This glossary is provided as general guidance to help explain some common insolvency terms. It does not cover every insolvency term and many of the terms can have different meanings in different contexts that are not covered here. If you require specific advice about insolvency you should seek professional advice.
An administration is a corporate insolvency process which places an entity under the control of licensed Insolvency Practitioners (Administrators) with the protection of the Court, so as to manage the entity’s affairs, business and property. The main purpose of an administration is to rescue the entity as a going concern; failing that, the other statutory purposes are to achieve a better result for creditors as a whole than would be achieved in a liquidation, or where this is not possible, to realise property to enable funds to be distributed to secured or preferential creditors.
The duration of an administration is restricted to 12 months from the date of commencement unless it is extended by creditors or the Court. Approval for an extension is only given where it is deemed necessary and appropriate to the case.
- Administrative Receivership
An administrative receivership is a corporate insolvency process where the holder of a floating charge covering all or substantially all of a company’s property, appoints a licensed Insolvency Practitioner (Administrative Receiver) to act on its behalf and amounts due to it under its charge. Such an appointment can only take place where the relevant charge is dated prior to 15 September 2003.
An agent is a third party appointed to assist the Insolvency Practitioner (‘IP’) with their work, most commonly in the valuation and sale of physical assets, for example machinery and properties.
An annual meeting is a meeting of members or creditors, required to be convened within three months of each anniversary of a liquidation appointment. For appointments on or after 6 April 2010 there is no longer a requirement to convene annual meetings.
An annual report is a statutory report sent to all creditors in a Creditors’ Voluntary Liquidation (‘CVL’) or Members’ Voluntary Liquidation (‘MVL’). It provides an account of the Liquidator’s acts and dealings and the conduct of the liquidation during the preceding year and must be submitted within three months of the year end. These reports only apply to cases with an appointment date prior to 6 April 2010; for appointments after this date a progress report is now required.
An asset is any source of value owned by the entity.
A bankruptcy is a formal insolvency procedure only applicable to individuals. A bankruptcy is begun by Court order and the assets are realised by a Trustee for distribution to creditors. Once all creditors are paid, any surplus is returned to the bankrupt.
- Bankruptcy Restrictions Order (BRO)
A Bankruptcy Restrictions Order is an order of the Court extending the restrictions of bankruptcy for a period of between two and fifteen years. A bankrupt may agree to give a Bankruptcy Restrictions Undertaking (BRU) which has the same effect as a BRO.
Book debts are monies owed to a business.
- Break-up sale (or forced sale)
A break-up sale is where trading ceases and the assets of an entity are sold off separately, rather than being sold as a going concern.
- County Court Judgement ('CCJ')
A County Court Judgement (‘CCJ’) is issued where a party takes Court action against an entity for amounts owed to them and either the debt is not paid or a response to the request for payment is not received. CCJs are kept on record for six years.
Any meeting of shareholders or creditors convened by the Insolvency Practitioners (‘IPs’) must have a chairman. This should be the IPs or a member of staff suitably experienced in insolvency matters. At a Section 98 meeting the chairman is one of the company’s directors and not the IP.
A charge is a form of security taken by a creditor over assets of an entity, for a debt owed to them. Where security is taken over any assets of a limited company, the charge must be registered at Companies House to ensure that it becomes a public record.
A charge holder is a creditor who has the benefit of a legal charge (also called security) over some or all of an entity’s assets.
A committee (also known as the creditors’ committee or in liquidations, the liquidation committee) is a group of between three and five creditors or members who are appointed to assist the IP with their duties. The role of the committee varies depending on the insolvency procedure but they will generally assist with key decision-making and may approve the officeholder’s fees. It is up to the creditors whether they wish to appoint a committee; there is no requirement to do so.
- Company Voluntary Arrangement ('CVA')
A Company Voluntary Arrangement (‘CVA’) is a formal insolvency procedure in which a proposal is presented to a company's shareholders and creditors seeking to compromise some or all of the company's liabilities over a period of time. Creditors and shareholders vote on the acceptance or rejection of the CVA proposals. If the proposals are approved, then all creditors are bound by the arrangement.
A compulsory liquidation is a liquidation ordered by the Court following the presentation of a winding-up petition. It is the only method by which a creditor can initiate a liquidation of an entity which owes it money. The Liquidator is initially the Official Receiver, with Insolvency Practitioners subsequently appointed if appropriate.
The purpose of the liquidation is to realise the entity’s assets and distribute them amongst the entity’s creditors / shareholders.
Consideration is a legal term referring to something of value promised to another when entering into a contract (i.e. the price paid in return for the assets of a business).
A contingent liability is a liability that is not certain but might arise if a certain event occurs, for example if an entity loses a legal case resulting in an amount of compensation becoming payable by that entity.
A creditor is anyone who is owed money by an entity.
- Creditors' Voluntary Liquidation ('CVL')
A Creditors’ Voluntary Liquidation (‘CVL’) an insolvent liquidation. It begins with the shareholders resolving to place the entity into liquidation and appointing a Liquidator. The creditors may then agree with or replace the shareholders’ choice of Liquidator at a subsequent creditors’ meeting (Section 98 meeting).
The purpose of the CVL is to realise the entity’s assets and distribute the money recieved for them amongst the entity’s creditors.
A CVL can also be used to distribute money to creditors following an administration.
A cross guarantee (‘CG’) is a guarantee given to a creditor (usually a bank) by several Entities, where the creditor is owed money by one or more of the Entities but all are liable to repay it.
Crown debts are amounts owed to the Government. Most often this refers to amounts owed to the tax authorities.
A debenture is a legal document acknowledging that an entity undertakes to repay a sum of money it has borrowed from a lender. This document effectively sets out the terms of the loan agreement.
A debt is an amount of money owed.
- Debt Relief Order ('DRO')
A Debt Relief Order (‘DRO’) is an insolvency process available with effect from 6 April 2009 in England & Wales aimed at insolvent individuals with liabilities not exceeding £15,000. It is an alternative to bankruptcy and is only available where the debtor has no real assets (less than £300) and little or no disposable income (not exceeding £50 per month) with which to make contributions to creditors.
A debtor is an entity who owes a debt.
A Declaration of Solvency is a statement sworn by the directors as part of the Members’ Voluntary Liquidation (‘MVL’) process. It is a statement of the company’s assets and liabilities at a given date, not more than five weeks prior to the date of liquidation, which states that the company can repay all of its creditors in full, with interest, within 12 months of the commencement of the winding-up.
Deferred consideration is where sales proceeds are payable over a period of time rather than in one lump sum at the date of the sale.
A director is a person who is responsible for directing and managing the affairs of an entity.
Disbursements are expenses which have been incurred by the Insolvency Practitioners in administering the insolvent estate.
Dissolution is the process by which an entity ceases to exist and is removed from the register maintained at Companies House.
A distribution is a payment from the insolvent estate to any creditor. Payments to secured creditors are typically referred to in absolute terms (for example £50,000) whereas payments to other creditors are normally referred to as dividends and are expressed in terms of pence in the £.
A dividend is a payment made to preferential or unsecured creditors in respect of their claims. Dividends are normally stated as a number of pence in the £.
The EC Insolvency Regulation has a direct effect on all member states in the European Union (except Denmark) and govern how insolvencies are dealt with where they involve more than one member state.
A person, partnership, organisation or business that has a separately identifiable legal existence (for example a company or a limited liability partnership).
A fixed charge holder has a charge (also referred to as security) over specific assets of an entity which entitles the charge holder to take control of those assets and use them to satisfy the debt if it is not paid. The charged assets cannot be sold without the consent of the fixed charge holder.
A floating charge holder has a charge (also referred to as security) over some or all of the assets of an entity which are not specifically covered by fixed charges. These assets may change over time (e.g. stock) as the entity is able to use the assets without the consent of the charge holder in the ordinary course of business. The charge holder will be entitled to receive the proceeds of sale of the assets to settle their debts; however, amounts must first be set aside to pay the preferential creditors and any Prescribed Part.
A guarantee is a legal obligation to repay a debt if the original borrower fails to do so. Directors may give guarantees, known as Personal Guarantees, (‘PGs’) in return for lending.
- Individual Voluntary Arrangement ('IVA')
An Individual Voluntary Arrangement (‘IVA’) is an insolvency procedure where a proposal is put to creditors in satisfaction of an individual’s debts; with payment in full or in part. It is an alternative to bankruptcy. Once approved all creditors are bound by the arrangement which is then controlled by an IP as supervisor.
- Insolvency Act 1986 ('the Act')
The Insolvency Act 1986 is the primary legislation governing corporate and personal insolvency law and practice.
The Insolvency Rules 1986, as amended, set out in detail how the Insolvency Practitioners should comply with the provisions of the Insolvency Act 1986.
- Insolvency Practitioner ('IP')
An Insolvency Practitioner (‘IP’) is a person licensed by a Recognised Professional Body (‘RPB’) to act in insolvency matters.
An individual or entity is insolvent if it is unable to pay its debts when they fall due for payment and/or it has insufficient assets to cover its debts.
- Law of Property Act Receiver ('LPA Receiver')
A Law of Property Act Receiver (‘LPA Receiver’) is a person (not necessarily an Insolvency Practitioner) appointed to take charge of a mortgaged property by a lender whose loan is in default.
Liquidation is the process by which a company’s assets are realised and distributed to satisfy, as far as it is able, its creditors and, if applicable, shareholders. The term winding-up is also used. Liquidation is usually a terminal process, followed by the dissolution of the company.
A liquidator is a licensed Insolvency Practitioner appointed to wind-up the affairs of a company.
A liability is a legal obligation to pay a person or entity.
A member is a shareholder of a company or a partner in a partnership.
- Members Voluntary Liquidation ('MVL')
A Members Voluntary Liquidation (‘MVL’) is a solvent liquidation where the shareholders appoint the liquidator to realise the assets and settle all the company’s debts, plus interest, in full within twelve months. Surplus assets are distributed to the shareholders (members).
A moratorium protects an entity from its creditors taking legal action to recover their debts during the period for which it is in force.
Net Property is the amount of money remaining from the realisation of floating charge assets after paying the expenses of an administration and the preferential creditors, but before paying creditors who have floating charge security. This amount is used to calculate the level of Prescribed Part funds available for unsecured creditors.
A nominee is a licensed Insolvency Practitioner who considers whether a proposal for an individual, partnership or company voluntary arrangement should be put to members and creditors for approval.
An office holder is another term for an Insolvency Practitioner (‘IP’).
An Official Receiver (‘OR’) is a civil servant and officer of the Court working for the Insolvency Service. The Official Receiver deals with bankruptcies and compulsory liquidations.
- Personal guarantees ('PG's)
A personal guarantee (‘PG’) is an agreement made by an individual that makes him/her personally liable for the debt that he / she is guaranteeing.
A petition is a document presented to the Court seeking to commence certain insolvency processes.
Pre-administration costs are fees and expenses incurred by the Administrators prior to the commencement of an administration with a view to the entity being placed into administration.
Preferential creditors have special rights allowing them to be paid ahead of unsecured creditors.
- Pre-pack administration ('pre-pack')
A pre-packaged administration (‘pre-pack’) is an arrangement under which the sale of all or part of an entity's business or assets is negotiated with a purchaser prior to the appointment of Administrators, and the sale occurs immediately on, or shortly after, appointment.
The Prescribed Part is an amount of money set aside from the company’s net property for unsecured creditors in priority to the floating charge holder. It only applies if the floating charge was created after 15 September 2003. It is calculated as 50% of the first £10,000 of Net Property, plus 20% thereafter up to a maximum of £600,000.
A progress report in an administration sent to all creditors within one month of every six-month period that elapses in an administration, unless a progress report is issued earlier to support an extension application or a final progress report is issued. The Insolvency Rules 1986 set out the required content of a progress report.
A progress report in a liquidation is sent to all creditors and members within one month of the anniversary of the liquidation.
A proof of debt form is used by a creditor to submit a claim in an insolvency for monies owed.
- Proposals (also known as Paragraph 49 report)
Proposals (also known as a Paragraph 49 report) are sent to all creditors in administrations within eight weeks of appointment. The report details the Administrators’ purpose and sets out their proposals for achieving that purpose. Creditors have an opportunity to vote on the proposals and may approve, reject or modify them.
A proxy is a person appointed by another entity to represent them at a meeting. They are entitled to attend the meeting and vote on behalf of the person or entity they are representing.
A proxy form must be completed by creditors or shareholders to appoint a proxy for a creditors' or shareholders' meeting.
- Qualifying Floating Charge holder ('QFC')
A Qualifying Floating Charge holder (‘QFC’) is a creditor who has a floating charge created on or after 15 September 2003.
- Receipts and payments account ('R&P')
A receipts and payments account (‘R&P’) is a statement of account detailing funds received and paid into an insolvent estate for a given period.
A receiver is appointed by a fixed charge holder over specific assets defined in the charge. The Receiver takes control of those assets and realises them for the benefit of the charge holder.
Receivership is the general term applied when a person is appointed as a receiver or administrative receiver.
- Redundancy Payments Office ('RPO')
The Redundancy Payments Office (‘RPO’) is a government department responsible for processing and paying employees' claims following an insolvency. The RPO pay monies to employees for wages, holiday pay, redundancy and pay in lieu of notice based on certain statutory limits, which may be less than the amount owed to the employee.
Remuneration is paid to the Insolvency Practitioners their work on the insolvent estate. In all types of proceeding it is subject to approval by creditors and shareholders.
Resolutions are formal proposals put to shareholders and/or creditors on which they can vote in person or by proxy.
- Retention of Title ('RoT')
Retention of Title (‘RoT’) is a legal clause which provides that ownership of goods sold does not pass to the purchaser until the goods have been paid for in full.
A Section 98 meeting of creditors is convened at the commencement of a Creditor's Voluntary Liquidation.
A secured creditor has a charge (also referred to as security) over assets of an entity (see fixed and floating charge holder above).
- Statement of Affairs ('SoA')
A Statement of Affairs (‘SoA’) is an account prepared, normally by the directors, to show the value of assets and liabilities of an entity as at the date of appointment.
- Statements of Insolvency Practice (SIPs)
Statements of Insolvency Practice (SIPs) set out principles and key standards to which Insolvency Practitioners must adhere (in addition to insolvency legislation).
A statutory demand can be used to demand payment of a debt from an entity. On receiving a statutory demand, an entity has 21 days to settle the debt or reach an agreement with the creditor. If no settlement is reached and more than £750 is outstanding, a winding up petition may then be issued.
A supervisor is an IP appointed to supervise a voluntary arrangement of either an individual, partnership or company.
- Transfer of Undertakings (Protection of Employment) Regulations 2006 ('TUPE')
Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) provides that, in certain circumstances, on the sale of a business, employees of an entity have their employment contracts transferred to the purchaser.
This term refers to the office held by the IP appointed in either a bankruptcy or an administration order in respect of the affairs of a deceased debtor.
An unsecured creditor is anyone who is owed money by an entity and holds no security for that debt, or who does not have preferential rights.
Please note, there are other insolvency glossaries available including: