Glossary

A process designed to rescue a company, partnership or LLP and/or improve the return to creditors (secured or unsecured), often via a sale of the company’s business and assets.
The process can be commenced either
• Out of court (i.e. without a court hearing) via the filing of a Notice of Intention to Appoint or Notice of Appointment, by:
• A board of directors
• Secured lender with a floating charge, or
• Company shareholders
• Or, in Court (i.e. with a court hearing) by the application of a creditor owed more than £750, board of directors or company shareholders.
A traditional Partnership or Limited Liability Partnership may also enter into Administration.
One of the key benefits of Administration is the bar on legal and/or recovery processes being commenced or continued (known as the statutory moratorium) without the consent of the Administrator or the court.

A person who acts as a controller of the company when a firm goes into administration. All company actions must go through the administrator and the administrator has overriding control over the whole business. He is appointed by the Court.

An Annual General Meeting where the shareholders voice any issues and directors give information of the past year and forecasts for the future, they also vote on any changes that are eligible to be made within the meeting, i.e. change of auditors and directors. This MUST be held every year. Does your company do this?

A term used when you have not paid invoices/made payments on debts and has built up and needs to be paid, if you do not pay the debt holder may take action to claim the money back.

An asset is something which you own that holds value should you come to sell it, i.e. a house or stock etc.

An option that can be used if a person cannot pay their debts as and when they fall due, or they owe more than they own. This causes you to lose control of your assets and cannot be a company director for the period of the bankruptcy ban period. Bankruptcy also adversely affects your credit rating.

A County Court Judgment or court action where a company/person will take you to court because you have not paid a debt. The court will order you to pay the debt within an allotted time and if you don’t the company will be able to take further action.

This is where ALL Ltd and PLCs are registered, they store all information and make this info available to the public i.e. accounts, directors. Companies House also act to incorporate and dissolve companies.

A tool that banks and financial service providers use to assess how likely you are to be able to honour your debt, if you have a good rating you will have access to more funds than if you have a poor rating. Your rating is assessed on whether you have defaulted before or have any court judgements.

A company or persons who owe money to another company for services provided. Creditors are classed as liabilities as it is money outstanding.

Creditors can petition for a debtor to be made bankrupt if an individual creditor is owed more than £750. Alternatively, creditors can join together to meet the £750 requirement. Proceedings normally take place at the debtor’s local county court with bankruptcy jurisdiction. Creditors can only ask for someone to be made bankrupt if: the debt is unsecured; and for a fixed sum which the debtor appears unable to pay.

Creditors Voluntary Liquidation: The liquidation of a company means to cease trading, sell all the assets and terminate all contracts. It is initiated by the shareholders of the company and done by an insolvency practitioner (see below).

A Company Voluntary Arrangement: Where a company is in an insolvent position a CVA may be used in order to set up a deal where a percentage of the debt is paid over a period time in order to ease the current cash flow problems and pressure on the directors. This allows the directors to focus on improving the busine

Department of Business, Innovation and Skills: This has replaced the DTI. It is a Government agency which acts in the interests of all and aspire for higher productivity in all industries by promoting enterprise innovation and creativity. The DeBIS also aid in employment issues such as redundancy. The DeBIS runs the Insolvency Service in England & Wales.

A company or persons who owe you money for services you have provided, but not yet paid for. Classed as a current asset.

Debtors petition (bankruptcy) where a debtor decides they want to make themselves bankrupt, in order to do this the debtor must petition to the county court. See bankruptcy above.

The decision makers of the company. The directors control the business and are responsible for its successful running and management. They’re protected from personal risk by limited liability, but generally only if they act correctly!

Directors Disqualification If a person is declared bankrupt or has committed certain insolvency offences then he or she can be barred from acting as a director by the DTI. It becomes illegal for that person to be a director or manager of a company for the period of disqualification.

A process that legally breaks up a company that no longer wishes to trade. In order to start the dissolution process the company must have ceased trading for 3 months.

A popular tool for landlords where rent or other payments are not made. If the landlord has agreed a payment deal and the company is not keeping to it the landlord has various powers. Distraint means that an agent of the landlord can effect entry to remove goods or assets for sale to pay for the debt due. He /she does not need to wait for a long period for this to happen. In theory 1 week after a rent payment is due they can distrain. Nor does he/she need a judgment.

A service provided by financial institutions such as banks and lenders who pay the company for unpaid invoices and help collect the remaining funds for a fee and they charge for lending the company money for a period until the debt is repaid.

A mortgage, debenture or other security documentation, is likely to create charges over particular assets as security for borrowings or other indebtedness. There are essentially two types of charge, floating and fixed. A floating charge is appropriate to assets and material which is subject to change on a day to day basis, such as stock. Individual items move into and out of the charge as they are bought and sold in the ordinary course of events. The floating charge crystallises if there is a default or similar event. A floating charge is not as effective as a fixed charge but is more flexible.

Put simply fraudulent trading is the continuation of trading with no reasonable prospect of repaying debts and with the intentions of defrauding creditors.

Where the company is continuing to trade for the current period and can cover its costs and make some money.

Her Majesty’s Revenue and Customs: the government body which collects and regulates PAYE, NIC, VAT and TAX

A licensed insolvency practitioner (IP) carries out a wide range of duties in relation to insolvent individuals and companies. Depending on the insolvency procedure they may be required to negotiate with creditors with a view to rescuing the business, or at the other extreme, take over complete control of the company prior to closing it down.

An insolvency practitioner follows the statutory regulations laid down in the Insolvency Act 1986, and the Insolvency Rules 1986, and must comply with Statements of Insolvency Practice.

A term that is used when a company/person cannot pay or cover their debts with the assets or funds they have as liabilities exceed assets.

A company that cannot pay its debts as and when they fall due. The company will suffer from major cash flow problems and cannot pay what it owes thus it is insolvent.

When someone is applying for an IVA (see below) they can ask the court to protect them from legal or bankruptcy actions by someone they owe money to.

Accountants who look at the business you run for the bank that is lending it money, they check accounts, forecasts, marketplace and management. The real reason the banks appoints them is to find out how secure debt is that the company holds..

An Individual Voluntary Arrangement: Very similar to a company voluntary arrangement. However the IVA is for individuals as opposed to companies and removes the burden of personal debt to make a fresh start and improve their lives.

Joint and Several Liability implies that all members are liable for the partnership debts in full or in part individually, dependent usually on their ability to pay. Thus a creditor(s) /liquidator can “go after” the member with the most assets to satisfy debts then the next and so on until all debts are satisfied or until all partners made bankrupt.

A Liability is something that you owe to somebody, i.e. a mortgage, loan payment credit/store cards.

Limited Company A business that legally sets itself as a separate person so that its directors and shareholders are not liable for any of its (proper) actions. The businesses are usually privately owned.

A mechanism that allows Limited company and PLC shareholders to limit there responsibilities if the business falls into difficulties, where shareholders will lose no more than there investment in the business should it default.

When a company dies. Once the process starts the company is administered by a liquidator who disposes of all assets, and distributes the proceeds to creditors and any remainder to shareholders. The company is then struck off from the companies register once this process is complete.

A liquidator is a person responsible for dealing with the winding up of a company and he/she must be an insolvency practitioner.

A period of time during which a certain activity is not allowed or required. Usually a moratorium is put in place to protect a person, business or company

Under the Enterprise Act 2002 the UK Government significantly relaxed the rules regarding bankruptcy. From April 2004 the sole trader or partner in a partnership, who has a failed business (where there are no issues of fraud, misfeasance, recklessness etc) is able to file for bankruptcy (see process above) and be discharged from that bankruptcy within say 12 months.

A nominee is a licensed insolvency practitioner who helps propose a deal with their creditors under a proposal of a CVA/IVA and deals with legal issues and compliance such as chairing the creditors meetings, checking management accounts and forecasts.

The Official Receiver is a civil servant in The Insolvency Service and an officer of the court. He (or she) will be notified by the court of the bankruptcy or winding-up order. He will then be responsible through his staff for administering the initial stage. This stage includes collecting and protecting any assets and investigating the causes of the bankruptcy or winding up.

Similar to a sole trader, however there is more than one owner and there can be several different people that own different amounts of the business.

Pay As You Earn: A government scheme where your tax is deducted from your monthly wage and paid for you by your employer so that you do not have to calculate your own tax and National Insurance payments. The employer is responsible for collecting this tax and paying to the government. Failure to do so on time is a sign of insolvency.

This is a pot of money into which contributions are made to build a fund to pay retirement pensions and funds that are drawn on to pay these pensions to ex-employees who were eligible for a pension.

A personal guarantee is a tool which financial service providers can use to guarantee their debt by requesting the director or partner in a business to personally guarantee the debt regardless of whether the debt is used by the company or not. Should the debt default, then the bank will call on this personal guarantee and the guarantor may/will have to pay the remaining debt.

A Company that trades shares of its business on the stock exchange which can be owned by anyone. The company has limited liability and are generally quite large firms and have to disclose all actions. The minimum share capital level is 50,000 and it must file annual accounts within 6 months of the year end.

A Partnership Voluntary Arrangement: The same process as a CVA however this is used for a company that is a partnership as the proprietors are joint and severally liable. The PVA has the same benefits as the CVA.

A receiver is appointed by a bank normally to collect and administer a company’s assets. The receiver then has a duty to collect the bank’s debts only by selling the assets; he/she is not generally concerned with the other unsecured creditors or shareholders exposure.

When a company defaults on a loan or payment the debt holder can call on a receiver to go into the company to sell the companies assets in order to pay back some or all of the debt. The company in receivership will lose control of the business while the receivers sell the assets and the company will usually be liquidated, the business may be sold and there is usually a loss of jobs.

A reason for dismissal, redundancy involves the closure (either temporary or permanent) of the business as a whole or closure of a particular department this could suggest that the business has no further use for the department you are working in, are downsizing or could be facing difficulties.

Small Firms Loan Guarantee Scheme: By providing a government guarantee against default by borrowers, the Scheme enables high street banks and other financial bodies to lend between £5,000 and £250,000 to new and existing businesses. The DTI underwrites 75% of the loan. So if the company failed the bank will be able to claim up to 75% back form the DTI.

Shareholders Owners of the business, someone who has bought shares on the open market if it is a quoted PLC. Or owns a stake in a limited company. They have a say in how the business is run and earn a share of the profits as a dividend.

Basically as the title suggest the mechanism is to link together a number of simultaneous individual voluntary arrangements to protect the partnership and the individual debtors. It allows the partnership arrangement to deal with partnership debts and individual arrangements to deal with any individual debts. It also protects the individual partners from the “fallout” of the partnership debts to the individual.

Statement Of Affairs: A statement of what you own, what assets you have and your liabilities and cost of living to summarise your financial affairs.

An owner of a business who is wholly responsible for the day to day running of the business and its debts. They are generally small firms with few employees.

Usually this action is taken after a creditor has obtained a Judgment. It is a formal demand for payment of an undisputed debt (over £5000 from 1st October 2015) – the debt must be paid within 21 days of the demand being issued. Failure to pay a statutory demand can lead to a winding up petition or bankruptcy being issued. In any event, the creditor has to pay to issue this document/action and therefore he/she/it is now becoming much more serious.

The Supervisor collects payment of CVA/IVA contributions and ensures that contributions are kept up to date; failure to keep up to date can cause the supervisor to default and abort the CVA/IVA leading to liquidation/bankruptcy.

Working through problems, this phrase is used where you continue to trade through tough times in order to rectify your problems and improve your company’s health.

Trustee in bankruptcy A Person who holds property in trust for another. In bankruptcies the IP holds the property of the bankrupt in trust for creditors and is referred to as the trustee.

Turnaround practitioner An advisor who specialises in helping ailing companies solve their problems and get back on their feet, a simple analogy of this would be to describe a turnaround practitioner as a company doctor.

Value Added Tax: A duty that is paid on qualifying goods of 20% above the company’s selling price less any VAT paid for goods the company has bought in the same period. This is collected by companies for the HM Revenue & Customs.

A bailiff (for the County Court) or Sheriff (for the High Court) has visited your premises and obtained entry. He /she has asked for payment of the proven debt. If you have not paid this plus the court and his costs he can “take possession” of the goods, equipment, fixtures, stock etc on the premises. Effectively if you do not reach a deal or pay in full he can remove and sell the assets in 5 days. To sell the assets after they are covered in this way is a criminal offence. If the bailiff has obtained a walking possession he can force entry to recover the goods after the 5 day period.

In law, a warrant can mean any authorisation. Often in statute the warrant of a particular person is required before certain administrative actions can take place. As the creditor has not been paid under the judgement the creditor can apply to the court for a warrant of execution. If the debtor is in another area the court can forward this to the local court. A notice of warrant will be issued to the debtor. If payment is not made a bailiff of the court can be sent to collect payment or seize goods.

Wrongful Trading – A Director may be held liable for wrongful trading if they allowed the company to continue in business when they knew or ought to have known that there was no prospect of meeting the company liabilities as they fell due. Put simply lying about the current state of the company and hiding from reality.

Winding Up Petition: A tool that can be used should a debtor continuously refuses to pay its debts so the company presents its petition to the court to have the company closed down.

The theft that is committed by stealing receipts, stealing assets on hand, or by committing some type of disbursement fraud.

Financial statement fraud in which assets are recorded at higher amounts than they should be.

Understatement of Assets / Revenues / Liabilities is financial statement fraud that involves understating assets, revenues or amounts owed to others.

A collusive fraud where an employee helps a vendor illegally obtain a contract that was supposed to involve competitive bidding.

Is a fraud aimed at the payments system of a business. Its main purpose is to manipulate that system and cause the business to make a fraudulent payment to the employee. Though it is a payment to an employee, the business still records it as a legitimate business expense in its records.

The offering, giving, receiving, or soliciting anything of value to influence an official act.

Dishonesty that involves the following schemes; Bribery, Conflicts of Interest, Economic Extortion and Illegal Gratuities.

Fraud in which employees, managers or executives put their personal interest above the company’s interest. Usually resulting in an adverse effect on the organization.

A scheme which involves an employee demanding payment from a vendor in order to make or influence a decision in that vendor’s favour.

The theft or fraudulent appropriation of money through deception.

Where an employee invents an expense and then request a reimbursements for it. This can include receipts from companies who provide fake or novelty receipts.

Created when an employee rings or enters a false sale into the companies accounting system or register. Many times fictitious revenues are created in Payroll Commission Schemes to increase the sales reps commission. The employer believes the sale to be legitimate and issues a commission check to the salesperson.

All efforts and means extended to deter fraud from occurring; involves eliminating perceived pressures, perceived opportunities and / or rationalizations; any action that discourages or diminishes the likelihood that fraud will occur.

The intentional misstatement of financial statements by omitting critical facts or disclosures, misstating amounts, or misapplying GAAP.

A fraudulent process where representatives of legitimate or fraudulent MLM’s are required to buy large, expensive amounts of inventory.

A classic marketing scheme that makes people believe that they will make money simply because they are one of the earliest investors in a new venture.

Fees paid as a commission for recruiting someone to fill a position; often paid in multi-level marketing organizations.

Similar to bribery, except that there is no intent to influence a particular business decision, but rather to reward someone for making a favourable decision.

Fraud schemes perpetrated by an employee and the employee’s vendor or customer. It usually involves the employee buying goods or services at an overstated price.

Conceals cash shortages by transferring funds from one bank to another and recording the receipt of on or before the balance sheet date and the disbursement after the balance sheet date.

The ACFE in its publications has identified several categories of occupational fraud schemes which are the basis of how we detect and prevent fraud. You can view those identified categories in the report the nation which is available in a free pdf download on their website.

Purchase schemes with company funds can consist of personal purchases through false invoicing, on company credit cards or other credit accounts.

Can occur through creating fictitious sales, altering sales receipts and altering commission rates.

A fake entity that is solely created to bill a company for goods or services it does not receive. A shell company could also be set up to mirror an existing company already used as vendor only this company has a spelling deviation in the name allowing it so the perpetrator to register it as a viable business. When this fraud scheme occurs, the perpetrator writes the check to the shell company, endorses the back of the check and deposits it into the shell bank account. They enter the payment on the books and records as a payment made to the actual vendor. Banks and business managers don’t always notice the deviation in the spelling and think the payment was legitimate.

The division of tasks into two parts, so one person does not have complete control of the task.

Wilfully and intentionally violating the legal duty of voluntarily filing income tax returns or paying the correct amount of income, employment or excise tax.

Occur when the calculation of net income for accounting purposes varies from that determined for income tax purposes. Timing differences are temporary in and journal entries are used to reverse the difference over time.

An overcharge for purchased goods, the shipment of inferior goods, or the non-shipment of goods even though payment is made.

White-collar criminals are opportunists, who over time learn they can take advantage of their circumstances to accumulate financial gain. They are educated, intelligent, affluent, confident individuals, who were qualified enough to get a job which allows them the un-monitored access to often large sums of money. Many also use their intelligence to con their victims into believing and trusting in their credentials. Many do not start out as criminals, and in many cases never see themselves as such.
Financially motivated nonviolent crime committed by business and government professionals. Within criminology, it was first defined by sociologist Edwin Sutherland in 1939 as “a crime committed by a person of respectability and high social status in the course of his occupation”.

An Administration Order is an order granted by the Court placing the Company into Administration. An Administration Order is only made when the application is made to court for Administration.

A Licensed Insolvency Practitioner who holds the position of Administrator during the period of Administration. The Administrator will be a person and cannot be a firm. The identity of the Administrator will be chosen by the person seeking to place the company/partnership/LLP into Administration.
The Administrator must act in the best interests of all creditors and not just one or more secured creditor(s) unlike an Administrative Receiver.

A Licensed Insolvency Practitioner who holds the position of Administrative Receiver during the period of Administrative Receivership.
The Administrative Receiver will be appointed by a secured lender to recover monies owed only to the lender.
Unlike an Administrator the Administrator Receiver’s duty of care is only towards the lender appointing him/her.

An Insolvency process where a Secured Lender appoints an Administrative Receiver under the terms of its charge to realise sufficient funds (or as much as possible) to repay the lender’s indebtedness. Since 15 September 2003 Administrative Receiverships have become uncommon after Insolvency legislation changed.
To appoint an Administrative Receiver the Secured Lender must hold a charge over the whole or substantially the whole of a company’s assets. Without this the lender cannot appoint an Administrative Receiver.

This is a specialist remedy, available to a secured creditor, to take control of the assets of a farmer.

When a Bankruptcy Order ought not to have been made or a Bankrupt can pay their debts (together with costs of the Bankruptcy and interest) in full, it is possible to apply to the court for Annulment meaning that the Bankruptcy Order is in effect withdrawn and was never made.

This is a specific definition within the Insolvency Act 1986 to classify those ‘associated’ with the party subject to the relevant Insolvency Proceeding. It has relevance to certain remedies available to Licensed Insolvency Practitioners.
Associates of individuals include family members, relatives, partners and their relatives, employees, employers, trustees in certain trust relationships, and companies that the individual controls. Associates of companies also include shareholders, directors and other companies under common control.

This was the term for someone whose job it is to collect a debt on behalf of a creditor. Since 21 April 2014 they have been called Enforcement Agents.

When a person (known as a Debtor) is unable to pay their debts then a Bankruptcy Order is made following the presentation of a Bankruptcy Petition. This starts the process of Bankruptcy.
Once a person is Bankrupt either the Official Receiver or an Insolvency Practitioner will be appointed as Trustee in Bankruptcy to Realise the individual’s assets to attempt to make payment to the Debtor’s creditors.
Bankruptcy lasts 12 months, unless the Bankrupt is Discharged earlier or the Discharge is suspended as a result of the poor conduct of the Bankrupt. After Discharge the Trustee in Bankruptcy will continue to Realise the assets of the individual until they are all dealt with.

A person who against whom a Bankruptcy Order has been made.

An order made by the court that confirms and commences the period of a Debtor’s Bankruptcy.

A request (known as a Petition) made to the court when a Debtor has failed to or cannot pay their debts and someone wishes for a Bankruptcy Order to be made.

When a Bankrupt has been dishonest or in some other way to blame for their Bankruptcy they may have a court order made against them or give an undertaking which will mean that bankruptcy restrictions continue to apply after Discharge for a period of between two to fifteen years.

This is an order of the court providing a (previously) unsecured creditor with a charge over property to secure their debt.
To obtain a charging order a creditor must go to court, obtain a CCJ, and make two further court applications to obtain firstly an Interim Charging Order followed by a Final Charging Order. Once the Final Charging Order is granted the creditor holds a secured charge over the property. The Charging Order will need to be paid off on a subsequent sale of the property and provides the creditor with the opportunity to ask the court for permission to sell the property to obtain payment for their debt.

This is an agreement between a Debtor and his/her/its Creditors. The compounding Creditors agree with the Debtor, and between themselves, to accept payment of less than the amount due to them, in full satisfaction of their claim.

When a company is unable to pay its debts then a Winding Up Order is made following the presentation of a Winding Up Petition. This starts the process of Winding Up.
Once a company is wound up it is in Compulsory Liquidation and either the Official Receiver or an Insolvency Practitioner will be appointed as Liquidator to Realise the company’s assets to attempt to make payment to the company’s creditors.
It is most commonly used by a creditor who is owed more than £750, but it can also be used by the secretary of state on public interest grounds or by shareholders who think it is just and equitable to wind up their company.
Unlike a Voluntary Liquidation, the directors and shareholders have no say in the initial choice of Liquidator.

This sets out how and when a person may be disqualified from acting as a company director. It provides that a director can be disqualified for between 2 and 15 years either as a result of providing an undertaking not to act as a director or by formally being disqualification order from the court.

In simple terms this is a contract between a company and its creditors to repay some or all of its debt over a period of time. It is legally binding on all concerned and much stricter than a simple contract with defined consequences if it is not adhered to.
A CVA is a very powerful Business Recovery tool and can literally turn a company from unprofitable to profitable overnight.
Unfortunately most CVA’s are poorly prepared and therefore they obtain a negative reputation, but they are badly misunderstood and very underutilised.

Directors and their Associates, and Associates of a company.

A person appointed to take charge of assets, usually when they are subject to some legal dispute. The procedure may be used other than for a limited company, for example, to settle a partnership dispute or in equitable execution (e.g. in a divorce)

A Court order acknowledging that a debt is due and that you have been unable to pay it as you should have done. You may be able to agree terms for payment with the court, but if not the CCJ will now give a Creditor the opportunity to take further recovery action such as instructing an Enforcement Agent or seeking a Charging Order.

Any party that is owed money, be that party an individual, corporate or business. Creditors can be Secured or Unsecured and their different status provides them with different powers and rights.

A group of between 3 and 5 Creditors appointed to assist the Office Holder during the course of an Insolvency process. The Creditors Committee often makes decisions on behalf of the general body of Creditors.

A meeting of the Bankrupt’s/company’s creditors where resolutions are passed or important decisions about the Insolvency Process are made. These can include, for example the basis of remuneration of the Trustee in Bankruptcy, Liquidator or Administrator.
All creditors are entitled to attend and vote at meetings either in person or by proxy. In some Insolvency processes they provide the opportunity for Creditors to attend and question those previously in charge of the company.

When a company’s assets are insufficient to cover its liabilities (i.e. it is Insolvent) and it is voluntarily placed into Liquidation, it is formally known as a Creditors Voluntary Liquidation.
The shareholders pass a resolution to place the company into Liquidation. The directors of the company produce a document known as a Statement of Affairs to show creditors what assets and liabilities the company has.
A creditors meeting is held within 14 days of passing the winding up resolution, usually it is straight after the shareholders meeting, where creditors ratify the identity of the Liquidator.
It is not only a limited company that can enter into Creditors’ Voluntary Liquidation – An LLP may also enter into creditors’ voluntary liquidation.

An legal instrument creating security over a company/LLP’s assets. The Debenture may contain a Fixed Charge and/or Floating Charge. It must be registered at Companies House within 21 days of creation to be 100% valid.

An individual/company/business who owes money to his/her/its Creditors. If you look at it from a Creditor’s perspective the person who owes them money is a debtor to them.
In accounting terms it is simply someone who owes you money.

A summary statement showing the assets and liabilities of a company together with a statement that the company will be able to pay its debts together with interest and costs within 12 months of the liquidation commencing. It is required in a Member’s Voluntary Liquidation to demonstrate that the company is solvent. It is sworn by the majority or all (where they number less than 2) of directors. Making an incorrect declaration (i.e. where the business is insolvent) can have severe consequences.

There are 3 types of director:
o De Jure director – someone officially appointed and registered at Companies House
o De Facto director – someone who is not formally appointed but carries out their duties as if a director and is thought of as a director by those both internally and externally to the company
o Shadow director – someone upon whose instructions and decisions the de jure and/or de facto directors act. A shadow director often acts behind the scenes because there is a reason he/she cannot be appointed.

It is a criminal offence for an undischarged bankrupt to, amongst other things:

• Act as a Director or take part in the management of a limited company;
• Obtain credit of over £250 without disclosing his/her status;
• Trade in a name other that that under which he/she was made bankrupt;
• Hold certain public and other offices

When a Bankrupt is no longer subject to the automatic restrictions of Bankruptcy they are said to be discharged. Until that time a Bankrupt might also be known as an undischarged bankrupt. Discharge occurs after 12 months unless the Discharge is suspended, which usually only happens if the Bankrupt has failed to co-operate with the Official Receiver or Trustee in Bankruptcy, or has been guilty of wrongdoing prior to being made Bankrupt.

Is the seizure of someone’s property in order to obtain payment of money owed. Distraint may be as a result of the exercise of a warrant of execution by an Enforcement Agent on behalf of a Creditor, it may be by the statutory right to distrain e.g. HMRC in relation to tax debts. Once Distraint has occurred goods may be removed and sold at auction in an attempt to recover money owed. If Distraint has occurred or is threatened urgent advice is needed to protect your assets.

A director of a limited company, member of an LLP or partner in a traditional partnership can be disqualified if a Liquidator,Administrator or Administrative Receiver establishes sufficient evidence of “unfit” conduct.
Directors/members/partners can voluntarily undertake not to act in the position of Director – known as a Disqualification Undertaking – or can receive a Disqualification Order from the court banning them from acting as a Director.

A company is dissolved when it is removed from the register at Companies House. It is possible to do this voluntarily if, amongst other things, the company ceased trading at least 3 months earlier. After a company is dissolved it is possible to restore it to the register but this is very unlikely to happen if it was preceded by Liquidation or Administration.

A payment made out of assets Realised by the Licensed Insolvency Practitioner who is holding the office of (for example) Liquidator to Creditors of the Bankrupt or Insolvent Company. Dividends are paid at the same rate to everyone within a particular class of Creditor.

A transaction where credit is provided on terms that are exorbitant or grossly unfair, compared with the risk accepted by the creditor. This transaction may be challenged either by an Administrator, a Liquidator or a Trustee in Bankruptcy.

A type of security given by a company or LLP to a lender over a specific asset (e.g. property, goodwill or trade marks) when borrowing money.
Under a Fixed Charge the borrower is not free to sell the asset without obtaining permission from the lender. The assets secured are normally significant or immoveable and specifically identifiable. Debtors or book debts can be subject to a fixed charge when the borrower has entered into a factoring or invoice discounting agreement.

An alternative type of security granted by a company or LLP to a lender over general assets when borrowing money.
Under a Floating Charge the borrower is free to deal with these assets as it so desires, unlike those held under a Fixed Charge.
Floating Charge assets include items such as debtors (unless these are secured by a Fixed charge in favour of a factoring or invoice discounting provider), stock and office equipment.

When a director(s) of a company or member(s) of an LLP has run the company/LLP with intention of defrauding creditors, or for any fraudulent purpose, this is known as Fraudulent Trading.
Proving Fraudulent Trading is often very difficult to do as the criminal burden of proof must be overcome – that is establishing beyond reasonable doubt that the company was run with the intent of defrauding creditors.
If found guilty of Fraudulent Trading, not only is it a criminal offence but those involved can be made personally liable for the debts of the company.
Fraudulent Trading is covered in detail by Section 213 of the Insolvency Act 1986.

The term used to describe a business that is continuing without any question or concern over its future.

A legal commitment to repay a debt, if the original borrower fails to meet his obligations. Directors of companies or members of LLP’s may often give guarantees to banks in return for the bank financing their companies.

A legally binding solution for overindebted individuals and sole traders who are struggling to pay their debts. It is an agreement between a person and his/her creditors to repay some or all of the debt over a period of time. It avoids the consequences of bankruptcy but will typically last for 5 years or until the debts are paid in full if this is sooner.

Section 123 of the Insolvency Act defines Insolvency as:
o Insufficient Assets to meet all debts
o Inability to pay debts as they fall due (e.g. being late with tax payments or exceeding credit terms)
o Unsatisfied CCJ in whole or in part
o Unpaid Statutory Demand >£750
Establishing and understanding the point of Insolvency for you and/or your business is crucial to ensure you can enter into an Insolvency process and to understand the point at which you must take action to avoid dire consequences (e.g. personal liability in a limited company)

Primary piece of legislation governing England and Wales Insolvency Law and Practice.

A Liquidation where the available assets are insufficient to pay all debts. An insolvent liquidation will either take the form of a Compulsory Liquidation or Creditors’ Voluntary Liquidation.

An Order setting out the procedures for dealing with insolvent partnerships. The Order provides for winding up an insolvent partnership as an unregistered company, with or without concurrent insolvency proceedings against individual partners; for the joint bankruptcy of individual partners, without winding up the partnership as an unregistered company; and for the application of the administration and company voluntary arrangement procedures to insolvent partnerships.

A person who has been assessed as being competent in Insolvency and has been granted a license from one of the recognised professional body to hold office as Trustee In Bankruptcy, Nominee or Supervisor in relation to a voluntary arrangement, Liquidator, Administrator or Administrative Receiver.
Only Licensed Insolvency Practitioners are regulated and insured to provide Insolvency advice and administer Insolvency procedures. Each Insolvency Practitioner has a licence number. To check whether your adviser has an Insolvency licence click here.

An individual who intends to propose a voluntary arrangement to his/her creditors may apply to court for an order preventing any action being commenced or continued whilst the order is in force – e.g. no bankruptcy order may be made and no other legal proceedings may be carried out (e.g. Enforcement Agents).

Governs transactions in law and property. Contains statutory powers of receivers appointed under a fixed charge.

As defined by the Law of Property Act 1925, an 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, usually with a view to sale or to collect rental income for the lender. An LPA Receiver may be used, for example, upon the failure of a property developer, whose borrowings will largely be secured on specific properties.

A person who holds an Insolvency Licence issued by one of the recognised professional bodies.

A right to keep possession of assets or documents belonging to another individual or corporate until an outstanding debt is settled. Liens over books and records are unenforceable in most Insolvency procedures.

A process which involves the winding up of a company/LLP/Partnership’s life, the disposal of its assets, collection of its debts and the distribution of the proceeds to the entity’s Creditors in the priority laid down in the Insolvency Act 1986.
The Liquidation of a company/LLP/Partnership is followed by its dissolution.

Another name for a Creditors Committee appointed in a Liquidation.

The name given to the Insolvency Practitioner in any type of Liquidation. The Liquidator’s duty is to Realise the assets of the company/LLP/partnership and distribute any available proceeds to creditors.

Court order preventing the disposal of assets.

The company is solvent and the directors make a Declaration of Solvency confirming that the company is able to pay its debts and liabilities together with costs and interest in full within 12 months. Any surplus is distributed to shareholders who will be able to claim Entrepreneurs Relief on this distribution and pay tax at 10%.

A type of transaction carried out by a company’s directors prior to an Insolvency process commencing, or a Debtor prior to bankruptcy, intended to favour one creditor over another (also known as putting them in a better position).
For example – Lucas owes Johnson and Phil £25,000 each, Lucas receives £30,000 and chooses to give £25,000 to Johnson but only £5,000 to Phil – this transaction was intended to favour Johnson and could therefore be a Preference.
Preference transactions can be challenged by a Liquidator, Administrator or Trustee in Bankruptcy if they took place within the period of 6 months ending with the onset of Insolvency or the presentation of the bankruptcy petition or in the case of a connected party within 2 years ending with the onset of Insolvency or the presentation of the bankruptcy petition. and if successful can result in payments being recovered from either the beneficiary of the Preference or the directors of the company.

A compromise or arrangement between a company and its creditors or members or any class of them under section 425 of the Companies Act 1985, which may involve a scheme for the reconstruction of the company. If a majority in number representing three-quarters in value of the creditors, or members, or any class of them, agree to the compromise or arrangement, it is binding if sanctioned by the court. Section 425 may be invoked where there is an administration order in force in relation to the company, where there is a liquidator or provisional liquidator in office, or where the company is not subject to any insolvency proceedings.

This occurs where the directors of a company (or members of an LLP) have failed to take every step to minimise losses to creditors when they knew or ought to have known that there was no reasonable prospect of the company/LLP avoiding Insolvent Liquidation. The Liquidator can sue the directors (members of an LLP) for a contribution to the company/LLP’s assets that will form part of any Distribution to creditors.
Wrongful Trading is covered in detail by Section 214 of the Insolvency Act 1986.

Breach of duty by a company/LLP’s directors/members in respect of their dealings with company/LLP funds or property. A Liquidator has a right to sue a the offending party for Misfeasance to recompense the company Creditors.

A freeze on any legal or other process for a specific period of time. Moratoriums are available to Individuals and Companies/Partnerships under different Insolvency Procedures such as an IVA, CVA or Administration.

A Liquidator, Provisional Liquidator, Administrator, Administrative Receiver, Nominee or Supervisor of a voluntary arrangement, or Trustee In Bankruptcy.

A representative from the Insolvency Service who deals with Bankruptcy and Compulsory Liquidation.

A legally binding agreement between a partnership and its creditors to repay some or all of its debt over a period of time.
It is a solution for partnerships who are struggling to pay their debts. It is designed to allow the partnership to continue trading and repay its historic debts out of future profits.
It avoids the consequences of winding up the partnership and will typically last for up to 5 years. IVA’s may also be needed for the partners.

A written application to the court and used by creditors, individuals or directors to commence proceedings to wind up a company (Compulsory Liquidation) or place it into Administration, or make an individual Bankrupt.

A Creditor who is paid ahead of unsecured Creditors and floating charge Creditors. Occupational Pension Schemes and Employees (for £800 of wage arrears and all holiday pay) are the most common. May people think HM Revenue & Customs hold this elevated status, but did you know HM Revenue & Customs lost this status on 15 September 2003?

A document of form submitted by a Creditor providing details of what is owed to a Creditor.

When a company is in Compulsory Liquidation 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. Failure to attend a public examination can lead to an arrest warrant being issued.

The name given to a Licensed Insolvency Practitioner appointed to safeguard a company’s assets after presentation of a Winding Up Petition.

A form giving a creditor or a member/shareholder the right to vote at a creditors’ or members’ meeting when they cannot be present by appointing a proxy holder to vote on their behalf.

Realising an asset means selling it or disposing of it to raise money, or collecting it in in the case of debtors or cash at bank.

The commonly used name for an Administrative Receiver. A Receiver may also be the person appointed by a secured creditor holding a fixed charge over specific assets of a company in order to take control of those assets for the benefit of the secured creditor.

The general term applied when a person is appointed as a Receiver or Administrative Receiver.

An organisation able to authorise its members to act as Licensed Insolvency Practitioners.

A procedure that cancels or rescinds a Winding Up Order. Similar to Annulment in a Bankruptcy.

A clause used in a contract by a seller to retain legal title to the goods they have supplied until such time as they are paid for. Under the Sale of Goods Act title passes upon delivery unless this default position is changed within the terms and conditions of supply/purchase. It is a complex and continually evolving area of law.

A Creditor who holds security over a person’s/company’s assets, e.g. a bank, or other financial institution. This class of Creditor is paid from the proceeds of the sale of the security – i.e. before unsecured creditors.

Someone upon whose instructions and decisions the de jure and/or de facto directors act. A shadow director often acts behind the scenes because there is a reason he/she cannot be appointed.

An individual carrying on business in their own right and not through a limited company. A Sole Trader is personally liable for the debts of this/her own business.

Often a professional appointed to assist the Official Receiver, Liquidator or Trustee in Bankruptcy in managing an insolvent’s business.

A document giving details of a individual’s/company’s assets and liabilities.

A document issued by someone who is owed a debt requiring the Debtor to make payment within 21 days. The party receiving it has 18 days in which to apply to set it aside if they disagree with it. After 21 days a Bankruptcy Petition or Winding Up Petition may be issued without further notice.

A Statutory Demand should never be used where the debt is disputed.

Order to appear or to produce evidence to a Court.

The Licensed Insolvency Practitioner appointed to oversee a Company Voluntary Arrangement or Individual Voluntary Arrangement.

The disposal of a company’s or individual’s assets or any other transaction which occurs at a significant reduction to true value within the 2 years prior to Liquidation or Administration, or within the 5 years prior to Bankruptcy.
Transactions at an undervalue can be challenged by a Liquidator, Administrator or Trustee In Bankruptcy. The outcome of any challenge can be the recovery of the assets disposed of or payment being recovered from either the beneficiary or (in the case of a company) the directors.

The name given to the Insolvency Practitioner or Official Receiver in any Bankruptcy. The Trustee in Bankruptcy’s duty is to Realise the assets of the Bankrupt in an attempt to secure repayment for the Bankrupt’s Creditors.

Any creditor who does not hold security over the insolvent individual’s/company’s assets. This class of creditor will be the last in the queue to receive a Distribution from the insolvency procedure.

Creditors’ Voluntary Liquidation (CVL): relates to an insolvent company. It is commenced by resolution of the shareholders, but is under the effective control of creditors, who can choose the liquidator.
Members’ Voluntary Liquidation (MVL): A solvent liquidation where the shareholders appoint the liquidator to Realise assets and settle all the company’s debts, plus interest, in full within 12 months.

An agreement signed by a debtor not to remove goods levied by a bailiff under the authority of a warrant of execution and to allow the bailiff access at any time to inspect the goods, in consideration of which the bailiff leaves the goods in the possession of the debtor.

A term that strictly applies to a company/LLP/partnership going into Compulsory Liquidation, but it is sometimes used to describe a voluntary winding up, which is a Creditors’ Voluntary Liquidation or a Members’ Voluntary Liquidation.

An order made by the court that confirms that the company is to be placed into Compulsory Liquidation.

A Petition presented to the Court requesting that a Winding Up Order is made to place the Company into Compulsory Liquidation.

Writ issued by the court directing a sheriff to levy execution upon a debtor’s goods.

Any expenditure that can be deducted from gross income to reduce the amount subject to income tax before calculating how much tax is due

a certification of a person’s innocence, freeing them from the charges of a crime. This can come from a jury’s “not guilty” verdict or a judge’s decision.

a written statement made under oath.

a private process for resolving disputes outside of the courts. A neutral third party hears the evidence of the case and makes a decision.

this refers to the legal profession as an institution. A bar association is a group of attorneys. In the United States, you have to be admitted to the bar to practice law, but only certain states mandate that lawyers be members of local bar associations.

the area of the courtroom occupied by the judge or judges.

disregard for or failure to obey the rules and authority of the court. Disrespecting a judge or disobeying a court’s orders are both grounds to be held in contempt.

the process by which one party can learn what evidence or facts the other party has that could affect the outcome of the case.

Latin for “from a side,” ex parte is when one party in a case speaks with a judge without the presence of the other party. It’s generally considered improper except in special cases, like when domestic abuse victims request restraining orders.

a court order restricting parties from commenting on a case publicly or with an unauthorized third party.

the assumption that all parties will be honest, fair and sincere in their dealings.

meaning “you have the body” in Latin, this is usually used as a judicial order to force law enforcement to produce a person they’re detaining and to justify that person’s imprisonment.

a jury unable to reach a consensus or verdict.

evidence that establishes the guilt of the defendant. Conversely, exculpatory evidence is evidence that establishes the innocence of the defendant.

simply means an individual, not a corporate entity.  (Remember, in the United States corporations are technically people.)

from the Latin phrase pro bono publico (“for the public good”), these are legal services provided by a lawyer who isn’t paid for those services, often for low-income clients or nonprofit organizations.

meaning “for oneself” in Latin, this is when a litigant represents themselves in court, rather than being represented by an attorney.

a break in a trial or court proceeding.

from the Latin phrase sub poena (“under penalty”), this is a notice legally requiring a person to appear in court and testify as a witness.

a negligent or intentional injury or wrongful act against a person or their property, allowing for a civil case to be brought.

a crime that can be punished as either a misdemeanor (a crime with a less severe sentence, usually less than one year in prison) or a felony (a crime with a more severe sentence, usually more than one year in prison).

to intentionally and permanently give up, surrender, leave, desert or relinquish all interest or ownership in a property. The term is often used to determine if a tenant has left a property and has no intention of returning.

the removal of a problem which is against policy or endangers others (nuisances such as noise or antisocial behaviour).

to help someone plan or commit a crime, or escape arrest.

to leave an area (also known as a jurisdiction) to avoid arrest or avoid being served with legal papers; the term can also mean fleeing with stolen funds or goods.

a legal practitioner in England, Wales and Northern Ireland. In Scotland, the term Advocate is used.

to be under a legal obligation to keep the peace.

a private room or courtroom from which the public are excluded. Chambers can also refer to offices used by barristers.

the area, which can encompass a number of counties or districts, in which a judge has the judicial authority to decide on cases.

a court which deals with private rights versus offences against the state.

monies paid to make amends for loss, breakage, hardship or personal injury caused by another person.

a lack of respect or obedience by an individual in a court of law; this offence may lead to a fine or imprisonment.

a court that hears serious criminal cases including murder or robbery; these trials are heard by a judge and a 12 person jury.

where an offender is confined to a prison or a young offenders’ institution for a set period of time.

a person who appears in court because they are being sued, standing trial or appearing for sentencing.

dishonestly taking another person’s assets for one’s own gain.

intentional deception to cause harm to another person or for personal gain.

the seizing of a person’s property or salary for the purposes of paying off a creditor’s debt.

a physical assault which causes serious harm or injury to another person.

an act or omission which places another person at risk of harm.

any proceedings held before a court of law.

a person’s right to recover monies from a third party.

the official title of a Magistrate who deals with minor criminal matters and misdemeanours. Summary trials are held in a Magistrate’s court.

a person trained in the law who is certified to give legal advice and represent others.

a contract between a property owner and a person wanting temporary use of a property in exchange for rent paid.

the publication of a false statement about another person who is alive without legal justification such as in a newspaper or letter.

the selling of a debtor’s assets to pay off creditors.

to do something that is illegal.

a minor crime which is not tried in a criminal court.

an argument made on behalf of a guilty defendant to excuse their offence to obtain a reduced sentence or fine.

an action which causes harm or injury to another person.

a legal office with the authority to confirm that legal documents are true.

a promise to tell the truth or take a specific action in front of a court of law.

a person who is not a lawyer but who can provide certain legal services.

an intentional lie under oath or in a sworn statement.

a minor crime which results in a fine or short term of imprisonment.

the right of someone to refuse to disclose or produce a document or to answer questions based on legally recognised circumstances.

the legal recognition of the validity of a will.

to provoke another person to respond with hostility.

to cancel a contract as may be the case when a new contract is agreed or the original contract has been found to be faulty.

a contract which states that a lawyer will represent a client in exchange for money.

a verbal false statement about another person who is alive without legal justification.

a qualified and certified lawyer who offers expert legal advice and prepares legal documents.

an order of the court which requires someone to be present at a certain time and in a certain place; failure to do so can result in a penalty such as a fine or imprisonment.

an order signed by a Magistrate which requires someone to be present at a certain time and in a certain place to answer a charge.

a custodial sentence not resulting in imprisonment, unless another offence is committed within a specified period.

a person to whom a landlord allows temporary use of land or part of a building in exchange for rent. Tenants in common are parties who share equal property rights.

a form of law which allows an injured person to claim compensation from a perpetrator.

to unlawfully interfere with another person’s property or rights.

an appeal against a legal decision resulting in the original ruling being maintained.

an illegal interest rate which is usually excessive and above a certain level.

when a person declines a specific legal right (either by their actions or in written form).

a legal document which defines where a person’s money or property will go when they die.

a child between the ages of 10 and 17 who is tried differently than an adult. Young offenders are usually tried in Youth Courts and if found guilty, may serve their sentence in a Young Offenders’ Institution.

the one who brings the complaint, otherwise known as the charge, in civil cases, a plaintiff may also be known as a petition.

Administration is a process which places a company under the control of a licensed insolvency practitioner and the protection of the court. It can be commenced by the directors, floating charge holders or companies by filing a ‘Notice of Intention to Appoint’ or ‘Notice of Appointment’ at court, or in certain circumstances by making an application to the court. The purpose of administration is to save the company, or if that is not possible, to achieve a better result for creditors than in a liquidation. If neither of those is possible, the purpose of an administration is then to realise property to enable funds to be distributed to secured or preferential creditors.

An administration order is a court order placing a company that is, or is likely to become, insolvent under the control of an administrator following an application by the company, its directors or a creditor. The purpose of the order is to preserve the company’s business and assets to allow a reorganisation or ensure the most advantageous realisation of its assets whilst protecting it from action by its creditors.

Administrative receiver refers to the appointment of a receiver over the whole of a company’s assets by the holder of a floating charge to  recover monies owed to the lender. The administrative receiver can carry on the company’s business and sell the business and other assets comprised in the charge to repay the secured and preferential creditors. Administrative receivership is increasingly rare, as it is only available where the security pre-dates 15 September 2003.

An administrator is a licensed insolvency practitioner appointed to manage the affairs of a company to achieve the purpose of administration set out in the Insolvency Act 1986.

A bankrupt is an individual against whom a bankruptcy order has been made by the court and who has not been discharged from bankruptcy.

Bankruptcy is the process of dealing with the estate of a bankrupt.

A bankruptcy order is a court order making an individual bankrupt. The order signifies that the individual is unable to pay his/her debts and deprives him/her of his/her property, which is then realised for distribution amongst his/her creditors.

A bond refers to the insurance cover needed by a licensed insolvency practitioner when appointed to deal with the insolvency of a company. The cost of the bond is payable from the estate.

A charging order is a court order placing restrictions on the disposal of certain assets, such as property or securities, given after judgment and gives priority of payment over other creditors.

A company voluntary arrangement is a legally binding agreement between a company and its creditors to repay some or all of its debt over a period of time.

A compulsory liquidation of a company is a liquidation ordered by the court. This type of liquidation applies where a creditor has petitioned the court for the winding-up of the company.

A court-appointed receiver is a person, who does not necessarily have to be a licensed insolvency practitioner, appointed to take charge of assets usually where they are subject to litigation and to preserve them pending the outcome of the case. This is not an insolvency process.

A creditors’ voluntary liquidation relates to an insolvent company. It is commenced by resolution of the shareholders, but is under the effective control of creditors, who can choose the liquidator.

Any person who owes money to another.

A debenture, broadly speaking, is a document stating the terms of a loan, usually to a company. Debentures may be secured on part or all of a company’s assets, or they may be unsecured. Where a company’s principal secured creditor is a bank, a debenture in favour of the bank is likely to create fixed and floating charges over all of the company’s assets.

The disqualification of a director usually refers to a director found to have conducted the affairs on an insolvent company in an ‘unfit’ manner.  A director of a limited company can be disqualified if, during his term of office, a liquidator establishes sufficient evidence of ‘unfit’ conduct which leads to a prosecution by the Disqualification Unit of the Insolvency Service. As a result of disqualification the individual is not allowed to hold any management position in a company for between 2 and 15 years and faces criminal sanctions and personal liability for the new company’s debts if they contravene the disqualification order. A disqualification undertaking given to avoid the court action has the same legal effect.

A company is dissolved when it is removed from the register at Companies House. It ceases to exist as a legal entity and any property which it still owns at the date of dissolution goes to the Crown as bona vacantia. It is possible to apply to the court to have a dissolved company restored to the register.

A fixed charge is a form of security granted over specific assets, preventing the debtor from dealing with those assets without the consent of the secured creditor. Companies can create floating charges; individuals cannot.

A floating charge is a form of security granted to a creditor over general assets of a company which may change from time to time in the normal course of business (e.g. stock).

Fraudulent trading refers to running a company with intent to defraud creditors. A liquidator can sue any person who is responsible for fraudulent trading and it is also a criminal offence.

An individual voluntary arrangement is a procedure whereby the person comes to an arrangement with their creditors in how their debt will be put forward to creditors. Such a scheme requires the approval of 75% by value of the creditors who vote and is under control of a supervisor who must be an insolvency practitioner.

Insolvency is the state of not having enough assets to meet all debts, or being unable to pay debts as and when they are due. If a creditor can establish that an individual or company is insolvent, he or she will be able to present a winding-up petition.

The Insolvency Act 1986 is the primary legislation governing insolvency law and practice. Many other statutes and statutory instruments are also relevant, but the Insolvency Act 1986 is the primary legislation.

See Insolvency practitioner.

An insolvency practitioner is a person licensed by his/her recognised professional body to act as an office-holder in an insolvency proceeding. Only an insolvency practitioner may act as an office holder (i.e. liquidator, administrator, administrative receiver, nominee, supervisor, trustee in bankruptcy).

An interim order refers to an individual who intends to propose a voluntary arrangement to his creditor. He or she may apply to the court for an interim order which, if granted, precludes bankruptcy and other legal proceedings whilst the order is in force.

Lien is the right to retain possession of assets or documents until settlement of a debt is made.

Liquidation is the procedure whereby a company has its assets realised and distributed to satisfy, insofar as it is able, its liabilities and to repay its shareholders. The term winding-up is also used.

A liquidator is a licensed insolvency practitioner appointed to wind up a company.

A members’ voluntary liquidation is a solvent liquidation of a company, where the shareholders appoint a liquidator to realise assets and settle all of the company’s debts.

A mortgage is a transfer of an interest in land or other property by way of security, redeemable upon performing the condition of paying a given sum of money.

A nominee is a licensed insolvency practitioner chosen by the individual or corporate debtor to conduct the process of putting a proposal for a voluntary arrangement to the creditors. The nominee’s duties will include writing a report and comments on the proposal, and convening a meeting of creditors to consider it.

An official receiver (OR) is an official employed by the Insolvency Service, an executive agency of the Department of Business, Innovation and Skills, who is responsible for many aspects of bankruptcy and compulsory liquidation.

A petition is a written application to the court for relief or remedy.

Companies or individuals give a preference if they do something to put a creditor in a better position on a bankruptcy or winding up. A liquidator or trustee in bankruptcy can apply for an order restoring the position to what it was before the preference. The preference must have taken place within a defined time limit prior to the start of the bankruptcy or liquidation and the court must be satisfied that it was made with the desire to prefer the creditor.

Proof of debt is a document submitted by a creditor to the licensed insolvency practitioner or official receiver giving evidence of the amount of the debt.

A proxy form is a document given to a creditor with the right to vote at a creditors’ meeting.

A receivership is the general term applied when a person is appointed as a receiver or administrative receiver over certain assets.

A secured creditor is a creditor who holds security over the company’s assets (e.g. a bank, or other financial institution). This class of creditor is paid before ordinary creditors.

A statutory demand is a formal notice requiring payment of a debt exceeding £750 within 21 days. It is used as the first step in bankruptcy and compulsory winding up.

A transaction at undervalue refers to companies or individuals making a gift or entering into a transaction in which the value to them is significantly less than the value to the other party.  Transactions at undervalue can be challenged by a liquidator or a trustee in bankruptcy.

An unsecured creditor is any creditor who does not hold security). This class of creditor will rank last of all in cases where a dividend is likely to be paid.

See individual voluntary arrangement (IVA) and company voluntary arrangement (CVA).

See creditors’ voluntary liquidation and members’ voluntary liquidation.

See liquidation.

A winding-up order is an order made by the court for a company to be placed in compulsory liquidation.

A winding-up petition is a petition presented to the court seeking an order that a company be put into compulsory liquidation.

When the directors of a company know or should know that it has no reasonable prospect of avoiding insolvent liquidation, they must take all reasonable steps to avoid losses to creditors.  A liquidator can sue them if they fail to do this.  A typical example of wrongful trading is where the directors trade on for too long and cause additional losses for creditors.

An Administrator may be appointed by the company’s directors if the company finds itself in financial difficulty. Creditors such as a bank or finance house with a floating charge can also appoint an Administrator. When a company is in Administration, the role of the Administrator may be to trade that company while trying to determine whether the business will be able to solve its problems by trading its way out of them or proposing a CVA. If this is not possible the company can be sold to a purchaser either via a Pre-Pack Administration or by marketing the business and assets for sale. If the company assets are not sold via a prepack or via the open market then the final option will be to sell its assets via an auction. The proceeds that are realised are distributed to its creditors after the costs of the Administration.

An Administrator is a Licensed Insolvency Practitioner that controls a company and its assets while it is in Administration.

At the Annual General Meeting (AGM) the company’s directors report on the past years activity and make trading forecasts. The company’s shareholders are given the opportunity to voice their opinions. They can also vote on important matters such as the appointment of the auditors and company directors.

UK registered companies are legally required to submit an annual return to Companies House. This must contain certain information about the company, including details of key personnel, the registered office, and the company’s share capital.

Arrears are debt repayments that have not been made on time. Once a debt has become overdue, legal action can be taken against you or your company to recover the money that is owed.

Assets are anything of value owned by the company. This can be tangible items such as property, vehicles, cash in hand or bank balances and shares. Assets also intangible such as Goodwill or intellectual property

A term adopted in 2016 after David Cameron decided to have a referendum about Britain’s membership of the EU. It is an abbreviation of “British Exit” in the same way that the possible Greek Exit was referred to as GREXIT. The referendum on 23^rd June will decide whether Britain will stay in or leave the EU

Bankruptcy is one of the insolvency options for individuals that cannot afford to repay their debts. It results in the loss of control of the individual’s assets. Bankrupt individuals are prohibited from holding a company directorship during the bankruptcy period. Certain occupations are affected by bankruptcy, and it is important for individuals to check their contract of employment. Bankruptcy also affects the credit rating of an individual.

A court order that makes an individual bankrupt.

A bankruptcy restriction order is an order made against an individual to pay a percentage of their income to the Insolvency Practitioner appointed as ‘trustee’. The money received by the trustee will go towards paying a portion or all of an individual’s debts. A bankruptcy restrictions order can last from two to fifteen years.

Money owed to companies or individuals for goods or services that they have provided. Book debts are assets

Compulsory Liquidation is the most serious insolvency procedure that an insolvent company may find itself in. It occurs when a Winding up Petition is issued against the company (usually by a creditor of the company) and a Winding up Order is given by the courts, who then appoint an ‘Official Receiver’ to begin the involuntary Liquidation of the company. Liquidation will involve the company ceasing to trade, followed by assets of the company being sold off in order to make payments to Creditors on a pro-rata basis. Employees will also be made redundant, and the company will cease to exist once the process is complete. The conduct of the Directors will also be thoroughly scrutinised in order to ascertain whether they could have taken steps to minimise losses to Creditors or prevented the company becoming insolvent. If it is decided that the Directors did not act in the best interests of Creditors, or may be guilty of ‘Wrongful Trading’ then evidence will be gathered and passed on to the Insolvency Service who may seek to disqualify or prosecute the Director(s) in question.

When individuals or companies are taken to Court because they have not paid their debts, the resulting action taken by a Court could be a County Court Judgement (CCJ). The Court orders that the money owed is repaid within a specific timeframe. If the debt is not repaid within a set time frame the CCJ will be registered on a credit file that will make getting credit difficult. Further enforcement action, such as bailiff action can be taken by the debtor company if the debt is not repaid within a specified timeframe.

Companies House are responsible for the records covering incorporation and dissolution of companies. Every UK Company is registered at Companies House, and the public is entitled to view the information held by them.

If a creditor has taken an individual or a company to Court for an outstanding debt, this may have resulted in a County Court Judgment (CCJ) or an equivalent Court order. If the debtor company is successful in securing such a Court order, the individual or a company are obliged to pay the debts owing over a set period.

If the terms of the Court order are not adhered to, the creditor has the option to take matters further to try and make you pay. One such action is a charging order. A charging order allows the debt to be secured against personal assets or home (in the event of personal debts) or company assets (in the event of company debts). This means an individual could lose their personal home, or a company could lose its assets, if payment is not made.

A credit rating is an evaluation of an individual or companies’ ability to fulfil future financial commitments and is based on their earlier financial dealings with other companies and
Banks. A credit rating is a tool used by companies, banks and lending institutions that have been approached to supply credit or loans. A credit rating will affect how easy it is for an individual or a company to borrow money or obtain credit. It is calculated using a number of factors, including whether there are any CCJs or defaults on any of the debts.

People or businesses that are owed an amount of money now, or that will be owed an amount of money at some future point due to an agreement that is already in force.

An individual or group of individuals that together are owed in excess of £750 are entitled to petition to bankrupt an individual. Bankruptcy proceedings take place at a local county court with bankruptcy jurisdiction.

This is an option for Directors with a company that they believe is still viable. An agreement is drawn up with the company’s creditors to pay back some of the money they are owed on a monthly basis over a specified timeframe. The Directors remain in control during the CVA, and the company continues trading normally. At the end of the CVA period, any remaining debt is written off.

A CVA moratorium protects companies from any legal action being taken against them by creditors. This allows the company’s director’s time to prepare a CVA proposal and hold a creditor’s meeting so that creditors can vote to accept or decline the rescue plan.

A moratorium will only be granted if the company can prove that it has a realistic expectation of being able to put a CVA or other rescue package in place. The moratorium is intended to provide breathing space so the company can implement the rescue plan. This process is rarely used.

When the company’s shareholders decide the company should be liquidated, an insolvency practitioner is appointed to complete the process. The company stops trading; its contracts are terminated, and its assets are sold.

It is illegal for someone who has committed insolvency offences and been banned from being a company director by The Insolvency Service to be a company director.

If a company has ceased trading for three months or more, it can, if certain conditions are met, be dissolved. Dissolution will remove a company from the Companies House Register.

Distraint is an action that can be referred to as “levying distress”. It is an action available to trade creditors, landlords, HMRC or local councils. Distraint gives creditors the right to have goods removed from a debtors business premises and sold at auction to the value of what is owed. The procedure that a creditor has to follow differs depending on the type of debt. For example, HMRC and landlords can distrain without a court order whereas a normal trade creditor would need to obtain a county court judgement in the first instance.

The DBIS (formally Dotti) have the power to investigate offences that relate to business and company wrongdoing. Investigations are conducted against a company or people involved in the running of a company when the Insolvency Service or Companies House receive complaints. An interview under caution will usually form part of the investigation.

The DBIS has the power to escalate proceedings to the criminal court. In severe cases, a prison sentence and/or a financial penalty can be imposed. A director that has been convicted can
be banned from being a director or being involved in the management of the company for 3- 15 years.

People or businesses that owe money for goods supplied or services provided.

An individual can declare themselves bankrupt by visiting their local county court and petitioning for bankruptcy.

Default notices are issued by creditors before they commence legal action. They give an individual or company seven days to pay the amount stated. If the amount is not paid, the creditor can take further legal action.

A company’s Directors run the company on a day-to-day basis. The company’s management and control is their responsibility. Due to the company’s limited liability status, Directors will not be held personally liability provided they act professionally and have carried out their fiduciary duties under rules laid out in the Companies Act.

A floating charge is typically secured on things that change on a regular basis, such as the raw materials or component stocks used by the borrower. These are consumed and replaced whenever necessary in day-to-day trading. Should the charge be crystallised as a result of the borrower’s failure to make a payment at the appropriate time. The items that are currently in stock or available at that point become subject to the charge. When that happens, the borrower cannot use the items in question without permission from the charge holder.

Some financial institutions provide a factoring service. They pay companies for their unpaid sales invoices in advance of the company receiving payment and the factoring company then collects the debts on the company’s behalf. The factoring company takes a percentage of each debt as a fee for their service.

A fixed charge is a debt secured by an asset. Usually, this asset is property. While the fixed charge is attached to the asset, the borrower cannot dispose of the asset unless the lender’s permission has been obtained

Going concern is a statement based on an assumption that is made regarding the viability of an ongoing business. Financial statements are prepared assuming that a business entity will continue to operate in the foreseeable future without the need or intention on the part of management to liquidate the business. It is assumed that the business will realize its assets and settle its obligations in the normal course of the Business. H

The government department responsible for regulating and collecting customs duties and taxes such as VAT, National Insurance Contributions and Income Tax.

An agreement between a bankrupt and their trustee (Insolvency Practitioner). The bankrupt is ordered to pay a portion of their income to the trustee over a specified timeframe.

An interim order protects a person who is proposing an Individual Voluntary Arrangement (IVA) from legal action by creditors. It allows time for an IVA proposal to be presented to creditors and a creditors meeting to be held. 

When there is more than one party that has entered into credit agreements, each party named in the agreement become liable for the whole amount in the event the debt is not paid. In joint mortgages, for instance, each mortgagee can be pursued individually for the full amount outstanding

A type of security for lenders. Legal charges are secured against assets or property.

Liabilities are the debts or obligations of companies and individuals. Examples of liabilities include mortgages, bank loans, credit cards and store cards.

A limited company is a company where the liability of directors and shareholders is limited to what has been guaranteed or invested into the company. The directors and shareholders of a limited company will not be liable for the debts of the company provided they have acted in a legal and professional manner and in the company’s interests at all times.

Provided company’s directors and shareholders have acted in a professional and legal manner; the responsibility for the debts of the company is limited to the paid-up value of the shares that they own. In other words, liability cannot exceed the amount that they agreed to pay for their shares in the company.

Liquidation is where a company ceases to trade, and its assets are sold. The proceeds are used to pay the costs of the Liquidation first with any remaining balance paid to creditors on a pro rata basis. If there is any money left after the creditors are repaid, the remaining funds are distributed among the company’s shareholders.

An Insolvency Practitioner appointed at a creditor’s meeting is referred to as a liquidator and is responsible for winding up the affairs and selling the assets of the company that has been liquidated. 

A contributory system of insurance that protects people against illness and unemployment. It also provides retirement pensions and other benefits. It is managed by HMRC.P

A guarantee given by an individual such as a director or shareholder that money borrowed will be repaid personally in the event the company cannot pay. If the borrower does not make the repayments on time, the person who gave the guarantee can be called on to repay the outstanding debt. Independent legal advice should always be sought before signing a Personal Guarantee.

A public limited company is entitled to offer its shares for sale to the general public. It must have issued shares worth at least £50,000, and one- quarter of the face value of those shares must have been paid up.

Preferential creditors are creditors of a company that are entitled to be repaid the money that they are owed prior to the unsecured creditors. If there is not enough money to pay all of the creditors, preferential creditors are more likely to be repaid first. Preferential creditors include employees and occupational pension schemes.

Rather than attend a creditor’s meeting, a company or individual can vote by proxy. This is where creditors can vote by post or via a third party appointed by the creditor, who attends the meeting in their place and votes on their behalf.

PAYE is an income tax deducted by employers from their employee’s payroll on behalf of the government.

A fund that holds the contributions that have been paid by the employee and/or employer to provide a pension upon the employee’s retirement

Receivers are Insolvency Practitioners appointed by lenders who have a charge or mortgage over the company’s assets. Generally, this would be a bank. The Receiver has the power to sell the company’s assets to recover the money that is owed to them.

Redundancy is one form of dismissal. It occurs when a company is closing some or all of its business down, and there are no longer jobs available for some or all of the employees

Shareholders are the owners of limited companies. If the limited company is a quoted PLC, it is possible to trade its shares on the open market. Shareholders are entitled to vote on company matters, and they are entitled to a share of the company’s profits if it pays a dividend.

A statutory demand is a formal request for money by a creditor that is owed a minimum of £750. The demand can be served on a debtor as soon as the debt becomes overdue and can be done without a court order. The debtor has 21 days to pay or dispute the claim. If the demand is ignored or uncontested; the debtor is regarded as insolvent, and the creditor can take further action to collect the debt.

This details the company’s assets and liabilities when it is wound up, or enters into Liquidation, Receivership or Administration. The Statement of Affairs is prepared by the directors with the assistance of an Insolvency Practitioner.

Sole traders are business owners trading with personal liability.

The Supervisor is an insolvency practitioner that is appointed to supervise a Voluntary Arrangement when an individual or company enter into such an arrangement. He or she ensures that the Individual Voluntary Arrangement IVA or company voluntary arrangement CVA contributions are made as and when they are due and deals with any problems that occur. If monthly contributions are not made, the voluntary arrangement will fail, and could result in compulsory liquidation (for a company) or bankruptcy (for an individual).T

The Trustee in Bankruptcy can be either the Official Receiver or an Insolvency Practitioner. The main objective of the Trustee is to take control of any assets, sell them and distribute the money raised to the creditors.

The amount of money received by a company for the goods or services it supplies before any deductions are made for expenditure. It is important to note that the company’s turnover is not the same as its profits

A creditor whose debt is not backed by security against assets.

If a bankruptcy or winding-up petition is issued to a debtor, it has the effect in practical terms of preventing the individual or company from disposing of any assets pending the Court hearing. Amongst other things it freezes all bank accounts. Permission to reactivate the bank account or dispose of an asset must be sought from the Court and backed up with reasons and confirmation that this will not be to the detriment of creditors. If agrees the Court will issue a Validation Order.

VAT is a duty that is levied on certain goods and services that are liable for this duty. Businesses must register for VAT if their taxable turnover exceeds a certain threshold set by the Government

If the borrower fails to repay a creditor, that creditor can if certain criteria are met, apply for a WUP to be heard. This can lead to the compulsory winding up of the company.

Wrongful trading is a section under the Insolvency Act 1986 that can make company Directors personally responsible for liabilities where there is sufficient evidence that they intentionally traded the company at the detriment to Creditors.

Appeal Cases

Alternative Dispute Resolution – methods of resolving disputes otherwise than through the normal trial process. See also entries under Arbitration, Early neutral evaluation, Med-arb and Mediation below

A written statement made upon oath or affirmation and signed in the presence of a person who is authorised to administer oaths (normally a solicitor). Authority: Civil Procedure Rules – Practice Direction 32

See entry under ADR