Wilson Field are licensed Insolvency Practitioners

Glossary of Insolvency Terms

A

Administration

An Administrator may be appointed by the company’s directors if the company finds itself in financial difficulty. Creditors such as a bank or finance house with a floating charge can also appoint an Administrator. When a company is in Administration, the role of the Administrator may be to trade that company while trying to determine whether the business will be able to solve its problems by trading its way out of them or proposing a CVA. If this is not possible the company can be sold to a purchaser either via a Pre-Pack Administration or by marketing the business and assets for sale. If the company assets are not sold via a prepack or via the open market then the final option will be to sell its assets via an auction. The proceeds that are realised are distributed to its creditors after the costs of the Administration.

Administrator

An Administrator is a Licensed Insolvency Practitioner that controls a company and its assets while it is in Administration.

Annual General Meeting

At the Annual General Meeting (AGM) the company’s directors report on the past years activity and make trading forecasts. The company’s shareholders are given the opportunity to voice their opinions. They can also vote on important matters such as the appointment of the auditors and company directors.

Annual Return

UK registered companies are legally required to submit an annual return to Companies House. This must contain certain information about the company, including details of key personnel, the registered office, and the company’s share capital.

Arrears

Arrears are debt repayments that have not been made on time. Once a debt has become overdue, legal action can be taken against you or your company to recover the money that is owed.

Assets

Assets are anything of value owned by the company. This can be tangible items such as property, vehicles, cash in hand or bank balances and shares. Assets also intangible such as Goodwill or intellectual property.

B

BREXIT

A term adopted in 2016 after David Cameron decided to have a referendum about Britain’s membership of the EU. It is an abbreviation of “British Exit” in the same way that the possible Greek Exit was referred to as GREXIT. The referendum on 23rd June will decide whether Britain will stay in or leave the EU

Bankruptcy

Bankruptcy is one of the insolvency options for individuals that cannot afford to repay their debts. It results in the loss of control of the individual’s assets. Bankrupt individuals are prohibited from holding a company directorship during the bankruptcy period. Certain occupations are affected by bankruptcy, and it is important for individuals to check their contract of employment. Bankruptcy also affects the credit rating of an individual.

Bankruptcy Order

A court order that makes an individual bankrupt.

Bankruptcy Restrictions Order

A bankruptcy restriction order is an order made against an individual to pay a percentage of their income to the Insolvency Practitioner appointed as ‘trustee’. The money received by the trustee will go towards paying a portion or all of an individual’s debts. A bankruptcy restrictions order can last from two to fifteen years.

Book Debt

Money owed to companies or individuals for goods or services that they have provided. Book debts are assets.

C

Compulsory Liquidation

Compulsory Liquidation is the most serious insolvency procedure that an insolvent company may find itself in. It occurs when a Winding up Petition is issued against the company (usually by a creditor of the company) and a Winding up Order is given by the courts, who then appoint an ‘Official Receiver’ to begin the involuntary Liquidation of the company. Liquidation will involve the company ceasing to trade, followed by assets of the company being sold off in order to make payments to Creditors on a pro-rata basis. Employees will also be made redundant, and the company will cease to exist once the process is complete. The conduct of the Directors will also be thoroughly scrutinised in order to ascertain whether they could have taken steps to minimise losses to Creditors or prevented the company becoming insolvent. If it is decided that the Directors did not act in the best interests of Creditors, or may be guilty of ‘Wrongful Trading’ then evidence will be gathered and passed on to the Insolvency Service who may seek to disqualify or prosecute the Director(s) in question.

County Court Judgement

When individuals or companies are taken to Court because they have not paid their debts, the resulting action taken by a Court could be a County Court Judgement (CCJ). The Court orders that the money owed is repaid within a specific timeframe. If the debt is not repaid within a set time frame the CCJ will be registered on a credit file that will make getting credit difficult. Further enforcement action, such as bailiff action can be taken by the debtor company if the debt is not repaid within a specified timeframe.

Companies House

Companies House are responsible for the records covering incorporation and dissolution of companies. Every UK Company is registered at Companies House, and the public is entitled to view the information held by them.

Charging Order

If a creditor has taken an individual or a company to Court for an outstanding debt, this may have resulted in a County Court Judgment (CCJ) or an equivalent Court order. If the debtor company is successful in securing such a Court order, the individual or a company are obliged to pay the debts owing over a set period.

If the terms of the Court order are not adhered to, the creditor has the option to take matters further to try and make you pay. One such action is a charging order. A charging order allows the debt to be secured against personal assets or home (in the event of personal debts) or company assets (in the event of company debts). This means an individual could lose their personal home, or a company could lose its assets, if payment is not made.

Credit Rating

A credit rating is an evaluation of an individual or companies’ ability to fulfil future financial commitments and is based on their earlier financial dealings with other companies and
Banks. A credit rating is a tool used by companies, banks and lending institutions that have been approached to supply credit or loans. A credit rating will affect how easy it is for an individual or a company to borrow money or obtain credit. It is calculated using a number of factors, including whether there are any CCJs or defaults on any of the debts.

Creditor

People or businesses that are owed an amount of money now, or that will be owed an amount of money at some future point due to an agreement that is already in force.

Creditor Petition

An individual or group of individuals that together are owed in excess of £750 are entitled to petition to bankrupt an individual. Bankruptcy proceedings take place at a local county court with bankruptcy jurisdiction.

Company Voluntary Arrangement

This is an option for Directors with a company that they believe is still viable. An agreement is drawn up with the company’s creditors to pay back some of the money they are owed on a monthly basis over a specified timeframe. The Directors remain in control during the CVA, and the company continues trading normally. At the end of the CVA period, any remaining debt is written off.

Company Voluntary Arrangement Moratorium

A CVA moratorium protects companies from any legal action being taken against them by creditors. This allows the company’s director’s time to prepare a CVA proposal and hold a creditor’s meeting so that creditors can vote to accept or decline the rescue plan.

A moratorium will only be granted if the company can prove that it has a realistic expectation of being able to put a CVA or other rescue package in place. The moratorium is intended to provide breathing space so the company can implement the rescue plan. This process is rarely used.

Creditors Voluntary Liquidation

When the company’s shareholders decide the company should be liquidated, an insolvency practitioner is appointed to complete the process. The company stops trading; its contracts are terminated, and its assets are sold.

D

Directors Disqualification

It is illegal for someone who has committed insolvency offences and been banned from being a company director by The Insolvency Service to be a company director.

Dissolution

If a company has ceased trading for three months or more, it can, if certain conditions are met, be dissolved. Dissolution will remove a company from the Companies House Register.

Distraint

Distraint is an action that can be referred to as “levying distress”. It is an action available to trade creditors, landlords, HMRC or local councils. Distraint gives creditors the right to have goods removed from a debtors business premises and sold at auction to the value of what is owed. The procedure that a creditor has to follow differs depending on the type of debt. For example, HMRC and landlords can distrain without a court order whereas a normal trade creditor would need to obtain a county court judgement in the first instance.

Department of Business and Innovation Skills

The DBIS (formally DTi) have the power to investigate offences that relate to business and company wrongdoing. Investigations are conducted against a company or people involved in the running of a company when the Insolvency Service or Companies House receive complaints. An interview under caution will usually form part of the investigation.

The DBIS has the power to escalate proceedings to the criminal court. In severe cases, a prison sentence and/or a financial penalty can be imposed. A director that has been convicted can
be banned from being a director or being involved in the management of the company for 3- 15 years.

Debtor

People or businesses that owe money for goods supplied or services provided.

Debtors Petition

An individual can declare themselves bankrupt by visiting their local county court and petitioning for bankruptcy.

Debt

Monies owed to an individual or company for goods or services provided.

Default Notice

Default notices are issued by creditors before they commence legal action. They give an individual or company seven days to pay the amount stated. If the amount is not paid, the creditor can take further legal action.

Director

A company’s Directors run the company on a day-to-day basis. The company’s management and control is their responsibility. Due to the company’s limited liability status, Directors will not be held personally liability provided they act professionally and have carried out their fiduciary duties under rules laid out in the Companies Act.

E

F

Floating Charge

A floating charge is typically secured on things that change on a regular basis, such as the raw materials or component stocks used by the borrower. These are consumed and replaced whenever necessary in day-to-day trading. Should the charge be crystallised as a result of the borrower’s failure to make a payment at the appropriate time. The items that are currently in stock or available at that point become subject to the charge. When that happens, the borrower cannot use the items in question without permission from the charge holder.

Factoring

Some financial institutions provide a factoring service. They pay companies for their unpaid sales invoices in advance of the company receiving payment and the factoring company then collects the debts on the company’s behalf. The factoring company takes a percentage of each debt as a fee for their service.

Fixed Charge

A fixed charge is a debt secured by an asset. Usually, this asset is property. While the fixed charge is attached to the asset, the borrower cannot dispose of the asset unless the lender’s permission has been obtained.

G

Going Concern

Going concern is a statement based on an assumption that is made regarding the viability of an ongoing business. Financial statements are prepared assuming that a business entity will continue to operate in the foreseeable future without the need or intention on the part of management to liquidate the business. It is assumed that the business will realize its assets and settle its obligations in the normal course of the business.

H

Her Majesty’s Revenue & Customs

The government department responsible for regulating and collecting customs duties and taxes such as VAT, National Insurance Contributions and Income Tax.

I

Income Payments Order

An agreement between a bankrupt and their trustee (Insolvency Practitioner). The bankrupt is ordered to pay a portion of their income to the trustee over a specified timeframe.

Insolvency Practitioner

Insolvency practitioners are usually accountants or solicitors who have been trained in, and specialise in insolvency. Insolvency practitioners have to be authorised and licensed by a recognised professional body. Our Insolvency practitioners are all licensed by the ICAEW.

Insolvent

When a company or individual is unable to repay their debts, as and when they fall due, or if their liabilities exceed the value of their assets, they are deemed to be insolvent.

Interim Order

An interim order protects a person who is proposing an Individual Voluntary Arrangement (IVA) from legal action by creditors. It allows time for an IVA proposal to be presented to creditors and a creditors meeting to be held.

J

Joint Liability

When there is more than one party that has entered into credit agreements, each party named in the agreement become liable for the whole amount in the event the debt is not paid. In joint mortgages, for instance, each mortgagee can be pursued individually for the full amount outstanding.

K

L

Legal Charge

A type of security for lenders. Legal charges are secured against assets or property.

Liabilities

Liabilities are the debts or obligations of companies and individuals. Examples of liabilities include mortgages, bank loans, credit cards and store cards.

Limited Company

A limited company is a company where the liability of directors and shareholders is limited to what has been guaranteed or invested into the company. The directors and shareholders of a limited company will not be liable for the debts of the company provided they have acted in a legal and professional manner and in the companys interests at all times.

Limited Liability

Provided company’s directors and shareholders have acted in a professional and legal manner; the responsibility for the debts of the company is limited to the paid-up value of the shares that they own. In other words, liability cannot exceed the amount that they agreed to pay for their shares in the company.

Liquidation

Liquidation is where a company ceases to trade, and its assets are sold. The proceeds are used to pay the costs of the Liquidation first with any remaining balance paid to creditors on a pro rata basis. If there is any money left after the creditors are repaid, the remaining funds are distributed among the company’s shareholders.

Liquidator

An Insolvency Practitioner appointed at a creditor’s meeting is referred to as a liquidator and is responsible for winding up the affairs and selling the assets of the company that has been liquidated.

M

N

National Insurance Contributions

A contributory system of insurance that protects people against illness and unemployment. It also provides retirement pensions and other benefits. It is managed by HMRC.

O

P

Personal Guarantee

A guarantee given by an individual such as a director or shareholder that money borrowed will be repaid personally in the event the company cannot pay. If the borrower does not make the repayments on time, the person who gave the guarantee can be called on to repay the outstanding debt. Independent legal advice should always be sought before signing a Personal Guarantee.

Public Limited Company

A public limited company is entitled to offer its shares for sale to the general public. It must have issued shares worth at least £50,000, and one- quarter of the face value of those shares must have been paid up.

Preferential Creditor

Preferential creditors are creditors of a company that are entitled to be repaid the money that they are owed prior to the unsecured creditors. If there is not enough money to pay all of the creditors, preferential creditors are more likely to be repaid first. Preferential creditors include employees and occupational pension schemes.

Proxy

Rather than attend a creditor’s meeting, a company or individual can vote by proxy. This is where creditors can vote by post or via a third party appointed by the creditor, who attends the meeting in their place and votes on their behalf.

Pay As You Earn

PAYE is an income tax deducted by employers from their employee’s payroll on behalf of the government.

Pension Fund

A fund that holds the contributions that have been paid by the employee and/or employer to provide a pension upon the employee’s retirement.

Q

R

Receivership

Receivers are Insolvency Practitioners appointed by lenders who have a charge or mortgage over the company’s assets. Generally, this would be a bank. The Receiver has the power to sell the company’s assets to recover the money that is owed to them.

Redundancy

Redundancy is one form of dismissal. It occurs when a company is closing some or all of its business down, and there are no longer jobs available for some or all of the employees.

S

Shareholder

Shareholders are the owners of limited companies. If the limited company is a quoted PLC, it is possible to trade its shares on the open market. Shareholders are entitled to vote on company matters, and they are entitled to a share of the company’s profits if it pays a dividend.

Statutory Demand

A statutory demand is a formal request for money by a creditor that is owed a minimum of £750. The demand can be served on a debtor as soon as the debt becomes overdue and can be done without a court order. The debtor has 21 days to pay or dispute the claim. If the demand is ignored or uncontested; the debtor is regarded as insolvent, and the creditor can take further action to collect the debt.

Statement of Affair

This details the company’s assets and liabilities when it is wound up, or enters into Liquidation, Receivership or Administration. The Statement of Affairs is prepared by the directors with the assistance of an Insolvency Practitioner.

Sole Trader

Sole traders are business owners trading with personal liability.

Supervisor

The Supervisor is an insolvency practitioner that is appointed to supervise a Voluntary Arrangement when an individual or company enter into such an arrangement. He or she ensures that the Individual Voluntary Arrangement IVA or company voluntary arrangement CVA contributions are made as and when they are due and deals with any problems that occur. If monthly contributions are not made, the voluntary arrangement will fail, and could result in compulsory liquidation (for a company) or bankruptcy (for an individual).

T

Trustee

The Trustee in Bankruptcy can be either the Official Receiver or an Insolvency Practitioner. The main objective of the Trustee is to take control of any assets, sell them and distribute the money raised to the creditors.

Turnover

The amount of money received by a company for the goods or services it supplies before any deductions are made for expenditure. It is important to note that the company’s turnover is not the same as its profits.

U

Unsecured Creditor

A creditor whose debt is not backed by security against assets.

V

Validation Order

If a bankruptcy or winding-up petition is issued to a debtor, it has the effect in practical terms of preventing the individual or company from disposing of any assets pending the Court hearing. Amongst other things it freezes all bank accounts. Permission to reactivate the bank account or dispose of an asset must be sought from the Court and backed up with reasons and confirmation that this will not be to the detriment of creditors. If agrees the Court will issue a Validation Order.

Value Added Tax

VAT is a duty that is levied on certain goods and services that are liable for this duty. Businesses must register for VAT if their taxable turnover exceeds a certain threshold set by the Government.

W

Winding Up Petition

If the borrower fails to repay a creditor, that creditor can if certain criteria are met, apply for a WUP to be heard. This can lead to the compulsory winding up of the company.

Wrongful Trading

Wrongful trading is a section under the Insolvency Act 1986 that can make company Directors personally responsible for liabilities where there is sufficient evidence that they intentionally traded the company at the detriment to Creditors.

X

Y

Z

Wilson Field give FREE Insolvency advice that you can trust!

R3: Association of Business Recovery ProfessionalsThe Institute of Chartered Accountants in England and WalesThe Turnaround Management Association (TMA)

After going through difficult times, we're very happy to be securing the loyal service of our staff through the help of Wilson Field

Geoff Bacon, Director Peak Toolmakers Limited on Oct 15, 2015