The insolvency world is full of terminology and jargon that can leave you confused and frustrated. So whether it’s a Voluntary Arrangement or Compulsory Liquidation, we have compiled a list of all insolvency terms and their definitions to help you better understand what they mean.
The list has been arranged alphabetically.
Administration: Administration is a fast, legal process that can stop creditors from taking legal action against a company or partnership in order to receive debts owed.
Administrator: An Insolvency Practitioner is appointed by a court to act as Administrator during the Administration process.
Arrears: Arrears are a form of debt that occurs when a payment has been missed or is overdue.
Assets: Anything that belongs to the individual or company (Debtor) which can be used to pay debts.
Bankruptcy: Bankruptcy occurs when an individual or company cannot afford to repay debts owed to its Creditors.
Commercial Rent Arrears Recovery: New statutory procedure that allows a landlord of commercial properties to recover rent arrears by taking control of tenant’s assets and selling them.
Company Voluntary Arrangement: For limited businesses – If the business is insolvent a Company Voluntary Arrangement (CVA) can be applied for in order to pay Creditors over a fixed period of time.
Compulsory Liquidation: Compulsory Liquidation happens when an unpaid Creditor requests that the court issues a Winding Up Order against the company to receive debts owed.
Creditor: Individual or businesses that are due payment for services supplied.
Creditors Voluntary Liquidation: A Creditors Voluntary Liquidation occurs when a business can no longer be made profitable or the owner no longer wishes to continue trading.
Director: Officer of the company who controls the affairs of the company.
Disqualification: Court order where a Director of a company is banned from acting as Director again for a period specified in the order. This can be up to 15 years.
Dividend: Amount given to unsecured Creditors.
Individual Voluntary Arrangement: Individual Voluntary Arrangements. A creditor approved arrangement with creditors to repay the debts due to creditors over a fixed period of time (usually 3-5 years) which is legally binding.
Insolvency/Insolvent: A business becomes insolvent or faces insolvency when it cannot afford to pay its debts in full or on time.
Insolvency Practitioner: An Insolvency Practitioner is an authorised person or company specialising in Insolvency. They are usually an accountant or solicitor.
Insolvent Trading: An operating business with cash flow problems and significant arrears will be considering as Insolvent Trading by UK Law.
Liability: Liabilities are all monies owed by the company whether it is outstanding invoices to creditors, bank overdrafts or unpaid tax etc.
Liquidation: Liquidation is the process of closing a business and selling the assets of a company in order to pay its debts.
Liquidator: The Insolvency Practitioner appointed to administer the Liquidation .
Members Voluntary Liquidation: A Members Voluntary Liquidation (MVL) is a procedure where a company with net assets over £25,000 is put into Liquidation. An MVL is an effective way of getting money out of a company as it is considered capital gain and not income. Also known as Solvent Liquidation.
Nominee: The Insolvency Practitioner who carries out initial work on voluntary arrangements before they are implemented.
Pre-Pack Administration: A Pre-Pack Administration is where the buyer of a business has been agreed before the Administration order comes into effect. Pre-Packs are a viable option where the value of the business is preserved through a quick sale.
Section 110 Scheme of Arrangement: Part of Solvent Liquidation where a business can be reorganised into two or more companies in order to allow the ownership of shares to be split.
Solvent Liquidation: Tax efficient way of putting a company into Liquidation. Also known as a Members Voluntary Liquidation (MVL).
Statement of Affairs: Important document that is completed by a bankrupt, officer or director and is sworn in under oath. The document states the assets available and details of debts and Creditors.
Voluntary Liquidation: Voluntary Liquidation falls into two categories: Company Voluntary Liquidation and Individual Voluntary Liquidation and is a form of Liquidation that does not involve the courts.
Winding Up Order: This is a court order, usually petitioned by a Creditor in order to retrieve debts due.
Wrongful Trading: Wrongful Trading occurs when a company, or the Director/s in particular, continue with business as normal despite being unable to pay their debts as they fall due. If a director of a company is found guilty of wrongful trading they can be disqualified from acting as a director again for up to 15 years.
If you would like to discuss any of these insolvency terms and how they affect your business, please contact us. You can also find in-depth definitions and examples for all these terms in our FAQs section.