If a company falls into financial difficulties the directors
or a third party will sometimes appoint an Administrator to run the company.
This is to determine whether the company can trade out of its problems or be
sold on to enable the company to be turned around. If the company is not a
viable concern then the assets will be sold and
distributed to its creditors.
A person who controls a company which has gone into
Administration. The Administrator has overall control of the company and any
decision must be taken by the Administrator.
Annulment is another term for cancellation.
This is a term used when a debt has not been paid on time
and the payments become overdue. If the debt is not paid then action may be taken to reclaim the money.
Anything that is owned by an individual or company which has
a value either now or will have a value at some time in the future. Examples
include vehicles, shares, money in the bank or in hand, property and book
This is an option a person may use if they are unable to pay
their debts as and when they become due. They would lose control of their
assets and would not be allowed to become a company director for the period of
bankruptcy. Certain occupations and credit ratings are affected by bankruptcy.
Bankruptcy Restrictions Order or Undertaking
A court order making an individual bankrupt. A bankruptcy
restriction order or undertaking is where a restriction is made against a
bankrupt. This could result in the restrictions of bankruptcy continuing for a
period of between 2 and 15 years.
These are monies that are owed to an individual or company
for goods supplied or services provided.
These are debts that are in a sole traders or partnerships
trading name. For businesses who have the same trading name as their personal
name, business debts are those that have been accumulated specifically from the
Business insolvency can be defined in two different ways:
Cash Flow Insolvency -unable to pay debts as they
fall due and
Balance Sheet Insolvency-having negative net assets in other words, liabilities exceed assets.
A CCJ (county court judgment) is a court action where an
individual or company has taken another person or companyto court for
unpaid debts. The court will order the payment of the debt within a period of time andif it is not, the person or
company owed the money will be entitled to take further action.
This is an order made by the court giving the trustee in
bankruptcy a charge on a debtors interest in their home. This will continue after they are discharged from
All limited companies and PLCs
are registered here. All information is stored and is available to the public.
Companies House also incorporates and dissolves companies.
These are debts owed by a company to a third party,for
examplea supplier or a lender.
A county court is a court based in, or with, a jurisdiction
covering one or more counties.
Banks and financial services use this as a tool to establish
whethera company or personis safe to lend money to. A good
rating may result ina lender accepting a loan request orlending
more money. A lowrating may mean a lesser amount is offered or the
request refused. The rating will take into account factors such aswhether there are any CCJs
(county court judgments) outstandingor any
defaults on paying debts.
This is anybody who is owed money by a company or person. It
can also be someone who will (or may) be owed money in the future due to some
obligation that has already been entered into.
Creditors Petition (Bankruptcy)
A person can only be made bankrupt if the debt is unsecured
and for a fixed sum that they appear unable to pay. Any individual owed more
than 750 can petition to make you bankrupt.Bankruptcycan
also be petitioned for by a group of people if the combined sum due to them is
more than 750. The proceedings will normally take place at your local county
court with bankruptcy jurisdiction.
Voluntary Arrangement (CVA)
This route is usually taken by directors who feel their
company has a viable future and are willing to work hard to keep it alive. If
this route is taken, an arrangement is entered into with creditors to repay a
percentage of the sum owed to them over a period of time.The
directors will keep control of the company and continue to trade as normal.
Voluntary Liquidation (CVL)
The company will stop trading, all contracts will be terminated and assets sold. The shareholders of the company
will decide to liquidate the company and will enlist the services of an
insolvency practitioner to complete all the necessary arrangements. In some
instances, the business of the company can be sold to another company as a
Debt Management Plan (DMP)
This is an informal agreement betweenand
individualandtheir creditors enablingan individualto
consolidate their unsecured debts and to repaythem withone
affordable regular monthly repayment.
Read more about
informal strategies and refinancing options here.
These are individuals or companies that owe money to a third
party for goods or services provided, for example customers.
Debtors petition (Bankruptcy)
This is where an individual declares themselves bankrupt by
visiting their local county court andpresenting a petitionfor their
These are monies that are owed to an individual or company
for goods supplied or services provided.
This is issued by a creditor before the commencement of
legal action. It will allowthe debtorseven days to pay the amount
stated. If this is not settled, then the creditor can take court action.
A director is a person who conducts the affairs of a limited
company. Directors are responsible for the running, management and control of a
company. The limited liability of a company ensures directors are protected
from personal risk; they must however act professionally and correctly to
ensure this protection.
If a person is declared bankrupt they will be unable to act as a director of a company for a period of
time. Similarly, if a director has been found to have acted improperly,
the Insolvency Service may decide that they should be disqualified as acting as
a director or be for a period of time.
A bankrupt usually receives a discharge from bankruptcy
automatically, no more than a year after he was made bankrupt. Discharge means
he is freed from therestrictions of being a bankrupt.
In order to commence dissolution proceedings the company must not have been trading for at least three months. The company
can then be dissolved. This will legally break up a company that no longer
wishes to trade.
This is used by landlords as a tool where there is unpaid
rent. Where a landlord has agreed a payment plan for rent and this is not
adhered to, they have various options and can instruct an agent to enter the
property and remove goods or assets to cover the value of the debt. This can
usually be carried out within one week of a missed payment. They do not need a
court judgment to implement these actions.
Department for Business, Energy & Industrial Strategy
DBEIS is a government agency working to create the
conditions for business success and help the UK respond to the challenge of
globalisation. They promote enterprise innovation and creativity. DBEIS run The
Insolvency Service in England and Wales and also help
in many employment issues such as redundancy.
Some financial institutions provide this service. Companies
receive payment for their unpaid sales invoices and the financial institution
assist in the collection of the debts. The factoring company takes a percentage
of this debt as a fee.
Fixed and Floating Charges
A fixed charge is usually secured by a
particularasset, for example property or machinery. With a fixed charge,
the borrower could not sell the asset without the permission of the lender. A
floating charge however is usually secured on things like raw materials or
component stocks and therefore the borrower can deal with these stocks in the
normal course of business, consuming them and replacing them whenever
necessary. Should the charge crystallise, for instance, as a result of a
failure to pay interest at the proper time, the stocks which were present at
that moment become subject to the charge and the borrower would be unable to
make use of them without the permission of the charge holder.
Where trade continues without any means of repaying the
debts and with the intention of defrauding creditors. Directors that
continue to trade in thesecircumstances risk disqualification or becoming
personally liable for the worsened trading position.
Where a company is trading and making a profit. The
business of a company can sometimes be sold as a going concern, i.e. with the
same trading style, employees, customer listetc. but legal
adviceshould be sought by both the seller and buyer before negotiations
Her Majestys Revenue & Customs (HMRC)
A government department who regulates and collects customs
and duties for instance VAT and PAYE.
Income Payments Order (IPO)
An Income Payments Order is a legally binding agreement
thatis made following bankruptcy. A persons income and outgoings will be
looked at and if there is any surplustheymay
need to pay a proportion of this towardsthe bankruptcydebts and
Individual Voluntary Arrangement (IVA)
Similar to a CVA, an IVA is an
agreement between a person and their creditors to repay a percentage of the amounts
owed, usually over time. The agreement (proposal) needs to be accepted by the majority of creditors voting but if accepted, all
creditors will be bound by the terms.
Read more about our Individual
Voluntary Arrangementservices here.
Insolvency means the inability to pay ones debts as they fall due. Usually used to refer to
a business, insolvency refers to the inability of a company to pay off its
An insolvency practitioner is a licenced professional
whospecialises in dealing with insolvency. They are authorised by the
Secretary of State or other recognised professional bodies such as the ACCA.
This is when a company or individual cannot afford to repay
their debts as and when they are due, or whose liabilities are greater than
If a person or companyis proposing a Voluntary
Arrangement they can apply for an interim order in court. This protects them
against any formal insolvency proceedings being brought by a third party
(including bankruptcy in the case of an individual).
Joint and Several Liability
If one or more person enters into an agreement (such as a
mortgage or rent agreement), then all those named on the agreement are liable
for the full amount. An example of this would be a joint mortgage where the
mortgage company can pursue either or both people named on the mortgage for any
A form of security (e.g. a mortgage) to ensure payment of a
Debts and obligations of the company or individual. Examples
of these would be bank loans, mortgages, credit cards, wages and rent.
A company with its own legal identity. A limited
company has members who own shares in the company and directors who are
responsible for running it. The directors and shareholders are not
personallyliable for any of the companys actions providing they act in accordance with
their duties as set out by the Companies Act.
Owners of a company have their liability for the companys debts limited.
Their liability is limited to the paid-up value of the shares they own i.e. it
is limited to the amount they agreed to pay for the shares when they purchased
When a company becomes insolvent,the directors can
chose to recommend to the shareholders that the company bewound up
voluntarily. It ceases to trade and once a Liquidator is appointed,
its assets are sold and the resulting funds utilised
to pay at least some of its debts. Directors and shareholders can
also place a company intosolvent
liquidationwhere the companyis able topay its liabilities
in full andthe surplus is then distributed to the shareholders as
A person who is a licensed insolvency
practitionerresponsible for dealing with the winding up of a company.
A mortgage is the transfer of an interest in property (or
the equivalent in law a charge) to a lender as a security for a debt
usually a loan of money.
Monthly repayment is the combined principal and interest
owed on a loan, paid on a monthly basis. With regards a voluntary arrangement
or debt management plan it means the monthly amountthe debtor has agreed
to pay towards its debts.
Members Voluntary Liquidation (MVL)
If a company is placed into liquidation when it has sufficient assets to pay all its creditors in full, this is
known as a members voluntary liquidation (MVL)
Read more about our Members
Voluntary Liquidation services here.
Net assets are sometimes the same as net worth, or assets
minus liabilities. The term net assets is commonly used with charities or not- for- profit entities. Although these
entities do not make money, it is important to maintain reasonable reserves to
help future growth.
This occurs when the value of an asset used to secure a loan
is less than the outstanding balance on the loan. When applied to the
owner-occupied housing market, a fall in the market value of a house to below
its mortgaged amount is the usual cause of negative equity.
In business, net liabilities, sometimes called net worth,
are the total assets minus total outside liabilities of an individual or a
The Official Receiver is an officer of the court and civil
servant employed by The Insolvency Service, who deals with bankruptcies and
A type of business entity in which partners (owners) share
with each other the profits or losses of the business.
A fund where pension contributions are paid into and held.
A guarantee given by an individual that they will pay a
company debt or loan if the company is unable to. Usually a condition requested
by a lender or a supplier offering credit termsfor which the directors of
a company will be askedto sign. If the company defaults on the repayments then the lender or supplierwill call on the
personal guarantee to repay either part or all of the remaining debt.
A public company may offer to sell its shares to the public.
A public company must satisfy Companies House that at least 50,000 worth of
shares have been issued and that each share has been paid up to at least one
quarter of its face value.
Applied to the owner-occupied housing market, when the
market value is greater than the amount the borrower owes on it is the usual
case of positive or releasable equity.
A creditor who is entitled to receive payments prior to
unsecured creditors. These include certain elements ofemployees claims
and occupational pension scheme arrears.
The voluntary arrangement proposal sets out what is being
offered to creditors and what they can expect to receive after the costs of the
voluntary arrangement have been deducted. The exact contents of the proposal
will vary upon the individual circumstances.
A company or individual may appoint a proxy holder to attend
and vote at a creditors meeting on their behalf by completing a proxy form and
lodging it in accordance with the directions set out in the letter enclosing
the notice of the meeting. Another form of voting is by postal resolution,
where a creditor can vote on a resolution without there being a physical
A Receiver is appointed by a lender (usually a bank) with a
charge or mortgage over the companys assets. The Receiver then sells the assets of the company in Receivership in
order to repay the debt to the lender.
Redundancy is a form of dismissal of an employee. It could
be that the company is down-sizing or closing a department or closing the whole
company. Employees may be able to make a claim to the Insolvency Service if the
company cannot afford to pay what is due to the employee in full.
A debt that is secured against an asset or assets.
Own stakes in limited companies. Shares can be purchased on
the open market if it is a quoted PLC. They can vote on how a company is run
and theycan receive ashare of the profits as a dividend.
As a sole trader, you run your own business as an individual
and retain all business profits after tax. Youare alsoresponsible
for the business,and thereforeresponsible for any lossesthe
Statement of Affairs
This is a statement of a companys assets and liabilities at
the date of its winding up, Receivership or Administration. It is prepared by
the directors usually with the assistance of a licensed Insolvency
When an individual or company enters into a Voluntary
Arrangement, a Supervisor is appointed. The Supervisor ensures that
contributions are made as they fall due and kept up to date. Failure to keep
the contributions up to date could result in the Supervisor defaulting and
failing the Voluntary Arrangement and this could lead to liquidation or
The Trustee in Bankruptcy is either the Official Receiver or
an Insolvency Practitioner and will take control of your assets. The Trustees main objective is
to sell these assets and share the proceeds among the creditors.
Money a company takes for its services before any
expenditure is deducted. It is not the profit of the company.
A creditor who does not hold security against an asset (a
mortgage is a secured creditor).
Value Added Tax (VAT)
Is a duty levied on goods and services which are liable for VAT. If you run a business you will
usually have to register for VAT if your taxable turnover exceeds a level set
by the Government.
Winding Up Petition (WUP)
A creditor can apply for awinding up petitionto
be heard in court if a company does not pay the money due to the creditor. This
could lead to the company being wound up compulsorily with directors having
limited control over the process.