Insolvency A-Z of Key Terms and Abbreviations
To make the trip into the land of Insolvency a little smoother, here is a list of key terms and abbreviations to help decipher the jargon.
If you need further assistance, please do not hesitate to contact us.
Administration
A procedure under the Insolvency Act 1986 whereby a company may be reorganised or it assets realised. The process provides a company with a breathing space from pressure creditors to achieve this. At the end of the process, the business may have survived and the company been rescued or the company’s assets will have been realised for the benefit of the creditors.
Administrator
Once a company is in administration, an insolvency practitioner will be appointed to deal with the affairs of the company including its assets and liabilities that person is referred to as the company’s Administrator.
Antecedent transactions
Officeholders (i.e. liquidators or administrators in a corporate setting) can seek to challenge and unwind transactions entered into by a company over which they have been appointed, prior to its insolvency. These transactions are usually called antecedent transactions. There are a variety of antecedent transactions including, transactions at an undervalue, preferences (preferring one unsecured creditor over the unsecured creditors as a body), and dispositions of property made by the company after the commencement of the winding up process.
Annulment order
“What bankruptcy order?”
An annulment order essentially cancels the original bankruptcy order, the effect of which is as if the bankruptcy order was never made.
Bankruptcy
An insolvency process for individuals, which commences on the day the bankruptcy order is made by the court, following the presentation of a bankruptcy petition, unlike its corporate equivalent liquidation, only the court that can make an individual bankrupt.
BRO
This abbreviation refers to a Bankruptcy Restriction Order. Bankruptcy enforces a number of restrictions on a bankrupt for a set period of time while a bankruptcy restriction order imposes further restrictions for an extended period of time between 2 and 15 years. One to avoid! If you need advice give us a call.
BRU
This abbreviation refers to a Bankruptcy Restriction Undertaking. A bankruptcy restriction undertaking has the same effect as a BRO of prolonging the restrictions of bankruptcy for between 2 and 15 years. Where a BRU differs from a BRO is that an application is not made to the court. It is likely that the duration of the restrictions in force may be shorter as the allegations made have been accepted by the bankrupt.
Compensation Orders
The introduction of the Small Business, Enterprise and Employment Act 2015 brought with it amendments to the Company Directors Disqualification Act 1986. One of the most important changes was the introduction of a new power to enable the Secretary of State to apply for a compensation order to be made against a disqualified director where misconduct has caused identifiable loss to a creditor or creditors.
Compensation orders pierce the corporate veil by extending beyond the normal restrictions and make the individual personally liable for any identifiable losses suffered by a creditor or creditors.
Creditors
A company or individual who is owed money by another company or individual for services rendered.
Creditors’ Petition
If you are a creditor and you are owed £5,000 or more by an individual, you can petition for the bankruptcy of said individual. A creditor can also petition for the winding up of a Partnership. In a corporate setting, a creditor’s petition would be referred to as a winding up petition.
CVA
A Company Voluntary Arrangement is a contractual agreement between a company and its creditors. The primary benefit of a CVA is that there is no need to prove formal insolvency; consequently, it can be used as a mechanism to rescue a company at the first signs of trouble.
CVL
A Creditors’ Voluntary Liquidation is a voluntary process initially instigated by a board of directors and is an alternative to the company being wound up by the court on a petition presented by a creditor of the company.
Debtors
A company or a class of individuals who owe money for services rendered but yet to be paid for. Debtors are classed as assets.
Debtors’ Petition
An individual can issue his or her own petition, but only when they can declare to the court that they are unable to pay their debts.
Directors’ Petition
It is not only creditors who can petition for the winding up of a company, this can also be instigated by a company’s board of directors and not just because they consider that the company is unable to pay its debts.
Dissolution
Where a business no longer wishes to trade either as a company or a partnership they can be dissolved. Please note that the company must have ceased trading for at least 3 months.
Disqualification
If you are subject to insolvency proceedings, it is possible that a disqualification order could be made against you. Upon the making of such an order, you will not be able to act as a director or in connection with the promotion, formation, management, or striking off of a company without permission from the court. Please note that you are automatically disqualified from acting as a director upon the making of a bankruptcy order.
Fraudulent Trading
As a result of the changes to the insolvency law, insolvency proceedings can now be brought by insolvency practitioners in their positions as liquidators and administrators in this respect.
Fraudulent trading is a claim which arises under the Insolvency Act 1986 section 213 (in liquidation) and section 246 (in an administration) and seeks to recover property to the company’s assets where the company wound up or entered administration, and where the business of the company was carried on with the intent: to defraud its creditors, and/or to defraud creditors of any other person/ business and/or for any other fraudulent purposes.
Insolvent
A term used when either an individual and/or company are unable to pay their debts as and when they fall due and/or their liabilities exceed their assets.
Insolvency Practitioner (“IP”)
A person authorised by a regulated body to take appointments in the insolvency of companies or individuals. Also referred to as office holders.
Income Payments Agreement (“IPA”)
When you have been made bankrupt you will be asked to agree to make payments to your creditors if your disposable income is more than £20 per month.
If an agreement can be reached with your trustee in bankruptcy this is known as an Income Payment Agreement.
Income Payments Order (“IPO”)
In contrast to an IPA where the bankrupt agrees with the monthly amount calculated by the (“OR”) and agrees to make a monthly payment towards his debts, an IPO is made following intervention by the Court because the bankrupt does not accept the OR’s calculation and an amicable agreement can not be reached. The Court decides what level of a monthly payment is reasonable and then issues a Court Order forcing the bankrupt to make payments. The Order can be enforced with further Court action if required.
“An IPA is an income payment request from the OR that is agreed to voluntarily. An IPO is an income payment that is ordered by the Court.”
IVA
An Individual Voluntary Arrangement, whereby an individual enters into a legally binding arrangement with his/ her creditors to repay either all or a percentage of debts owed. An IVA provides the opportunity for a fresh start.
Liability
Another name for debt!
Limited Liability
In respect of limited companies and limited liability partnerships the financial liability of directors, shareholders and partners is limited to a fixed sum. If a claimant is suing a limited company or a limited liability partnership, it is the entity (i.e. the company or partnership) that is being targeted, not its owners or investors.
Liquidation
The final curtain call: whether a business is unable to pay its debts as and when they fall due or is “flushed with cash” as the saying goes – liquidation is the vehicle used to close down a business and is sometimes referred to as the winding up of a company.
Liquidator
The OR or IP is appointed over a company once the company has been wound up.
MVL
Members Voluntary Liquidation is a process initiated by the shareholders of the company. It is commonly referred to as a solvent liquidation as a company can only be wound up in this manner if it is able to pay all of its debts with statutory interest within 12 months of issuing a declaration of solvency.
Office Holder
A common term for an insolvency practitioner or official receiver holding office by acting either as a trustee in bankruptcy, a liquidator, a provisional liquidator, an administrator, an administrative receiver or a supervisor of a CVA or an IVA.
OR
A civil servant otherwise referred to the Official Receiver acting as part of the Insolvency Service and officer of the court who performs a large range of functions in both corporate and personal insolvency.
Personal Guarantee
A personal guarantee is a promise made by a person or an organization to accept responsibility for some other party’s debt if the debtor fails to pay it. It is used typically in banking when the director of a company will personally guarantee the debts of a company.
PVA
Partnership Voluntary Arrangement much like its counterparts the CVA and IVA, it does exactly what it says on the tin, a voluntary arrangement which is legally binding between a Partnership and its creditors with regard to the payment of either all or a percentage of debts owed.
RPO
Also known as the Redundancy Payments Office. If your company is subject to insolvency proceedings and you wish to find out how your employees may be affected, please contact us.
SOFA
A Statement of Affairs is a snapshot of a debtor or a company’s financial position.
Statutory Demand
A formal document demanding payment of a debt, the service of which is the most common precursor to the presentation of a bankruptcy or winding up petition, as it creates the presumption of insolvency the basis that the individual or a company is unable to pay debts as and when they fall due.