Insolvency Glossary and Terms

For general guidance only, please find below a brief summary of some of the most common insolvency terms. Please speak to one of our Insolvency Practitioners for further information.

Administration Order

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 a petition 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.

Administrator

A licensed Insolvency Practitioner to deal with the Administration of the company by either the directors, creditors or holders of a qualifying floating charge.

Administrative receiver

A licensed Insolvency Practitioner (IP) appointed by the holder of a debenture that is secured by a floating charge that covers the whole or substantially the whole of the company’s assets.

Administrative receivership

The process where an insolvency practitioner is appointed by a debenture holder (lender) to realise a company’s assets and pay preferential creditors and the debenture holder’s debt. The right of a debenture holder to appoint an administrative receiver has been restricted by the Enterprise Act 2002.

Annulment

In bankruptcy, an annulment order restores the position of the debtor as if the bankruptcy order had never been made.

Bankrupt

Someone against whom a bankruptcy order has been made and who has not been discharged from bankruptcy.

Bankruptcy Order

The court order making an individual bankrupt . Assets of the individual vests in the debtors Trustee in Bankruptcy.

Charge

Security interest taken over property by a creditor to protect against non payment of a debt (such as a mortgage).

Charging Order

Court order placing restrictions on the disposal of certain assets, such as property or securities, given after judgement and give priority of payment over other creditors.

Company Directors Disqualification Act 1986

An Act of Parliament dealing with the disqualification of directors.

Company Voluntary Arrangement (CVA)

An agreement put forward by the company to its creditors through a licensed insolvency practitioner usually to agree a full and final settlement with the company’s creditors. This is normally done either by making a monthly contribution over a period of time (3-5 years) or a one off payment to creditors in settlement of their claims.

Compulsory liquidation

Winding up of a company after a petition to the court, usually by a creditor.

Creditor

Someone owed money by a bankrupt or a company

Debenture

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. Often also referred to as a floating charge, and the lender is often referred to as the debenture holder.

Director

A person who conducts the affairs of a company.

Disqualification

A procedure whereby a person has a court order made against them or gives an undertaking to the Secretary of State which makes it an offence for that person to be involved in the management or directorship of a company for the period specified in the order (unless leave has been granted by the court).

Dividend

Any sum distributed to creditors in insolvency.

Fixed charge

A charge held over specific assets. The debtor cannot sell the assets without the consent of the secured creditor or repaying the amount secured by the charge.

Floating charge

A charge held over general assets of a company. The assets may change (such as stock) and the company can use the assets without the consent of the secured creditor until the charge “crystallises” (becomes fixed). Crystallisation occurs on the appointment of an administrative receiver, on the presentation of a winding-up petition or as otherwise provided for in the document creating the charge.

Guarantee

An agreement to pay a debt owed by a third party. It must be evidenced in writing for it to be enforceable.

Individual Voluntary Arrangement (IVA)

A voluntary arrangement for an individual is a procedure whereby the person comes to an arrangement with their creditors in how their debt will be discharged. Such a scheme requires the approval of the court and is under control of a supervisor and insolvency practitioner.

Insolvent

The state of not being able to pay one’s debts as they fall due or having an excess of liabilities over assets.

Insolvency Practitioner (IP)

Person authorised by one of the chartered accountancy bodies, the law societies, the insolvency practitioners association or department of trade. The only person who may act as office holder in an insolvency proceeding.

Income Payments Order (IPO)

Order obtained from court requiring surplus income be paid to the bankrupt's estate.

Income Payments Agreement (IPA)

Informal agreement requiring surplus income to be paid into the bankrupts estate.

Intrim Order

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

Judgement

Recognition of a debt given by a court.

Lien

Right to retain possession of assets or documents until settlement of a debt is made.

Liquidation

The procedure whereby the assets of a company or partnership are gathered in and realised the liabilities met and surplus, if any, distributed to creditors.

Liquidator

An Insolvency Practitioner appointed to deal with the assets and liabilities of the company or partnership once the resolution to wind up has been passed or a compulsory winding up order has been made.

Mortgage

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.

Nominee

The person chosen by the individual or corporate debtor to report on the debtors proposals for an IVA or CVA.

Official Receiver

An officer of the court and civil servant employed by The Insolvency Service, who deals with bankruptcies and compulsory company liquidations.

Petition

A formal application made to court.

Preferential Creditor

A creditor who is entitled to receive certain payments in priority to floating charge holders and other unsecured creditors

Proof of Debt

The document submitted in an insolvency to establish a creditors claim, it may be informal (by letter) or in a prescribed form for bankruptcy and compulsory liquidations.

Provisional liquidator

OR/IP appointed to preserve a company’s assets pending the hearing of a winding up petition.

Proxy

The authority given by a creditor or member to another person (proxy holder) to attend a meeting and speak and vote at a meeting on behalf of the creditor or member.

Proxy Form 

Form enabling voting at a meeting without requirement to attend in person.

Public Examination 

Application to court for the questioning of, company director(s)/ officer(s) or a bankrupt.

Receivership

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

Receiver

The commonly used name for an administrative receiver. The term can also mean a person appointed by the court or with the power to receive the rents and profits of property. Receivers who are not administrative receivers do not need to be insolvency practitioners.

Release

The process by which the Official Receiver or an insolvency practitioner is discharged from the liabilities of office as trustee/liquidator or administrator.

Secretary of State

The Secretary of State for the Department of Business Innovation & Skills.

Security

A charge or mortgage over assets taken to secure payment of a debt. If the debt is not paid, the lender has a right to sell the charge assets. Security documents can be very complex. The most common example is a mortgage over a property.

Secured creditor

A creditor who holds security, such as a mortgage, over a person’s assets for money owed.

Shadow director

A person who, without being formally appointed, gives instructions on which the directors of a company are accustomed to act.

Sole Trader 

An individual trading but not through a company.

Statement of affairs

A document completed by a bankrupt, company officer or director(s), stating the assets and giving details of debts and creditors.

Statutory Demand

A formal notice requiring payment of a debt exceeding £750.00 within 21 days, in default of this demand bankruptcy or liquidation proceedings may be commenced without further notice.

Supervisor

An Insolvency Practitioner who supervises a Voluntary Arrangement. 

UNCITRAL

United Nations Commission on International Trade Law.

Unsecured Creditor

A creditor who does not hold security (such as a mortgage) for money owed.

Voluntary liquidation

A method of liquidation not involving the courts or the Official Receiver. There are 2 types of voluntary liquidation – members’ voluntary liquidation for solvent companies and creditors’ voluntary liquidation for insolvent companies.

Winding up order

Order of a court, usually based on a creditor’s petition, for the compulsory winding up or liquidation of a company or partnership.

I have worked with Byrne Associates for over 10 years. They take a pragmatic approach to what can often be a tricky and sensitive situation in order to obtain the best outcome. I would have no hesitation in recommending their services to othersSian Phillips (Foot Anstey Solicitors )