Insolvency Terminology Questions and Answers
We detail below answers to questions you might have about the meaning of some of the terms you may come across in insolvency proceedings. Please note that this glossary is for general guidance only. Many of the terms have a specific technical meaning in certain contexts that may not be covered here.
References to IP refer to a Licensed Insolvency Practitioner.
What is an Administration Order?
An order made in a county court to arrange and administer the payment of debts by an individual; or an order made by a court in respect of a company that appoints an administrator to take control of the company. A company can also be put into administration if a floating charge holder, or the directors or the company itself file the requisite notice at court. An Out of Court Administration process was introduced by the Enterprise Act 2002.
What is an Administrative Receiver
The title of an 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. The IP’s task is to realise those assets on behalf of the debenture holder.
What is an Administrative Receivership?
The process where an IP 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.
What is an Administrator?
An IP appointed by the court under an administration order or by a floating charge holder or by the company or its directors filing the requisite notice at court.
What is an Annulment?
What are Assets?
Anything that belongs to the debtor that may be used to pay his/her debts.
What is a Bankruptcy Restriction Order or Undertaking?
A procedure was introduced on 1 April 2004 whereby 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.
What is a ‘Charge’?
Security interest taken over property by a creditor to protect against non-payment of a debt (such as a mortgage).
An Act of Parliament about the disqualification of directors.
What is a Compulsory liquidation?
Winding up of a company after a petition to the court, usually by a creditor.
What is a Contributory?
Every person liable to contribute to the assets of a company if it is wound up. In most cases this means shareholders who have not paid for their shares in full.
What is a Creditor?
Someone owed money by a bankrupt or company.
What is a Debenture?
A document in writing, usually under seal, issued as evidence of a debt or the granting of security for a loan of a fixed sum at interest (or both). The term is often used in relation to loans (usually from banks) secured by charges, including floating charges, over companies’ assets.
What is a Director?
A person who conducts the affairs of a company.
What is a Director 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).
What is a Dividend?
Any sum distributed to unsecured creditors in an insolvency.
What is a 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.
What is a 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.
What is a Guarantee?
An agreement to pay a debt owed by a third party. It must be evidenced in writing for it to be enforceable.
Applies to companies or partnerships. It involves the realisation and distribution of the assets and usually the closing down of the business. There are three types of liquidation – compulsory, creditors’ voluntary and members’ voluntary.
What is a Liquidator?
The Official Receiver or an insolvency practitioner appointed to administer the liquidation of a company or partnership.
Member (of a company)
A person who has agreed to be, and is registered as, a member of a company, such as a shareholder of a limited company.
What is a Nominee?
An IP who carries out the preparatory work for a voluntary arrangement, before its implementation.
Who is an Officer (of a company)?
A director, manager or secretary of a company.
Who is the Official Receiver?
An officer of the court and civil servant employed by The Insolvency Service, who deals with bankruptcies and compulsory company liquidations.
What is a Person (in Insolvency Terminology)?
An individual or corporation.
What is a Petition?
A formal application made to a court.
What is a Preferential Creditor?
A creditor who is entitled to receive certain payments in priority to floating charge holders and other unsecured creditors. These creditors include occupational pension schemes and employees.
What is Proof of Debt?
A statutory form completed by a creditor in a compulsory liquidation to state how much is claimed. The form is supplied by the Liquidator.
What is a Provisional Liquidator?
OR/IP appointed to preserve a company’s assets pending the hearing of a winding up petition.
Instead of attending a meeting, a person can appoint someone to go and vote in their place – a ‘proxy’.
What is a 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.
What is a 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.
What does Realise an Asset mean?
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.
What is a 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.
A company in administrative receivership is often said to be “in receivership”.
What is a Rescission?
A procedure that cancels a winding-up order.
The process by which the Official Receiver or an insolvency practitioner is discharged from the liabilities of office as trustee/liquidator or administrator.
The Secretary of State for the Department of Business, Innovation & Skills
What is a Secured Creditor?
A creditor who holds security, such as a mortgage, over a person’s assets for money owed.
What is a Shadow Director?
A person who, without being formally appointed, gives instructions on which the directors of a company are accustomed to act.
What is a 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.
What is a Supervisor?
An IP appointed to supervise the carrying out of a company voluntary arrangement.
What is TUPE?
Transfer of Undertakings (Protection of Employment) Regulations 2006.This act refers
What is UNCITRAL?
United Nations Commission on International Trade Law.
What is an Unsecured Creditor?
A creditor who does not hold security (such as a mortgage) for money owed. Some unsecured creditors may also be preferential creditors.
What is a 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.
What is a Winding up Order?
An Order of a Court, usually based on a creditor’s petition, for the compulsory winding up or liquidation of a company or partnership.
Contact us if you Have Financial Difficulties and are Facing Insolvency
If you are facing financial difficulties and insolvency, don’t leave it too late. Contact us or call us on 0208 088 0633 for a free initial discussion. We’ll explain to you the action that we believe you need to take. If you decide to engage our services, we’ll then start the formal insolvency proceedings. The earlier you get in touch, the quicker we can start helping.