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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 process designed to give an entity breathing space, with a view to either a rescuing and/or restructuring a business but mostly importantly to allow for a better outcome for creditors than could be achieved if the company was placed into liquidation.

Administrator

Once a company is in administration, the person with the power to deal with the affairs of the company including its assets and liabilities 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 which range from transactions at undervalue to 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 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.

Consequently if a director is disqualified the repercussions extend beyond not being 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 but to making the individual personally liable for any losses suffered by a creditor or creditors if that loss can be identified.

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 more than £750 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 asses 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”)

Following the making of a bankruptcy order, you may be asked to make a payment towards your debt each month. This payment is made up of the entirety of any surplus income following the payments of reasonable living expenses.

Following a review of financial information provided by you, the OR will then calculate the value of the monthly surplus payment to be made. Agreement to make the monthly payments constitutes an Income Payments 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 making 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 enforce 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 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

In contrast to the protection of limited liability, a personal guarantee is a tool used by financial service providers to guarantee to their debt by requesting either directors or partners to personally guarantee the debt regardless of whether the debt is used by the Company or Partnership. In the event of a default the financial service provider can call upon the personal guarantee and request that the directors or partners pay the balance of the debt.

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.