by the creditors to achieve the stated purpose.

Bankruptcy

A bankrupt is an individual against whom a Bankruptcy Order has been made by the Court judging that the individual is unable to pay their debts. The order allows for the bulk of their property to be realised for distribution amongst their creditors.

Charge

The right of a "secured creditor" to receive the proceeds of the realisation of a particular asset and use those proceeds to reduce indebtedness without any transfer of ownership.

Company Voluntary Arrangement (CVA)

A formal process to allow a company to agree a "deal" with its creditors to reorganise its affairs. A proposal is put to creditors and shareholders and, if they agree, is implemented under the control of a supervisor. The agreement may include creditors agreeing to accept less than the full amount due to them.

Compulsory Liquidation

Another formal process relating solely to companies and partnerships and involving an order by the Court. Usually the order is made as a result of a petition presented by a creditor, against an insolvent company, and which involves the company assets being realised for the benefit of creditors.

Creditors' Voluntary Liquidation (CVL)

An insolvent liquidation which deals with a company where there are insufficient assets for the payment of all company liabilities together with the costs of liquidation. At a shareholders' meeting a liquidator is appointed but the creditors, at the subsequent creditors' meeting, can replace the shareholders' choice as liquidator. The liquidator will realise the company's assets for distribution to its creditors.

Disqualification of Directors 

A director who is found to have conducted the affairs of an insolvent company in an "unfit" manner may be disqualified from being involved in the formation, management or running of a company for between two and fifteen years.

Individual Voluntary Arrangement (IVA)

A formal process to allow an individual to agree a "deal" with creditors to reorganise their affairs. A proposal is put to creditors and, if they agree, is implemented under the control of a supervisor. The agreement may include creditors agreeing to accept less than the full amount due to them.

Insolvency

The tests for insolvency are the inability to pay debts as they fall due or being in a position where liabilities exceed the value of assets. If a creditor owed more than £750 and can establish either test, he or she will be able to present a winding-up or bankruptcy petition.

Insolvency Act and Rules 1986

Primary but not sole legislation governing insolvency law and practice. The Rules provide the detailed working procedures for the Act.

Insolvency Practitioner (IP)

An individual who may act as an office holder in a formal insolvency process. An IP must be both qualified and licensed.

Liquidation

Liquidation is a process whereby a company's assets are realised and distributed to its creditors. Liquidation is followed by the dissolution of the company.

Liquidator

An insolvency practitioner appointed to act in the liquidation of a company.

Members' Voluntary Liquidation (MVL)

A solvent liquidation where the shareholders appoint the liquidator to realise the company assets, settle all the company's debts and return the surplus to shareholders.

Nominee

An insolvency practitioner acting at the proposal stage of an individual or company voluntary arrangement.

Official Receiver (OR)

An officer of the Court and civil servant who is a member of the Insolvency Service which is an executive agency of the BERR. The Official Receiver's office deals with bankruptcies and compulsory liquidations.

Petition

An application to Court for relief or remedy and, in particular, for a company to be wound up or an individual to be made bankrupt.

Preference

A transaction which puts a creditor in a better position than would have otherwise been the case on liquidation or bankruptcy. A liquidator, administrator or trustee in bankruptcy may recover sums which are found to be preferences.

Proof of Debt

Evidence given by a creditor to an insolvency practitioner detailing the amount of the debt.

Proxy

Document authorising a person to represent a company, partnership or another individual at a meeting.

Retention of Title

A provision which purports to retain ownership of the goods until the supplier has been paid.

Secured Creditor

A creditor with a charge over company assets and who will be paid first from the proceeds of sale of the charged assets.

Shadow Director

A person who is not a director, but in accordance with whose directions or instructions the directors of a company are accustomed to act.

Statutory Demand

A formal notice, in prescribed form, demanding payment of a debt within 20 days. If the statutory demand is not dealt with, and the creditor is owed more than £750, then bankruptcy or liquidation proceedings can be commenced without further notice.

Supervisor

An insolvency practitioner appointed to supervise the implementation of a Company Voluntary Arrangement or Individual Voluntary Arrangement once approved.

Transaction at an Undervalue

A transaction in which, for instance, an asset is sold or transferred for less than its true value and so the consideration received is less than that given. In certain circumstances such a transaction can be challenged.

Trustee

An insolvency practitioner appointed in bankruptcy.

Unsecured Creditor

An ordinary creditor who does not hold security.

Winding-up Order

A Court order placing a company into compulsory liquidation.

Winding-up Petition

A petition presented to the Court seeking an order to place a company in compulsory liquidation.

Wrongful Trading

An offence where a director has allowed a company to continue trading where he or she ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation. The director may be ordered to contribute to the company's assets or be made personally liable for the company's debts.