BRI Business Recovery and Insolvency - Glossary of Terms

An administration order is a court order placing a company that is, or is likely to become, insolvent under the control of an administrator following a petition by the company, its directors or a creditor. The purpose of the order is to preserve the company's business, allow a reorganisation or ensure the most advantageous realisation of its assets whilst protecting it from action by its creditors.

An insolvency practitioner appointed by the holder of a floating charge covering the whole, or substantially the whole, of a company's property. He can carry on the company's business and sell the business and other assets comprised in the charge to repay the secured and preferential creditors. Sometimes abbreviated to receiver.

The term applied when a person is appointed as an administrate receiver. Commonly abbreviated to receivership.

An insolvency practitioner appointed by the court under an administration order to achieve the purpose set out in the order. The administrator will need to produce a plan for approval by the creditors to achieve this.

Associates of individuals include family members, relatives, partners and their relatives, employees, employers, trustees in certain trust relationships, and companies which the individual controls. Associates of companies include other companies under common control.

Bankruptcy is the process of dealing with the estate of a bankruptcy.

Insurance cover needed by a person who acts as an insolvency practitioner.

Dismantling of a business. Trading ceases and the assets are sold off piecemeal. Insolvency practitioners prefer to sell as a going concern if possible.

The appropriation of real or personal property for the discharge of a debt without giving the creditor any property in, or possession of, the subject of the security.

Court order placing restrictions on the disposal of certain assets, such as property or securities, given after judgment and gives propriety of payment over other creditors.

Consolidation Act on the disqualification of directors.

A Voluntary arrangement for a company is a procedure whereby a plan of reorganisation or composition in satisfaction of its debts, is out forward to creditors and shareholders. There is limited involvement by the court and the scheme is under the control of a supervisor.

An agreement between a debtor and his creditors whereby the compounding creditors agree with the debtor and between themselves to accept from the debtor payment of less than the amounts due to them in full satisfaction of their claim.

A compulsory liquidation of a company is a liquidation ordered by the court. This is usually as a result of a petition presented to the court by a creditor and is the only method by which a creditor can bring about a liquidation of its debtor company.

A person, not necessarily a licensed insolvency practitioner , appointed to take charge of assts usually where they are subject to some legal dispute. Not strictly an insolvency process, the procedure may be used other than for a limited company, eg to settle a partnership dispute.

A creditors' committee is formed to represent the interests of all creditors in supervising the activities of an administrator or trustee in bankruptcy , or receiving reports from an administrative receiver.

Relates to an insolvent company. It is commenced by resolution of the shareholders, but is under the effective control of creditors, who can choose the liquidator.

A document stating the terms of a loan, usually to a company. Debentures may be secured on part or all of a company's assets, or they may be unsecured. Often also referred to as a floating charge , and the lender is often referred to as the debenture holder.

It is a criminal offence for an undischarged bankrupt to, amongst other things:-
* Act as a director or take part in the management of a limited company;
* Obtain credit of over £500 without disclosing his/her status;
* Trade in a name other than that under which he/she was made bankrupt;
* Hold certain public and other offices.

A director found to have conducted the affairs of an insolvent company in an "unfit" manner may be disqualified, on application to the court by the DTI, from holding any management position in a company for between 2 and 15 years.

An extortionate credit transaction is a transaction by which credit is provided on terms that are exorbitant or grossly unfair compared with the risk accepted by the creditor. Such a transaction may be challenging by an administrator, a liquidator or a trustee in bankruptcy.

A fixed charge is a form of security granted over specific assets, preventing the debtor dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim on the proceeds of sale, and the creditor can usually appoint a receiver to realise the assets in the event of default.

A floating charge is a form of security granted to a creditor over general assets of a company which may change from time to time in the normal course of business (eg stock). The company can continue to use the assets in its business until an event of default occurs and the charge crystallises. If this happens, the secured creditor can realise the assets to recover his debt, usually by appointing an administrative receiver, and obtain the net proceeds of sale subject to the prior claims of the preferential creditors.

Where a company has carried on business with intent to defraud creditors, or for any fraudulent purpose. It is a criminal offence and those involved can be made personally liable for the company's liabilities.

Basis on which insolvency practitioner prefer to sell a business. Effectively it means the business continues, jobs are saved, and a higher price is obtained.

A legal commitment to repay a debt if the original borrower fails to do so. Directors may give guarantees to banks in return for the bank giving finance to their companies.

Defined alternatively as having insufficient assets to meet all debts, or being unable to pay debts as and when they are due. If a creditor can establish either test, he will be able to present a winding-up petition against a company or a bankruptcy petition against an individual.

A company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of liquidation.

Person licensed by one of the chartered accountancy bodies, the Law Society, The Insolvency Practitioners Association or the Department of Trade. The only person who may act as an office holder in an insolvency procedure.

An individual who intends to propose a voluntary arrangement to his creditors may apply to the court for an interim order which, if granted precludes bankruptcy and other legal proceedings whilst the order is in force.

Governs transactions in law and property. Contains statutory powers of receivers appointed under a fixed charge.

Law of Property Act 1925 receiver: a person (not necessarily an insolvency practitioner ) appointed to take charge of a mortgaged property by a lender whose loan is in default, usually with a view to sale or to collect rental income for the lender. Common in the case of the failure of a property developer, whose borrowings will largely be secured on specific properties.

Right to retain possession of assets or documents until the settlement of a debt.

Liquidation is the process whereby a company has its assets realised and distributed to satisfy, insofar as it is able, its liabilities and to repay its shareholders. The term winding-up is also used. Liquidation is a terminal process and is followed by the dissolution of the company.

Insolvency practitioner appointed to wind-up a company.

A solvent liquidation where the shareholders appoint the liquidator to realise assets and settle all the company's debts in full within 12 months.

Breach of duty in relation to the funds or property of a company by its directors or managers.

Insolvency practitioner appointed to consider proposals of a debtor in an individual or company voluntary arrangement.

A liquidator, provisional liquidator, administrator, administrative receiver, supervisor of a voluntary arrangement, or trustee in bankruptcy.

Officer of the court, civil servant, member of the Department of Trade Insolvency Services, deals with bankruptcies and compulsory liquidations.

The term onerous property in the context of a liquidation or bankruptcy , applies to unprofitable contracts and to property that is unsaleable or not easily saleable or that might give rise to a continuing liability. Such property can be disclaimed by a liquidator or a trustee in bankruptcy.

A written application to the court for relief or remedy.

A payment or other transaction in the six month to two yeas period preceding a liquidation, administration or bankruptcy, which places a creditor or a person connected with the insolvent, respectively, in a better position than they would have been otherwise. A liquidator, administrator or trustee in bankruptcy may recover any sums which are found to be preferences.

Defined in Schedule 6 of The Insolvency Act 1986. Has priority when funds are distributed by a liquidator, administrative receiver or trustee in bankruptcy.

Document submitted by a creditor to the insolvency practitioner giving evidence of the amount of debt.

An insolvency practitioner appointed to safeguard a company's assets after presentation of a winding-up petition but before a winding-up order is made.

Document whereby a creditor authorises another person to represent him at a meeting of creditors. The proxy may be a general proxy, giving the proxyholder a discretion as to how he votes, or a special proxy requiring him to vote as directed by the creditor. A body corporate can only be represented by a proxy.

Person who attends a meeting on behalf of someone else.

Is often used to describe an administrative receiver, who may be appointed by a secured creditor holding a floating charge over a company's assets. More accurately, a receiver is the person appointed by a secured creditor holding a fixed charge over specific assets of a company in order to take control of those assets for the benefit of the secured creditor.

A provision under a contract for the supply of goods which purports to reserve ownership of the goods with the supplier until the goods have been paid for. A complex and continually evolving area of law.

A creditor with specific rights over some or all of his debtor's assets in the event of insolvency. In essence, he gets paid first.

A charge or mortgage over assets taken to secure payment of a debt. If the debt is not paid, the lender has a right to sell the charged assets. Security documents can be very complex. The commonest example is a mortgage over a property.

A formal notice requiring payment of a debt exceeding £750 within 21 days, in default of which bankruptcy or liquidation proceedings may be commenced without further notice.

The insolvency practitioner appointed by creditors to supervise the way in which an approved voluntary arrangement is put into effect.

A transaction at an undervalue can describe either a gift or a transaction in which the consideration received is significantly less than that given. In certain circumstances such a transaction can be challenged by an administrator, a liquidator or a trustee in bankruptcy.

A person to whom property is committed for the benefit or others, or one of a body of people who manage the affairs of the company.

Strictly, any creditor who does not hold security. More commonly used to refer to any ordinary creditor who has no preferential rights, although, in fact preferential creditors will almost always also be unsecured. In any event, the last in the queue, ahead only of shareholders.

See creditors' voluntary liquidation and members' voluntary liquidation.

See liquidation.

Applied to companies in liquidation where a director allowed the company to continue trading in circumstances where he should heave concluded that there was no reasonable prospects that the company would avoid going into insolvent liquidation. The directors involved may be made personally liable to make a contribution to the company's assets.