The Corporate Insolvency Bureau - Corporate Insolvency Services

Glossary

The definitions and explanations are not intended to be exhaustive summaries of the law. If you require assistance with any insolvency related matter, CIB are available to advise you.

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, allow a reorganisation or ensure the most advantageous realisation of its assets whilst protecting it from action by its creditors.
The administration of the insolvent estate of a deceased debtor.
County Court process permitting an individual with modest debts to pay off by instalments. No licensed insolvency practitioner is involved.

Administrative Receiver

A licensed insolvency practitioner appointed by the holder of a floating charge covering the whole, or substantially the whole of a company’s property. The insolvency practitioner 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. The appointed insolvency practitioner is sometimes abbreviated to receiver.

Administrative Receivership

The term applied when a licensed insolvency practitioner is appointed as an administrative receiver. Commonly abbreviated to receivership.

Administrator

A licensed insolvency practitioner appointed by the Court under an administration order to achieve the purposes set out in the order. The administrator will be required to produce a plan, known as proposals for approval by the creditors of the company to achieve this.

Agricultural Receivership

A specialist remedy available to a secured creditor to take control of the assets of a farmer under the Agricultural Credits Act 1928.

Associates

Associates of individuals include family members, relatives, partners and their relatives, employees, employers, trustees in certain relationships, and companies which the individual controls. Associates of companies include other companies under common control (see also connected persons).

Bankrupt

A bankrupt is an individual against whom a bankruptcy order has been made by the Court. 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 their creditors.

Bankruptcy

Is the process of dealing with the estate of a bankrupt.

Bond

Insurance cover to protect the uncharged assets of an estate, needed by a person who acts as a licensed insolvency practitioner.

Break-up Sale

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

Charge

A right given to the creditor to have a designated asset of the debtor appropriated to the discharge of the indebtedness, but not involving any transfer either of possession or ownership.

Charging Order

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.

Company Disqualification Act (1986)

Consolidation Act on the disqualification of persons from being directors or otherwise concerned with a company’s affairs.

Company Voluntary Arrangement – (CVA)

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

Composition

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

Compulsory Liquidation

A compulsory liquidation of a company is a liquidation ordered by the Court. This is usually as a result of a petition presented to the Court by a creditor and is the only method by which a creditor can bring about a liquidation of its debtor company.

Connected Persons

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

Cork Report

Report of the Insolvency Law Review Committee, chaired by Sir Kenneth Cork, upon which the Insolvency Act 1986 is substantially based (Command paper 8555, 1982)

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.

Creditors Committee

A creditors’ committee is formed to represent the interests of all creditors in supervising the activities of an administrator or trustee in bankruptcy, or receiving reports from an administrative receiver (of Liquidation Committee).

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.

Debenture

Broadly speaking, a document which either acknowledges or creates a debt. The expression is commonly used to denote a document conferring a fixed and floating charge over all the assets and undertakings of a company.

Deed of Arrangement

A method for an individual (not a company) to come to terms with creditors outside formal bankruptcy. The procedure is governed by the Deeds of Arrangement Act 1914 and is now almost completely replaced by the individual voluntary arrangement.

Deposit Protection Board

Constituted under the Banking Act 1987 to administer the Deposit Protection Fund. If an authorised institution becomes subject to liquidation or administration proceedings, the Board will pay those designed as “protected depositors” compensation to the extent of 75% of the first £20,000 of their total deposits.

Disqualification of Directors

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

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.

Fixed Charge

A fixed charge is a form of security granted over specific assets, preventing the debtor 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 the debt, usually by appointing an administrative receiver, and obtain the net proceeds of sale subject to the prior claims of the preferential creditors.

Fraudulent Trading

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

Going Concern

Basis on which licensed 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.

Individual Voluntary Arrangement – (IVA)

A voluntary arrangement for an individual is a procedure whereby a scheme of arrangement of his/her financial affairs or composition in satisfaction of his/her debts is put forward to creditors. Such a scheme requires the approval of the Court and is under the control of a supervisor.

Insolvency

Defined as having insufficient assets to meet all debts, or being unable to pay debts as and when they are due. If a creditor can establish either test, the creditor will be able to present a winding-up petition. For a bankruptcy petition, inability to pay is the only available ground.

Insolvency Act 1986

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

Insolvency Services Account

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

Insolvent Liquidation

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

Insolvent Partnerships Order 1994 (IPO)

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.

Insolvency Rules

The Insolvency Rules 1986, as amended, provide the detailed working procedures for the provisions of the Insolvency Act 1986.

Interim Order

An individual who intends to propose a voluntary arrangement to their 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.

Investors’ Compensation Scheme

A statutory scheme operated by the Securities and Investments Board to give individual investors up to £48,000 protection if an authorised investment business collapses.

Judgment

Recognition of a debt by a Court. Decision given by a Court at the conclusion of a trial.

Law of Property Act 1925

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 the failure of a property developer, whose borrowings will largely be secured on specific properties.

Licensed Insolvency Practitioner (IP)

Person licensed by one of the Chartered Accountancy bodies, the Law Societies. The Insolvency Practitioners’ Association or the Department of Trade. The only person who may act as an office holder in an insolvency. Persons claiming to be insolvency practitioners, but who do not hold a licence may not be able to help you. The status of anyone claiming to be a licensed insolvency practitioner can be confirmed by contacting R3 or one of the regulatory bodies listed in the section headed Recognised Professional Body.

Lien

Right to retain possession of assets of documents until the settlement of debts.

Liquidation

Liquidation is the process 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. Liquidation is a terminal process and is followed by the dissolution of the company.

Liquidation Committee

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

Liquidator

Licensed Insolvency Practitioner appointed to wind-up a company.

Mareva Injunction

Court Order preventing the disposal of assets.

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.

Misfeasance

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

Mortgage

A transfer of an interest in land or other property by way of security, upon the express or implied condition that the asset shall be re-conveyed to the debtor when the sum secured has been paid.

Nominee

Licensed insolvency practitioner nominated in a proposal for an individual or corporate voluntary arrangement to act as supervisor of the arrangement.

Office Holder

A liquidator, provisional liquidator, administrator, administrative receiver, supervisor of a voluntary arrangement, or trustee in bankruptcy.

Official Receiver

Officer of the Court, civil servant, member of the Department of Trade Insolvency Service, deal with bankruptcies and compulsory liquidation.

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.

Petition

A written application to the Court for relief or remedy.

Policyholders Protection Act 1975

An Act which established the Policyholders Protection Board to provide compensation to the public in the event of the liquidation of an insurance company. The Board will make payment in full of liabilities under certain policies of compulsory insurance and 90% of liability to provide policyholders under other general and investment type policies. Compensation is restricted to individual policyholders or partnerships; corporate policyholders are not protected.

Preference

A payment or other transaction made by an insolvent company or individual which places a creditor in a better position than they would have been otherwise. A liquidator, administrator or trustee in bankruptcy may recover sums which are found to be preferences. If the transactions took place within a period of either two years (where the creditor is a connected person) or six months (in other cases) of the insolvency.

Preferential Creditor

Defined in Schedule 6 of The Insolvency Act 1986. Has priority when funds are distributed by a liquidator, administrative receiver or trustee in bankruptcy.

Proof of Debt

Document submitted by a creditor to the licensed insolvency practitioner giving evidence of the amount of the debt.

Provisional Liquidator

The name usually given to a licensed insolvency practitioner appointed to safeguard a company’s assets after presentation of a winding-up petition but before a winding-up order is made.

Proxy

Document whereby a creditor authorises another person to represent him at a meeting of creditors. The proxy may be a general proxy, giving the proxy holder a discretion as to how he votes, or a special proxy requiring him to vote as directed by the creditor. A body corporate can only be represented by a proxy.

Proxy holder

Person who attends a meeting on behalf of a creditor.

Receiver

Is often used to describe an administrative receiver, who may be appointed by a secured creditor holding a floating charge over a company’s assets. More accurately, a receive is 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.

Receivership

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

Recognised Professional Body (RPB)

An organisation approved by the President of the Board of Trade as being able to authorise its members to act as licensed insolvency practitioners. The following are RPB’s:-

The Chartered Association of Certified Accountants
The Institute of Chartered Accountants in England and Wales
The Institute of Chartered Accountants in Ireland
The Institute of Chartered Accountants of Scotland
The Insolvency Practitioners Association
R3 – The Association of Business Recovery Professionals
The Law Society
The Law Society of Northern Ireland (for Northern Ireland only)
The Law Society of Scotland

Relevant Date

The commencement date of the formal insolvency proceedings.

Reservation of Title (or Retention of Title)

A provision under a contract for the supply of goods which purports to reserve ownership of the goods with the supplier until the goods have been paid for. A complex and continually evolving area of law.

Schemes of Arrangement

A term normally used to describe 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-fourths 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.

Secured Creditor

A creditor with specific rights over some or all of a debtor’s assets. A secured creditor gets paid first out of the proceeds of sale of the security.

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 most common example is a mortgage over a property.

Shadow Director

A person who is not formally appointed as a director, but in accordance with those 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/her 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, Office Receiver or trustee in managing the debtors business. He does not need to be a licensed insolvency practitioner.

Statutory Demand

A forma 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. Cannot be used where the debt is disputed.

Supervisor

The licensed insolvency practitioner appointed by creditors to supervise the way in which an approved voluntary arrangement is put into effect.

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 given. In certain circumstances such a transaction can be challenged by an administrator, a liquidator or a trustee in bankruptcy.

Trustee

Quite apart from its common usage (e.g. under the Trustee Act 1925) this is a term used for a variety of insolvency appointments, including the licensed insolvency practitioner appointed in an English bankruptcy; a Scottish sequestration; a deed of arrangement; a Scottish trust deed and an administration order (of the affairs of a deceased debtor).

Unsecured Creditor

Strictly, any creditor who does not hold security. More commonly used to refer to any ordinary creditor who has no preferential rights, although, in fact preferential creditors will almost always also be unsecured. In any event, the last in the payment queue, apart from shareholders.

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 where a debt is 6 months old at the relevant date.

Voluntary Arrangements

See Individual Voluntary Arrangements (IVA); Company Voluntary Arrangement (CVA)

Voluntary Liquidation

See Creditors Voluntary Liquidation (CVL); Members Voluntary Liquidation (MVL)

Winding Up

See Liquidation.

Winding-up Order

Order made by the Court for a company to be placed in Compulsory Liquidation.

Winding-up Petition

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 a director allowed the company to continue trading in circumstances where he/she should have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation. The directors involved may be made personally liable to make a contribution to the company’s assets.

"I needed someone to take all the stress away, I didn't know what my options were, I just felt this dark cloud over me that I could not see my way out of, CIB provided all the answers, I am so relieved."