Glossary of Terms

Administration

A process which can be commenced by the directors, floating charge holders or companies by filing a "Notice of Appointment" at court, to appoint an administrator, without a court application and hearing.

Administrator

The licensed insolvency practitioner in office during administration.

Administrative Receiver

A licensed insolvency practitioner who is appointed by a secured lender under the terms of the lender's charge, to recover monies owed to the lend.

Administrative Receivership

The procedure by which a licensed insolvency practitioner takes control over the whole of a company's assets under the terms of a lender's floating charge.

Bond

The insurance cover needed by a licensed insolvency practitioner when appointed to deal with the insolvency of an individual or a company. The cost of the bond is payable from the estate. The bond may also be described as a specific penalty bond.

Compulsory Liquidation

This type of liquidation applies where a creditor or a director of the company has petitioned the court for the winding-up of the company.

Company Directors' Disqualification Act 1986

An act which sets out the circumstances in which a person may be disqualified from acting as a director of a company and the duration of the disqualification.

Company Voluntary Arrangement (CVA)

A legally binding agreement between a company and its creditors to repay some or all of its debt over a period of time.

Creditor

Any person, or corporation or business to whom the company owes money.

Creditors' Meeting (all types)

A meeting of creditors called to appoint a licensed insolvency practitioner as either, liquidator of a limited company or trustee in Sequestration over an individual.

Other types of creditors' meetings:

In a Receivership, the creditors will be presented with a report prepared by the receivers, which will give an overview of their involvement since their appointment. The report will contain details of the company's current financial situation and an estimate of likely dividend available for creditors, wherever possible.

Company Voluntary Arrangements (CVA's): A creditors' meeting is called to enable creditors to vote for or against the company's proposals with or without modifications.

Winding up by Court (WUC) Same as CVL except that directors will not be present. However, Interim Liquidator will give creditors copy of report he has prepared, detailing the assets and liabilities of the company.

Administration: At these meetings creditors will receive a full report of involvement of the administrator(s) since his appointment. They will also be asked to vote on proposals to decide on the exit route for the company in administration.

Creditors Voluntary Liquidation (CVL)

A CVL is a liquidation where the directors/shareholders of the company decide that the company can no longer continue to trade due to its insolvent position and take steps to consult with a licensed insolvency practitioner to convene a meeting of the company's creditors. The creditors decide who will be appointed as liquidator on the day of the creditors meeting.

Debtor

Any person who owes money to another

Declaration of solvency

A directors' sworn statement of affairs required in a member's voluntary liquidation to demonstrate that the company is solvent.

Debenture

A document granting security over a company's assets in exchange for borrowing. The term is used to describe a document which would contain a fixed charge as well as a floating charge.

Disqualification

A director of a limited company can be disqualified if, during his term of office, a liquidator establishes sufficient evidence of "unfit" conduct. The Department of Trade and Industry (DTI) make the decision based on the information provided by the liquidator.

Dissolution

A company is dissolved when it is removed from the register at Companies House.

Dividend

A distribution to creditors or shareholders by a licensed insolvency practitioner.

Fixed Charge

Security granted by a company charging a particular asset (e.g. land and buildings) in exchange for borrowing. The borrower's power to deal with the asset concerned is restricted.

Floating Charge

Security granted to a lender by a company, charging general assets in exchange for borrowing.

Fraudulent Trading

Running a company with intent to defraud creditors.

Insolvency Act 1986

Primary Insolvency Legislation in the United Kingdom

Insolvency Practitioner

A person licensed by his/her recognised professional body to act in accordance with Insolvency law in acting as office holder in formal insolvency procedure.

Lien

A right of an individual or corporate body to keep possession of assets or documents belonging to another individual or corporate until settlement of an outstanding debt.

Liquidation

A process which involves the winding up of a company's life, the disposal of its assets and the distribution of the proceeds to the company's creditors.

Liquidation Committee

A number of persons (between 3-5) appointed to assist the Liquidator during the course of an insolvent liquidation.

Liquidator

A Licensed Insolvency Practitioner who is office holder in any type of liquidation.

Members Voluntary Liquidation

The company is solvent but the directors/shareholders take the decision to issue a declaration and proceed to liquidate the company to pay every class of creditor in full and return any surplus to shareholders.

Misfeasance

Breach of duty by a company's directors in respect of their dealings with company funds or property.

Moratorium

An informal arrangement with a company's creditors to spread repayment of their debts over an agreed period of time.

Accountant in Bankruptcy

A civil servant employed by the Scottish Executive who is responsible for many aspects of personal insolvency and also has a role in recording information regarding Liquidation.

Petition

A method used by creditors, individuals or directors to commence proceedings to wind up a company (Compulsory Liquidation - Winding up by the Court).

Preference

Any type of transaction carried out by a company's directors intended to favour one creditor over another.

Preferential Creditor

A creditor with special rights who is paid ahead of unsecured creditors. The best example of this would be employees, who rank ahead of unsecured creditors for arrears of pay, accrued holiday pay and pension contributions in certain circumstances.

Prescribed Part

A part of the floating charge assets which are set aside for unsecured creditors. (See Enterprise Act 2002 for further details)

Proof of Debt

A form which gives details of what is owed to a creditor or individual and should be completed and signed for submission with a proxy form.

Proxy Form

A form giving a creditor the right to vote at a creditor's meeting.

Reservation of Title

A clause used in a contract by a seller on a buyer laying claim to the goods until such time as they are paid for.

Secured Creditor

A creditor who holds security over the company's assets, e.g. a bank, or other financial institution. This class of creditor is paid before ordinary creditors.

Shadow Director

A person who, in all but name, is running the day to day business of a company and upon whose instructions, the directors of a company are used to acting.

Statement of Affairs

A sworn document detailing a company's assets and liabilities.

Summons

Order to appear or to produce evidence to a Court. Also, the old name for a claim for

Statutory Demand

A document issued by someone who is owed monies. The company receiving it has 21 days in which to respond. You should take it seriously and contact the company to discuss your situation with them. Likewise if your company is issuing a statutory demand against another company, make sure that the debt is due and owing to your company at the time of issue. If you are the creditor and have not received any communication within the 21 day period, your company may proceed to petition for the compulsory winding up of a company. If you are the debtor and intend to defend the statutory demand, you must lodge a defense in Court within 18 days of receiving the demand.

Transaction at Undervalue

Selling off company assets or any other transaction which occurs at less than market or fair and just value.

Unsecured creditor

Any creditor who does not hold security (bank or other financial institution or private investor). This class of creditor will rank last of all in cases where a dividend is likely to be paid out of liquidation.

Winding Up

A process involving the issue of a petition through the court to wind-up a company. The company is then placed into compulsory liquidation

Writ

Writ issued by the court directing a sheriff to levy execution upon a debtor's goods.

Wrongful Trading

A civil action, in terms of the Insolvency Act 1986, brought against directors of companies who have failed to take the necessary steps to minimise losses to creditors when the company is insolvent.