Glossary of Terms

Administration Order

An Administration Order is a court procedure that places the company under the control of a Licensed Insolvency Practitioner and the protection of the court to achieve one or more specific purposes. It is usually applied for by the directors of an insolvent company, the company itself or a creditor. When the order is made, the company is then managed by the Administrator who will try to save the company or the business, or failing that, achieve a better result for creditors than Liquidation.

Administrative Receiver

An Administrative Receiver is a Licensed Insolvency Practitioner appointed by the holder of a Floating Charge Debenture created before 15 September 2003, covering the whole, or substantially the whole, of a company’s property. They can, and often do continue the company’s business, whilst trying to sell it and other assets to repay Secured Creditors and Preferential Creditors.

An Administrative Receiver has no authority to deal with the claims of Unsecured Creditors. If sufficient funds become available for distribution, they are dealt with by a Liquidator appointed separately. Administrative Receivers cannot be appointed in respect of Debentures dated after 15th September 2003.

Administrative Receivership

An Administrative Receivership is an insolvency process following the appointment of an Administrative Receiver by a bank or other lender. A higher price is usually achieved from the sale of the assets than if the company’s assets were disposed of on a piecemeal basis.

Administrator

This is a Licensed Insolvency Practitioner that is appointed following the making of an Administration Order. The Administrator takes control of the affairs of an insolvent company with the purpose of achieving the objective(s) set out in the Administration Order.

Bankrupt

This is the term for an individual who is subject to a Bankruptcy Order granted by the court. The order demonstrates that the individual is unable to pay his or her debts.

Bankruptcy

Following the making of a Bankruptcy Order by the court, the assets of the Bankrupt individual immediately fall under the control of a Trustee. At the start of the process the Official Receiver administers the bankruptcy estate. However, in certain circumstances, a Licensed Insolvency Practitioner can be appointed as the Trustee. This is usually based on the wishes of the majority of creditors.

Any capital held in the form of property, including a house, must be realised. However, it is common practice to allow a period of circa 12 months for the Bankrupt person’s family to make alternative arrangements before it will order the property to be sold. The Bankrupt individual is usually allowed to keep furniture and other basic domestic requirements, and in certain circumstances a low value car.

Bankruptcy Order

This is an order of the court to declare an individual bankrupt. This could be following the petition of a creditor, the debtor themselves or a Supervisor of a failed Individual Voluntary Arrangement on the grounds of insolvency, or by the Secretary of State for Business, Innovation and Skills.

Company Voluntary Arrangement (CVA)

A CVA is a legal agreement between an insolvent company and its creditors. It sets out how a company is going to repay the money it owes, how much it will repay and over what period. It can include the planning of a corporate reorganisation involving delayed or reduced payments of debt, capital restructuring or an orderly disposal of assets. There is limited court involvement with a CVA and the scheme is managed by a Supervisor.

Compulsory Liquidation

Compulsory Liquidation is a Liquidation of a company when a court grants a Winding-up Order. It is also known as Compulsory Winding-Up. The process commences when a Winding-up Petition is presented to the court, usually by a creditor who has not been paid money it is owed by the company. This Petition can also be presented by the company, its director(s) or its shareholder(s), or even the Secretary of State for Business, Innovation and Skills on the grounds of public interest.

Creditors’ Voluntary Liquidation (CVL)

When a company is insolvent and the directors have recognised that it should cease to trade, then it can go through the process of a CVL. The directors must call for a shareholders’ meeting where the shareholders pass a Special Resolution for the company to enter into the CVL. At this point a Licensed Insolvency Practitioner is appointed as the Liquidator. A meeting of the company’s creditors must be held within 14 days of the shareholders’ meeting, although in practice both meetings are normally held on the same day.

Once the company is in a CVL, the powers of the directors cease, and control of the company is passed to the Liquidator.

Once the company is in Creditors’ Voluntary Liquidation, the powers of the directors’ cease and control of the company is passed to the Liquidator.

Debenture

A debenture is a document setting out the terms of a loan, usually to a company. It may be secured on part or all of a company’s assets, and often comprises of a Fixed Charge a Floating Charge, or a combination of both. The lender is referred to as the debenture holder and is a Secured Creditor.

Fixed Charge

A Fixed Charge is a form of security granted over specific assets, preventing a company or an individual from dealing with those assets without the consent of the Secured Creditor. It gives the Secured Creditor a first claim to the proceeds of sale of the assets over which the charge falls, and the creditor can usually appoint a Receiver to realise the assets in the event of default. A Fixed Charge holder will rank before Floating Charge creditors, Preferential Creditors and Unsecured Creditors.

Floating Charge

This is a form of security over general assets of a company which can change as part of the normal activity of a business. The company continues to use the assets until a default event occurs. If this happens, the holder of a Floating Charge will usually appoint an Administrative Receiver or an Administrator (depending on the date of the charge) to realise the assets of the company and recover the debt. A Floating Charge holder will rank for dividend purposes after the holder of a Fixed Charge and Preferential Creditors, but before Unsecured Creditors.

Going Concern

A Going Concern is the basis on which a Licensed Insolvency Practitioner will attempt to sell a business out of an insolvency process. Effectively this means that the business will continue, jobs are saved, and a higher price is usually achieved.

Individual Voluntary Arrangement (IVA)

An IVA is a legal agreement between an individual and their creditors which sets out how the individual is going to repay the money he or she owes, how much will be repaid and over what period. It will always ensure that creditors receive an enhanced return compared with the individual entering into bankruptcy proceedings.

An IVA is an extremely flexible procedure and can be proposed by individuals who are already subject to bankruptcy proceedings. It enables the individual to go about their daily business in a less restricted way than under Bankruptcy.

Licensed Insolvency Practitioner

This is a person licensed by one of the Recognised Professional Bodies who are authorised by the Department of Business, Innovation and Skills. Only a Licensed Insolvency Practitioner can be appointed to act in insolvency proceedings.

Liquidation

This is the name of the process by which a company is brought to an end. There are three types of Liquidation: Compulsory Liquidation, Members’ Voluntary Liquidation and Creditors’ Voluntary Liquidation.

Liquidator

A Liquidator if a Licensed Insolvency Practitioner that is appointed to wind-up a company.

Members’ Voluntary Liquidation (MVL)

An MVL is a procedure for winding up a company which is solvent. It must have sufficient assets to repay all known creditors in full, together with statutory interest within 12 months of the commencement of the Liquidation. Reasons for winding up a solvent company could be to provide an exit route for private company shareholders, enabling them to realise their investment, or where a company is dormant or its purposes have been fulfilled as part of a reorganisation scheme. Although an MVL is only available for solvent companies, the law requires that the Liquidator is a Licensed Insolvency Practitioner.

Nominee

A Nominee is a Licensed Insolvency Practitioner appointed by a company or an individual who formally advises either the directors of the company or the individual during the period leading up to the holding of the creditors’ meeting to approve the terms for a CVA or an IVA.

Official Receiver

An Official Receiver is an officer of the court who is a civil servant and an officer of The Insolvency Service, an executive agency of the Department of Business, Innovation and Skills.

Preferential Creditor

This is a class of creditor who benefits from a statutory priority over creditors holding a Floating Charge and Unsecured Creditors. Preferential Creditors will mainly consist of employees’ claims for arrears of wages, accrued holiday pay and, in some circumstances, unpaid pension contributions. There are limits that apply to the amount of money an employee can claim preferentially, with any balance forming an unsecured claim against the company or an individual.

Prescribed Part

The Prescribed Part was introduced by section 176A of The Insolvency Act 1986 (as amended). It is a share of the assets of a company subject to a Qualifying Floating Charge which is reserved for distribution to Unsecured Creditors in priority to a Qualifying Floating Charge creditor in an Administration or Liquidation.

Qualifying Floating Charge

A Floating Charge is a Qualifying Floating Charge if it is expressed to be one, or if the security document purports to give the holder power to appoint an Administrator or Administrative Receiver. It relates to the whole, or substantially the whole of the company’s property

Receiver

A Receiver is an individual appointed by a Secured Creditor under the terms of a Mortgage or Debenture in respect of specific assets of a company. A Receiver need not be a Licensed Insolvency Practitioner.

Secured Creditor

This is a class of creditor who benefits from holding security over part or all of a company’s or individual’s assets.

Supervisor

This is a Licensed Insolvency Practitioner appointed by creditors in either a CVA or an IVA to implement the terms of the Arrangement as approved by creditors.

Trustee

A Trustee is a Licensed Insolvency Practitioner appointed to administer the estate of a Bankrupt individual.

Unsecured Creditor

This is a class of creditor who does not hold security and who has no preferential rights. An unsecured creditor ranks below Secured Creditors and Preferential Creditors, with the exception of when the Prescribed Part is applicable.

Winding-up Order

This is an order made by the court for a company to be placed in Compulsory Liquidation.

Winding-up Petition

A Winding-up petition is a petition presented to the court seeking an order that a company be put into Compulsory Liquidation by the court making a Winding-up Order.