Glossary of terms

[A] [B] [C] [D] [E] [F] [G] [H] [I] [J] [K] [L] [M] [N] [O] [P] [Q] [R] [S] [T] [U] [V] [W] [X] [Y] [Z]

A

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. County court process permitting an individual with modest debts to pay off installments. No insolvency practitioner is involved.

AUTHORISED (OR LICENSED) INSOLVENCY PRACTITIONER

The person (usually an accountant or solicitor) authorised by the Department of Trade and Industry (DTI) or a professional body to act as trustee, nominee, supervisor, liquidator, administrative receiver or administrator. Only such a person can hold any of these offices.

ADMINISTRATIVE RECEIVER

The person appointed by the holder of a floating charge debenture over a company's assets to collect in and realise the assets of that company and to repay the indebtedness to the debenture holder.

ADMINISTRATIVE RECEIVERSHIP

The term applied when an insolvency practitioner is appointed as an administrative receiver.

ADMINISTRATOR

The insolvency practitioner appointed by the court to handle the affairs of a company the subject of an administration order.

AGRICULTURAL RECEIVERSHIP

A special remedy to take control of the assets of a farmer under the Agricultural Credits Act 1928.

ANNULMENT

Cancellation.

ASSETS

Anything that belongs to the debtor that may be used to pay his/her debts.

ASSOCIATES

Associates of individuals include family members, relatives, partners and their relatives, employees, employers, trustees in certain trust relationships, and companies which the individual controls. Associates of companies include other companies under common control.

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B

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.

BANKRUPTCY RESTRICTIONS ORDER OR UNDERTAKING

A procedure introduced on 1 April 2004 where a bankrupt who has been dishonest or in some other way to blame for their bankruptcy may have a court order made against them or give an undertaking to the Secretary of State which will mean that bankruptcy restrictions continue to apply after discharge for a period of between two to fifteen years.

BOND

Insurance cover needed by a person who acts as an insolvency practitioner.

BREAK-UP SALE

Dismantling of a business. Trading ceases and the assets are sold off piecemeal.

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C

CHARGE

A right given to a creditor to have a designated asset of the debtor appropriated to the discharge of the indebtedness. However it does not involve any transfer of possession or ownership.

CHARGING ORDER

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

COMPANY DIRECTORS DISQUALIFICATION ACT (1986)

This act covers the grounds on which directors can be disqualified from acting as such.

COMPANY VOLUNTARY ARRANGEMENT (CVA)

A voluntary agreement for a company is a procedure whereby a plan of reorganisation or composition in satisfaction of debts, is put forward to creditors and shareholders. There is limited involvement by the court and the scheme is under the control of a supervisor.

COMPOSITION

An agreement between debtor and his creditors whereby the compounding creditors agree with the debtor between themselves to accept from the debtor payment of less than the amounts due to them in full satisfaction of their claim.

COMPULSORY LIQUIDATION

The placing of a company into liquidation as a result of an application to the court, usually by a creditor.

CONNECTED PERSONS

Directors or shadow directors and their associates, and associates of the company.

CONTRIBUTORY

Shareholder, every person liable to contribute to the assets of a company in the event of it being wound up.

COURT-APPOINTED RECEIVER

A person, not necessarily a licensed insolvency practitioner, appointed to take charge of assets usually where they are subject to some legal dispute. Not strictly an insolvency process, the procedure may be used other than for a limited company, e.g. to settle a partnership dispute.

CREDITOR

Someone owed money by a debtor or company.

CREDITORS' COMMITTEE

A creditors' committee is formed to represent the interests of all creditors in supervising the activities of an administrator, liquidator or trustee in bankruptcy, or receiving reports from an administrative receiver.

CREDITORS' VOLUNTARY LIQUIDATION (CVL)

Process to wind up an insolvency limited company. It is commenced by resolution of the shareholders, but is under the effective control of creditors, who can choose the liquidator.

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D

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.

DEED OF ARRANGEMENT

Method for an individual (not a company) to come to terms with creditors short of formal bankruptcy, it has now been almost completely replaced by Individual Voluntary Arrangements.

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).

DISQUALIFICATION OF DIRECTORS

A director found to have conducted the affairs of an insolvent company in an "unfit" manner may be disqualified, on application to the court by the DTI, from holding any management position in a company for between 2 and 15 years.

DIVIDEND

Any sum distributed to unsecured creditors in an insolvency.

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E

EXTORTIONATE CREDIT TRANSACTION

An extortionate credit transaction is a transaction by which credit is provided on terms that are exorbitant or grossly unfair compared with the risk accepted by the creditor. Such a transaction may be challenged by an administrator, a liquidator or a trustee in bankruptcy.

F

FIXED CHARGE

A fixed charge is a form of security granted over specific assets, preventing the debtor dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim on the proceeds of sale, and the creditor can usually appoint a receiver to realise the assets in the event of default.

FLOATING CHARGE

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). The company can continue to use the assets in its business until an event of default occurs and the charge crystallises. If this happens, the secured creditor can realise the assets to recover his debt, usually by appointing an administrative receiver, and obtain the net proceeds of sale subject to the prior claims of the preferential creditors (e.g. Customs & Excise or Inland Revenue).

FRAUDULENT TRADING

Where a company has carried on business with intent to defraud creditors, or for any fraudulent purpose. It is a criminal offence and those involved can be made personally liable to contribute to the company's assets.

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G

GOING CONCERN

Basis on which insolvency practitioners prefer to sell a business. Effectively it means the business continues, jobs are saved, and a higher price is obtained.

GUARANTEE

A legal commitment to repay a debt if the original borrower fails to do so. Directors may give guarantees to banks in return for the bank giving finance to their companies. Companies in a group may guarantee each others loans. It must be evidenced in writing for it to be enforceable.

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I

INDIVIDUAL VOLUNTARY ARRANGEMENT (IVA)

A voluntary arrangement for an individual is a procedure where a person with serios debt problems can come to an arrangement with their creditors on how their debt is to be discharged. An IVA can be tailored to suit the individuals needs as long as creditors consent.

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 ACT 1986 (IA 1986)

Primary legislation governing insolvency law and practice. Nevertheless, many other statues and statutory instruments are also relevant.

INSOLVENT LIQUIDATION

A company goes into insolvent liquidation if it goes into liquidation at a time when assets are insufficient for the payment of its debts and other liabilities and the expenses of liquidation.

INSOLVENCY PRACTITIONER (IP)

Person authorised by a recognised professional body (RPB) to act as office holder in an insolvency proceeding.

INSOLVENCY RULES

The Insolvency Rules 1986, as amended, provide the detailed working procedures for the provisions of the Insolvency Act 1986. There are separate rules dealing with insolvent partnerships, insolvent deceased's estates and deeds of arrangement.

INSOLVENCY SERVICES ACCOUNT

An account maintained at the Bank of England by the Department of Trade and Industry, through which funds must be passed in compulsory liquidations and bankruptcies.

INTERIM ORDER

An individual proposing a voluntary arrangement to their creditors can apply to the court for an interim order which, if granted, prevents bankruptcy and other legal proceedings from commencing or continuing whilst the order is in force.

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J

JUDGMENT

1. Recognition of a debt by a court.

2. Decision given by a court at the conclusion of a trial.

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L

LAW OF PROPERTY ACT 1925 (LPA)

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

LPA RECEIVER

Law of Property Act 1925 receiver: 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. Common in the case of failure of a property developer, whose borrowings will largely be secured on specific properties.

LIEN

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

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 members.

LIQUIDATION COMMITTEE

Committee of creditors who receive information from the liquidator and sanction some of his/her actions.

LIQUIDATOR

The person 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.

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M

MAREVA INJUNCTION

Court order preventing the disposal of assets.

MEMBER

A person who has agreed to be, and is registered as, a member, such as a shareholder of a limited company.

MEMBERS' VOLUNTARY LIQUIDATION (MVL)

A solvent liquidation where the shareholders appoint the liquidator to realise assets and settle all the company's debts in full within 12 months.

MISFEASANCE

Breach of duty in relation to the funds or property of a company by its directors or managers.

MORTGAGE

Security taken by a lender against land or other property, redeemable upon performing the condition of paying a given sum of money as consideration for advancing money.

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N

NOMINEE

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

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O

OFFICE HOLDER

A person who is required to be a qualified insolvency practitioner to hold the following posts, of a liquidator, provisional liquidator, administrator , administrative receiver, supervisor of a voluntary arrangement, or trustee in bankruptcy.

OFFICER (OF A COMPANY)

A director, manager or secretary of a company.

OFFICIAL RECEIVER (OR)

The civil servant employed by the DTI to head the regional offices whose responsibilities cover bankruptcies and compulsory liquidations.

ONEROUS PROPERTY

The term onerous property in the context of a liquidation or bankruptcy, applies to unprofitable contracts and to property that is unsaleable or not easily saleable or that might give rise to a continuing liability. Such property can be disclaimed by a liquidator or a trustee in bankruptcy.

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P

PARTNERSHIP VOLUNTARY ARRANGEMENT

The term used to describe the company voluntary arrangement procedure as applied to partnerships under the provisions of The Insolvency Partnerships Order 1994.

PETITION

A written application to the court for relief or remedy.

PREFERENCE

A payment or other transaction in the six month to two year period preceding a liquidation, administration or bankruptcy, which places a creditor or a person connected with the insolvent, respectively, in a better position than they would have been otherwise. A liquidator, administrator or trustee in bankruptcy may recover any sums which are found to be preferences.

PREFERENTIAL CREDITOR

Defined in Schedule 6 of The Insolvency Act 1986. These creditors have propriety over the floating charge and unsecured creditors..

PROOF OF DEBT

The document submitted in an insolvency to establish a creditor's claim. It may be informal (by e.g. letter) or in a prescribed form (in bankruptcy and compulsory liquidations).

PROVING

A creditor who claims is referred to as "proving" for his debt, and the document by which he seeks to establish his claim is his "proof".

PROVISIONAL LIQUIDATOR

The person appointed by the court to deal with the affairs of the company until a compulsory winding up order.

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 ( principal) or member.

PROXY FORM

Form that must be completed if a creditor wishes someone else to represent him or her at a creditors' meeting and vote on his or her behalf.

PROXYHOLDER

A person who is authorised to attend a meeting on behalf of someone else.

PUBLIC EXAMINATION

When a company is being wound up 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.

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R

REALISE

Realising an asset means selling it or disposing of it to raise money, for example to sell an insolvent's assets and obtain the proceeds.

RECEIVER

The person appointed by the court for some specific purpose or the person appointed by a mortgagee to exercise his rights over the charges property under the Law of Property Act 1925 (not to be confused with the Official Receiver or Administrative Receiver.

RECEIVERSHIP

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

RECOGNISED PROFESSIONAL BODY (RPB)

An organisation approved by the Secretary of State as being able to authorise its members to act as insolvency practitioners.

A body may be recognised if it regulates the practice of a profession and maintains and enforces rules for securing that such of its member, as are permitted by, or under the rules to act as insolvency practitioners:

(a) are fit and proper persons so to act, and

(b) meet acceptable requirements as to education and practical training and experience.

RELEASE

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

RELEVANT DATE

The commencement date of the insolvency proceedings.

RESCISSION

A procedure that cancels a winding-up order.

RESERVATION OF TITLE OR RETENTION OF TITLE AGREEMENT

An agreement for the sale of goods to a company, being an agreement; (a) which does not constitute a charge on the goods, but (b) under which, if the seller is not paid and the company is wound up, the seller will have priority over all other creditors of the company in respect to the goods or any property representing the goods.

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S

SECRETARY OF STATE

The Secretary of State for the Department of Trade and Industry

SECURED CREDITOR

A creditor with specific rights over assets of an individual, partnership or limited company in the event of insolvency.

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 charged assets. Security documents can be very complex. The commonest example is a mortgage over a property.

SHADOW DIRECTOR

A person who is not formally appointed as a director, but in accordance with whose directions or instructions the directors of a company are accustomed to act. However, a person is not a shadow director merely because the directors act on advice given by him in a professional capacity.

SPECIAL MANAGER

A special manager is a person appointed by the Court in a compulsory liquidation or bankruptcy to assist the liquidator, official receiver or trustee in managing the insolvent's business. He does not need to be an insolvency practitioner.

STATEMENT OF AFFAIRS

A document sworn under oath, 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 within 21 days, in default of which bankruptcy or liquidation proceedings may be commenced without further notice.

SUPERVISOR

The person appointed to supervise the implementation of a debtor's, company's or partner's proposals for an IVA, CVA or PVA once approved by creditors (and members).

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T

TRANSACTION AT AN UNDERVALUE

A transaction at an undervalue can describe either a gift or a transaction in which the consideration received is significantly less than that given. In certain circumstances such a transaction can be challenged by an administrator, a liquidator or a trustee in bankruptcy.

TRUSTEE

either:-

(a) in bankruptcy - the authorized insolvency practitioner appointed to deal with the estate of the bankrupt;

(b) under a deed of arrangement - the authorized insolvency practitioner appointed to deal with the estate of the person who entered into the deed.

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U

UNDISCHARGED BANKRUPT

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

UNSECURED CREDITOR

Strictly, any creditor who does not hold security. More commonly used to refer to any ordinary creditor who has no preferential rights. Unsecured creditors are the last in the queue to receive a dividend, ahead only of the shareholders.

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V

VAT BAD DEBT RELIEF

The relief obtained in respect of the VAT element of an unpaid debt. Previously available only when the debtor became insolvent, relief is now available on any debt unpaid for more than 6 months.

VOLUNTARY LIQUIDATION

The placing of the company into liquidation by resolution of the members - there are two types of voluntary liquidation, member's voluntary liquidation; and creditor's voluntary liquidation. The first of these does not involve insolvency and comes about merely because the (shareholders) members wish to have the value of their shareholding realised.

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W

WINDING-UP

(Or liquidation) - the procedure whereby the assets of a company (or partnership) are gathered in and realised, the liabilities met and the surplus, if any, distributed to members.

WINDING-UP ORDER

The order made by the court for a company to be placed into compulsory liquidation.

WINDING-UP PETITION

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

WRONGFUL TRADING

Applied to companies in liquidation where directors allowed the company to continue trading in circumstances where they should have concluded that there was no reasonable prospect that the company would avoid going into solvent liquidation. The directors involved may be made personally liable to make a contribution to the company's assets.

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The above information is designed to provide general information only. While every effort has been made to ensure that the information provided is accurate, it is not a full and authoritative statement of the law and you should not rely on it as such.

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