The Ultimate Insolvency Glossary of Terms
Welcome to our comprehensive glossary of insolvency terms, a jargon buster created to help company directors have an understanding of crucial terms when navigating the insolvency process. We’ve included some useful resource links to insolvency and government organisations.
Active Proposal to Strike Off
An active proposal to strike off refers to the process initiated by a company director or secretary to dissolve a company voluntarily. This action involves submitting Form DS01 to Companies Househttps://www.gov.uk/government/organisations/companies-house, indicating the company’s intention to cease trading and be removed from the register of companies. However, it’s important to note that creditors and other stakeholders must be notified of this proposal, and any objections must be resolved before the strike-off is approved. This process is typically used when a company is no longer active or viable and wishes to close its operations formally.
A formal insolvency procedure initiated to rescue a company, achieve better results than liquidation, or realise funds for preferential or secured creditors. An administrator, typically a licensed insolvency practitioner, oversees this process.
Administrator
A licensed insolvency practitioner appointed to manage a company’s affairs during administration. Acting as an agent of the court, the administrator works towards achieving the objectives of the administration process.
Appointed by a floating charge creditor, usually a bank, to realise assets on its behalf. This procedure is being phased out under the Enterprise Act and is available only to certain creditors.
Annulment
Cancellation of a legal process, often used in the context of bankruptcy proceedings.
Bankruptcy Order
Issued by the court, based on either a creditor’s or debtor’s petition, declaring an individual bankrupt.
Bankruptcy Petition
A formal request made to the court, either by the debtor or a creditor, seeking to declare the debtor bankrupt.
Bounce Back Loans (BBL’s) are loans of up to £50k, advanced by lenders to businesses, who following the onset of the Covid-19 pandemic in March 2020, required easy access to emergency funding. Over two million businesses took out one of these Bounce Back loans, which equated to a total of £48 billion being loaned out. The terms of the loans ensured that no payments had to be made by the business for the first 12 months, interest rates were kept low with the loans guaranteed by the government (and not the directors).
Bounce Back Loan Debt refers to the money borrowed by businesses under the UK government’s Bounce Back Loan Scheme (BBLS). These loans, aimed at supporting small and medium-sized enterprises (SMEs) during the COVID-19 pandemic, must be repaid according to the loan agreement terms.
Charge
Security taken by a creditor over property to protect against non-payment of a debt, such as a mortgage.
Issued by the court, granting a legal charge on the debtor’s interest in their home, even after discharge from bankruptcy.
A formal procedure in which an Insolvency Practitioner can be appointed to take control of the company’s affairs whilst a plan to rescue, sell or liquidate the company is prepared.
Company Directors Disqualification Act 1986
Legislation outlining grounds for disqualifying directors, emphasising corporate governance and accountability.
Company Pre-Pack Administration
A Pre-Pack Administration is an insolvency process where, with the assistance of an Insolvency Practitioner, the sale of the company’s business and assets is negotiated before the formal appointment of an Administrator.
The Administrator is appointed over the Company and shortly thereafter proceeds to complete the sale.
In a Pre-Pack Administration, the Administrator’s role is to legally facilitate the “pre-arranged” sale. This differs from a more conventional Administration process whereby the Administrator takes control of the business and markets it for sale to potential buyers.
Compulsory Liquidation
Involves winding up a company after a court petition, often by creditors like HMRC.
Company Voluntary Arrangement (CVA)
It is a formal agreement allowing financially struggling companies to repay debts to creditors through a structured plan. This arrangement helps companies avoid liquidation by providing a pathway for financial recovery.
Contributory
Every person liable to contribute to a company’s assets in winding up, typically shareholders who haven’t paid for their shares in full.
Creditor
Someone owed money by an insolvent company or individual, holding a claim against their assets.
A document evidencing a debt or granting security for a loan, often used in securing loans with charges over company assets.
A Director’s Loan is money withdrawn by a company director for personal use or other purposes unrelated to the business. It can be formal or informal, but directors must maintain clear records and adhere to legal and tax requirements.
It is a commitment by a company director to personally repay a company debt if it cannot meet its financial obligations. It involves using personal assets, like property or savings, as collateral for the debt.
Discharge
Frees a bankrupt from the restrictions of bankruptcy and releases them from most debts. This occurs automatically after one year but may be sooner.
Any sum paid to unsecured creditors in insolvency proceedings.
Estate
Assets available to a debtor’s trustee to pay creditors, including property, investments, and personal belongings.
Fixed Charge
Held over specific assets, preventing the debtor from selling them without the secured creditor’s consent.
Floating Charge
Held over a company’s general assets, allowing the company to use and sell these assets until the charge crystallises.
Guarantee
An agreement to pay a debt owed by a third party, enforceable when evidenced in writing.
Income Payments Order (IPO) / Agreement (IPA)
Ordered by the court or agreed upon by the debtor, directing part of their income to the trustee if it exceeds their living expenses.
Occurs when a company or partnership faces financial distress, unable to meet its obligations. Recognising signs of insolvency is vital for prompt action and risk mitigation.
Legislation consolidating insolvency law and procedures in the UK, complemented by the Enterprise Act.
Authorised professional specialising in insolvency proceedings, authorised by the Secretary of State or recognised professional bodies.
Insolvency Practitioners Association (IPA)
The Insolvency Practitioners Association (IPA) is a UK professional body for insolvency practitioners. It sets high standards, regulates members, and provides support and training to ensure excellence in the insolvency profession.
It is a UK government agency that oversees insolvency procedures, regulates insolvency practitioners, and administers bankruptcies and liquidations.
An IR35 contractor refers to a self-employed individual who provides services to clients through an intermediary, like a personal service company (PSC). IR35 legislation in the UK determines whether these contractors should be classified as employees for tax purposes, based on factors like control and substitution. Compliance with IR35 rules is crucial to avoid tax liabilities and penalties.
Involves winding up a company’s affairs, selling assets, and distributing proceeds to creditors. Whether voluntary or compulsory, liquidation entails adherence to legal protocols.
A Liquidation Committee is a group of creditors appointed to oversee and advise the liquidator during the winding-up process of a company. It represents the interests of creditors and provides input on key decisions.
Liquidator (Winding Up)
Administers the liquidation of a company or partnership, appointed by the Official Receiver or as an insolvency practitioner.
Licensed Insolvency Practitioner UK
A Licensed Insolvency Practitioner (IP) in the UK is a qualified professional authorised to handle insolvency procedures and offer expert advice on financial matters. IPs must meet rigorous qualifications set by recognised bodies like the Insolvency Practitioners Association (IPA) or the Institute of Chartered Accountants in England and Wales (ICAEW). They play a vital role in guiding insolvent individuals and companies through complex financial challenges, ensuring compliance with laws and ethical standards while maximising returns to creditors.
Official publication containing legal notices, including insolvency-related announcements.
Member (of a Company)
Registered as a member of a company, such as a shareholder in a limited company.
Members Voluntary Liquidation (MVL)
Is a voluntary process used by solvent companies to distribute assets to shareholders and wind up operations. It’s initiated by company members when the company no longer serves its purpose or for tax planning reasons.
Moratorium
A Moratorium is a temporary period during which legal action by creditors against a company is restricted. It provides breathing space for the company to explore restructuring options without the threat of enforcement action.
Nominee
Insolvency practitioner acting as a nominee, preparing groundwork for a voluntary arrangement before its implementation.
Officer (of a Company)
A director or secretary of a company, responsible for its management and compliance.
Official Receiver
Employed by The Insolvency Serviceinsolvenolven, manages bankruptcies and compulsory company liquidations, serving as an officer of the court.
Petition
Formal application made to the court, initiating legal proceedings.
Entitled to receive certain payments ahead of other unsecured creditors in insolvency proceedings, including pension schemes and employee claims.
Pre-pack Administration is a process where the sale of a company’s assets is arranged before the appointment of an administrator. The sale is completed shortly after the administrator’s appointment, often preserving the business and saving jobs.
Statutory form completed by a creditor in compulsory liquidation, stating the amount claimed and supplied by the trustee or liquidator.
Appointed to preserve a company’s assets pending the hearing of a winding-up petition.
Proxy
Allows a person to appoint someone to vote on their behalf at a meeting, including creditors’ meetings.
R3, also known as the Association of Business Recovery Professionals, is a prominent UK organisation representing insolvency and restructuring professionals. It provides support, education, and advocacy for its members, promoting best practices and collaboration within the industry.
Release
Discharges the Official Receiver or an Insolvency Practitioner from liabilities of office as trustee/liquidator or administrator.
Holds security, such as a mortgage, over a person’s assets for money owed.
Gives instructions on which the directors of a company are accustomed to act, without being formally appointed.
Sworn under oath, completed by a bankrupt, company officer, or director(s), stating assets and giving details of debts and creditors.
Supervisor
Insolvency Practitioner appointed to supervise the carrying out of an individual or company voluntary arrangement.
S455 tax is a charge imposed on directors’ loan accounts in close companies if the loan isn’t repaid within nine months after the corporation tax accounting period ends.
TM01 is a form filed with Companies House in the UK to notify the resignation or termination of a company director.
A Trust Deed is a formal agreement between an individual and their creditors to repay debts over a specified period. It is a common form of insolvency arrangement in Scotland, similar to an Individual Voluntary Arrangement (IVA) in England, Wales, and Northern Ireland.
Trustee
Trustee in bankruptcy is either the Official Receiver or an insolvency practitioner who takes control of a debtor’s assets, mainly to sell them.
Creditor who does not hold security for money owed, often including suppliers and trade creditors.
Not involving the courts or the Official Receiver, voluntary liquidation includes members’ voluntary liquidation for solvent companies and creditors’ voluntary liquidation for insolvent companies.
Court order for the compulsory winding up or liquidation of a company or partnership, usually based on a creditor’s petition.
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