Insolvency in Brief PDF

# Insolvency in Brief ## Business Recovery Services A guide to insolvency terminology and procedure ## Frequently Asked Questions - **What is insolvency?** Insolvency arises when individuals or businesses have insufficient assets to cover their debts, or are unable to pay their debts when they...

# Insolvency in Brief ## Business Recovery Services A guide to insolvency terminology and procedure ## Frequently Asked Questions - **What is insolvency?** Insolvency arises when individuals or businesses have insufficient assets to cover their debts, or are unable to pay their debts when they are supposed to. - **What is bankruptcy?** In England and Wales, the term is used for the formal procedure for individuals (not companies) who are declared by the court to be insolvent. Insolvent individuals can sometimes avoid bankruptcy by means of an individual voluntary arrangement (IVA) or a debt relief order (DRO). - **Do insolvency processes differ significantly throughout Europe?** Each country has its own law for insolvency procedures, and there are significant differences in the opening of proceedings, who controls the proceedings, the flexibility and nature of proceedings, the priority of different classes of creditor, and the rights of other stakeholders, such as employees, pension funds and regulators. These can make a significant difference to the prospects of saving the business or the return obtained by creditors. ## Corporate Insolvency - **What is corporate insolvency?** A company becomes insolvent if it does not have enough assets to cover its debts and/or it cannot pay its debts on the due dates. - **What procedures are open to an insolvent company?** These fall into five main categories: - **Administrations** - **Company Voluntary Arrangements (CVAs)** - **Administrative Receiverships** - **Compulsory Liquidations** - **Creditors' Voluntary Liquidations (CVLs)** - **What insolvency procedures are best to enforce debt recovery?** A creditor has a limited range of insolvency tools to enforce recovery—comprising court action against a debtor's assets and/or liquidation of the company or bankruptcy of the individual. In many cases, this action can be counterproductive by forcing a business to cease trading and depressing the realisable value of the assets. - **How does rescuing the company differ from rescuing the business?** A rescue of the company through an insolvency process may happen through a CVA, which is often preceded by an administration in order to protect the company while the rescue takes place. The CVA will usually involve creditors writing off part of their debt in order to restore the company to solvency, which in turn preserves some value for the shareholders and enables control to be handed back to the directors. - **How do I find out when a company, partnership or individual has become insolvent?** With the exception of voluntary arrangements and receiverships, all insolvency procedures or appointments are advertised in the London Gazette, a daily publication covering statutory notices of many kinds. In Scotland, the advertisements are in the Edinburgh Gazette, which is published twice weekly. The Companies House register will show details of the insolvency process a company has entered into and the name and address of the insolvency practitioner involved. ## Administrations and Administrative Receiverships - **What is an administration?** The administration procedure, first introduced in the Insolvency Act 1986 and substantially revised by the Enterprise Act 2002, is designed to hold a business together while plans are formed either to put in place a financial restructuring to rescue the company, or to sell the business and assets to produce a better result for creditors than a liquidation. Administration can also now be used where neither of these objectives can be achieved, simply as a mechanism to liquidate assets and distribute the proceeds to secured or preferential creditors, but this is not the primary purpose of administration. - **Who appoints an administrator?** A company can go into administration in a number of ways. The company, directors, or one or more secured or unsecured creditors, can make an application to the court for an administration. The court requires evidence that the company is insolvent (unless the application is by a floating chargeholder) together with a statement from the intended administrator, who must be an insolvency practitioner, that the purpose of administration is likely to be achieved. Alternatively, the directors or a floating chargeholder can appoint their own administrator without a court hearing, simply by filing papers at court which are not subject to judicial scrutiny. - **What happens after the appointment of administrators?** The administrators, who will be insolvency practitioners, take over the day to day control and management of the company. - **What happens to the company at the end of an administration?** The administrator is able to have the company dissolved if all assets worth realizing have been realized and distributed to creditors. - **What is an administrative receivership?** An administrative receiver is appointed under a charge which covers the whole or substantially the whole of the company’s assets, including its goodwill. - **Who appoints an administrative receiver?** Only a floating chargeholder can appoint an administrative receiver. - **If a bank wishes to appoint receivers, how quickly does this happen?** When the end of the line is reached, receivership can normally be brought about in a matter of hours. - **What happens to the company at the end of a receivership?** At the end of a receivership, if the assets realized are insufficient to pay the chargeholder in full, there will be no money available for unsecured creditors. ## Voluntary Arrangements - **My customer has asked for a Voluntary Arrangement (VA) — what does this mean?** A voluntary arrangement (VA) is an insolvency procedure. It is a renegotiation, by a company (CVA), partnership (PVA) or individual (IVA), of the payments due to all of their creditors, or some other form of financial restructuring, and is subject to a creditors’ meeting and vote. - **What is a Company Voluntary Arrangement (CVA)?** A CVA is effectively a “deal” between a company and its creditors for repaying in full, or in part, the liabilities of that company. - **When is a CVA used?** A CVA can be used in a number of situations, namely: - to rescue a company as a going concern - to effect an orderly wind-down of a company (without the company first being put into liquidation) - following on from an administration - **How does it differ from an administration or receivership?** A CVA can be very flexible. - **What types of CVA are there?** There are three main types of CVA: - Rescue of a company as a going concern. - Effect an orderly wind-down of a company (without the company first being put into liquidation). - Following an administration. - **What is the effect of a CVA?** If approved, a CVA binds all creditors of the company, whether or not they actually decided to vote or attend the meeting. - **What is the role of an Insolvency Practitioner (IP) in a CVA?** A CVA must be supervised by a licensed IP, who acts as nominee pending the approval of the CVA and usually becomes the supervisor once it comes into effect. - **What is a Partnership Voluntary Arrangement (PVA)?** PVAs are modelled on the CVA procedure and give a business partnership the opportunity to resolve its financial difficulties with creditors' support. - **What is the effect of a PVA?** Once a PVA is approved by creditors, it binds all creditors, whether or not they voted or attended the creditors’ meeting. ## Pre-Packaged Administrations (Pre-Packs) - **What is a pre-pack?** A pre-pack is a deal to sell the assets of a failed company, agreed prior to insolvency, which completed almost immediately after the appointment of administrators (or occasionally receivers.) - **Why do a pre-pack?** A pre-pack can be the best means of preserving value for the business, creditors and shareholders. - **How does a pre-pack work?** In a pre-pack situation, the IP and his firm are engaged by the company or its stakeholders for a number of weeks prior to the sale taking place. ## CVA vs Pre-Pack - **What is the principal difference between a CVA and a pre-pack?** A pre-pack transfers ownership of the business and assets to a new corporate entity, usually leaving the liabilities behind, whereas a CVA can enable a company to be kept intact and continue to trade, often under its existing management, which is sometimes a good thing, sometimes not. - **Why do we hear more about pre-packs than CVAs?** CVAs are not advertised, and as all creditors are involved in the process, they feel more engaged than they might in a pre-pack where the business is perceived as being sold “behind closed doors”. - **Is there any merit in the common perception that CVAs often do not succeed?** Generally, where a CVA is proposed to preserve a company as a going concern, management’s proposal is based upon making contributions to the CVA. - **Why would management choose a CVA over a pre-pack?** CVAs are largely proposed by owner-managed businesses, where owner-managers are seeking a second chance to restructure the business, which is suffering from genuine financial difficulties which can be overcome in the future. - **Why may an unsecured creditor support a CVA?** In a pre-pack, the return to creditors is likely to be lower than in a CVA. Unsecured trade creditors may also choose to benefit from future revenues if they support the company, and a CVA proposal can often enhance relationships between a company and its suppliers where suppliers have offered support for the survival of the company. - **Why may secured creditors support a CVA?** Again, in a CVA, the secured creditor(s) may receive a higher return than in a pre-pack. - **If a CVA is proposed and is not agreed by creditors, can the company still be sold through a pre-pack?** It is possible that if a CVA is proposed and not approved, the business can be sold through a pre-pack. - **What generally prevents management from proposing a CVA in every situation as opposed to a pre-pack?** The main issues that prevent a company proposing a CVA are timescale and future viability. ## Liquidations - **What is a liquidation?** As the word suggests, liquidation means turning a company’s assets into cash and then distributing this to the creditors. - **What happens if a CVA fails?** It is usually a standard term of the arrangement that the company is immediately placed into liquidation if the CVA fails. - **Who appoints liquidators?** In a creditors' voluntary liquidation (CVL), the shareholders (referred to as the members) pass a shareholders' resolution (75% majority required) to wind up the company and appoint a liquidator who must be a licensed insolvency practitioner. ## Creditors’ Recovery - **Is it worth attending a creditors’ meeting?** A creditors’ meeting can be a useful forum to learn about the reasons for an insolvency and pass on information to the appointed practitioner that can be useful in guiding his approach. - **What is a proxy and how does it work?** A proxy is a formal instruction to an individual (who may be the chairman of the meeting or anybody else) to vote on behalf of the creditor at a meeting. - **What is the pecking order for assets?** Any individual or organisation holding a fixed charge over a company’s assets is paid first out of the sale proceeds of those assets (after the costs of realisation). - **When a company is insolvent, how much return creditors likely to get?** There is no magic formula – every case varies. However, creditors will usually get a better return in cases where the directors recognised the problem at an early stage and took appropriate steps to minimise the losses to creditors. - **How long is it before creditors see a return or turnaround?** This can vary from a few months to several years. - **Are shareholders likely to see a return?** Unless there is a rescue of the company or it is a solvent liquidation, shareholders will not usually see any return on their investment. ## Insolvency Practitioners - **What are the duties of an insolvency practitioner (IP)?** In simple terms, an IP answers to the creditor(s). - **Who pays the IP?** The IP is paid from the company’s or individual’s assets. ## Employees and Directors of an Insolvent Company - **What happens to the employees of an insolvent company?** The fate of the employees is largely determined by the type of procedure which is used for the insolvent company. - **If an insolvent company is closing down, do the employees get any redundancy money?** Yes. - **What happens to the directors of an insolvent company?** Very little happens by way of an automatic process—much depends on the type of insolvency. - **Does the conduct of directors automatically get investigated?** In all cases other than voluntary arrangements and solvent liquidations, the insolvency practitioner has a duty to report to BIS on the conduct of each director to help them determine whether disqualification proceedings should be started. - **Can the insolvency practitioner disqualify a director?** No. This is a matter for the Secretary of State to take up. - **Why don't insolvency practitioners spend more time investigating the conduct of directors?** Often they do, but there are several reasons why they may not investigate further. - **Why aren’t all directors of insolvent companies disqualified?** The fact that they have been a director of an insolvent company does not, in itself, make them unfit to act as directors. - **What is wrongful trading?** In short, continuing to trade, and causing avoidable losses to creditors, after the point at which the insolvent liquidation of the company becomes inevitable. ## Cross-Border Insolvency - **A French liquidator is dealing with the assets of my UK customer - is this allowed?** Under the European Regulation on Insolvency Proceedings (ERIP) there is a co-ordination of insolvency proceedings around Europe. - **Can an overseas company be subject to a UK insolvency proceeding?** In May 2002, ERIP came into effect in every European Union country (apart from Denmark). - **What are the insolvency processes in France, Germany and Spain?** ### France - **Safeguard (Sauvegarde)** is a procedure available to companies which are solvent on a cash flow basis, enabling the restructuring of the business as a preventative measure; this was most famously used in the restructuring of Eurotunnel. - **Rehabilitation proceedings are available to an insolvent company provided its rescue appears possible.** The aims of rehabilitation in order of priority are first to save a company’s activities; secondly to protect jobs; and thirdly to pay creditors. - **The most common procedure in France, however, is judicial liquidation.** This is controlled by the court and run by a court-appointed liquidator, who may continue to trade and sell the business as a going concern, or liquidate the assets. ### Germany - There is a unified insolvency procedure in Germany. - Directors must file in court within three weeks of a company becoming illiquid (or over indebted – but this requirement is temporarily suspended until January 2011) – these strict rules mean that Germany has a much higher rate of company failure than other European states. ### Spain - There is one type of insolvency proceeding (concurso) which can end in either a composition or liquidation. ## Pension Fund Deficits - **What is the pension scheme creditor?** In the UK any defined benefit pension scheme (i.e., one that pays a defined level of benefits which have been promised to members) will usually need to be considered as being a potential creditor of its sponsoring employer. - **What is the Pensions Regulator?** The Pensions Regulator was created by the Pensions Act 2004; the Regulator’s role is to protect pension schemes and the Pension Protection Fund. - **What is the Pension Protection Fund (PPF)?** In brief, the PPF’s main function is to provide compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension scheme to cover the PPF level of compensation. - **What if a company can no longer meet its pension obligations?** There are several options open to a company which is struggling to meet its obligations to make deficit payments to its defined benefit pension scheme. - **How can companies renegotiate scheme funding?** The Regulator has encouraged defined benefit pension scheme trustees to be flexible with employers during the downturn, and take into account the level of deficit payments that can be afforded when negotiating on scheme funding. ## Schemes of Arrangement - **What is a Scheme of Arrangement (Scheme)?** Essentially a Scheme is a compromise or arrangement under Part 26 of the Companies Act 2006 between a company and its creditors (one or more classes of them), which becomes legally binding on all creditors (or the relevant class or classes) if the necessary majority of creditors vote in favour and the Court approves it. - **When might a Scheme be suitable?** A Scheme can be applied to solvent and insolvent entities where there is a need to formalise a compromise with creditors. ## Personal Insolvency - Bankruptcy - **Who decides that an individual is bankrupt?** In England and Wales, the courts are officially responsible for making a bankruptcy order against an individual. - **What happens when an individual is made bankrupt?** When an individual is declared bankrupt by the court in England and Wales, all his assets come under the control of the Official Receiver. - **Once someone is bankrupt, are they deemed to be so for life?** In England and Wales, a bankrupt will normally be discharged within 12 months of the bankruptcy order and any unpaid balance of debts is then written off. - **What is an IVA?** In England and Wales, any person owing money, whether or not he is bankrupt, can put forward a scheme to his creditors to pay off all or part of his debts. - **What is the role of an insolvency practitioner in an Individual Voluntary Arrangement (IVA)?** If someone wishes to make an offer to his creditors by means of an IVA, he needs to contact an insolvency practitioner (IP). - **What is a Debt Relief Order (DRO)?** DROs came into force in England and Wales on 6 April 2009, and are designed to be an individual insolvency solution aimed at debtors who have relatively low liabilities (not exceeding £15,000), no real assets (not exceeding £300), and little or no disposable income (not exceeding £50 per month) with which to make contributions to creditors. - **How is a DRO different to bankruptcy ?** DROs are not available for individuals who have an interest in a property, even if that property is in negative equity. - **So what are the implications for creditors of a DRO?** By definition, the vast majority of individuals who enter into a DRO are unable to repay their debts in the short term. - **Does a DRO apply in Scotland?** In Scotland, debtors who meet prescribed criteria may be in a position to make an application for their own sequestration to the Accountant in Bankruptcy where they do not own any land or property, and their assets and income. ## Glossary of Insolvency Terms - **Accountant in Bankruptcy. (AiB)** An Agency of the Scottish Government responsible for administering the process of personal bankruptcy and recording corporate insolvencies in Scotland. Can act as trustee in sequestrations. - **Administration.** (1) One of the main corporate insolvency procedures. It can be a precursor to a company voluntary arrangement (CVA) or scheme of arrangement under which the company is restructured and passed back to its directors. - **Administrative receiver. (In Scotland simply ‘a receiver’.)** Insolvency practitioner appointed in an administrative receivership. - **Administrative receivership** (Usually contracted to ‘receivership’) - **Administrator.** Insolvency practitioner appointed in an administration. - **Agricultural receivership.** A specialist remedy to take control of the assets of a farmer under the Agricultural Credits Act 1928. - **Bankruptcy.** Formal insolvency procedure for individuals. - **Bankruptcy Restriction Order (BRO).** An order of court following an application by the Official Receiver, or the Accountant in Bankruptcy in Scotland, extending the restrictions of bankruptcy for a period of between two and fifteen years. - **Bond.** Insurance cover needed by a person who acts as an insolvency practitioner. - **Bond and floating charge.** Scottish equivalent of a debenture. - **Break-up sale.** Dismantling of a business. Trading ceases and the assets are sold off piecemeal. - **Charge.** A security over the assets of a borrower. - **Centre of main interests (COMI).** Defined by the European Regulation on Insolvency Proceedings (‘ERIP’) as the place where the debtor conducts the administration of his interests on a regular basis. The presumption is that this is in the same country as the debtor’s registered office but this is not necessarily the case. - **Commissioner** A creditor’s representative, appointed in a sequestration in Scotland, to work with the insolvency practitioner, in similar fashion to a committee. - **Committee.** Known as the creditors’ committee or, in liquidations only, the liquidation committee. - **Company voluntary arrangement (CVA).** A proposal by the directors for payment in full or in part of their company’s debts. - **Compulsory liquidation.** A liquidation brought about by order of court, usually because an unpaid creditor petitions the court, having exhausted all other remedies. - **Creditor.** Person owed money. - **Creditors’ committee.** See Committee. - **Creditors’ meeting.** A meeting of creditors, often convened with the primary purpose of deciding which insolvency practitioner is to be appointed to deal with a case (e.g., liquidations and bankruptcies), or to consider proposals (e.g., administration and voluntary arrangements). - **Creditors’ voluntary liquidation (CVL).** Winding-up of an insolvent company, brought, about by a resolution of shareholders. - **Crystallisation.** The process whereby a floating charge attaches to the assets subject to the charge, thus becoming a fixed charge on those assets. - **Debenture.** This term has no precise meaning. One definition is a document acknowledging a debt, usually issued by a company. - **Debt Relief Order (DRO).** An individual insolvency solution introduced in April 2009, in England and Wales, aimed at debtors who have relatively low liabilities (not exceeding £15,000), no real assets (not exceeding £300), and little or no disposable income (not exceeding £50 per month) with which to make contributions to creditors. - **Deed of arrangement.** An archaic method governed by the Deeds of Arrangement Act 1914 for an individual (not a company) to come to terms with creditors short of formal bankruptcy. Now effectively replaced by individual voluntary arrangements. - **De facto director.** Individual who acts as, or holds himself out to be, a director of the company, even though he has not been appointed by the board and is not recorded at Companies House as a legal director. - **Discharge.** The release from liability, granted, to a bankrupt, usually within 12 months from, the date of the bankruptcy order in England and Wales, or at the end of the 12 month period in Scotland. It does not return assets to a bankrupt, unless they are acquired after the date of discharge. - **Disqualification.** On application to the court by the Department for Business Innovation and Skills (BIS), a director found guilty of ‘unfit’ conduct may be disqualified from holding any management position in a company for between two and 15 years. - **Dividend in insolvencies.** Distribution of funds to creditors in an administration, liquidation, bankruptcy, CVA or IVA. - **Enterprise Act 2002.** Legislation intended to facilitate company rescue and the swift rehabilitation of debtors. - **ERIP** The European Regulation on Insolvency Proceedings applies to all companies whose centre of main interests (CoMI) is in the EU (other than Denmark). - **Financial Services Compensation Scheme.** A statutory compensation scheme, accountable to the Financial Services Authority (FSA), to provide compensation within specified limits to consumers (mainly private individuals but also small businesses) if an authorised insurance company, deposit-taker or investment business is unable or likely to be unable to pay claims against it. - **Fixed charge.** Security over specific assets such as goodwill, property or shares. - **Fixed charge receiver.** A receiver, who need not be an insolvency practitioner, appointed by the holder of a fixed charge to realise the charged asset. - **Floating charge.** An equitable charge on property that may change from time to time in the ordinary course of business (for example, stock). - **Fraudulent trading.** A more, severe test than wrongful trading. In that it must be demonstrated that the director intended to cause losses to creditors. - **Going concern.** Basis on which insolvency practitioners prefer to sell a business. - **Guarantee.** A legal commitment to repay a debt if the original borrower, fails to do so. - **Individual voluntary arrangement, (IVA).** A proposal of settlement of all or part of an insolvent individual’s debts. - **Insolvency.** Defined alternatively as having insufficient assets to meet all debts, or being unable to pay debts as and when they fall due. - **Insolvency practitioner (IP).** A person, authorised (‘licensed’) by one of the recognised professional bodies, to act in insolvency matters, including the winding-up of a solvent company. - **Insolvent Partnerships Order 1994 (IPO 94).** Secondary legislation specific to partnerships in England and Wales. - **Intensive care.** Insolvency practitioners are often appointed, either by companies or lenders, to assist a company outside any formal procedures in the hope of rescuing the company or business and avoiding insolvency. - **Interim liquidator.** A licensed IP appointed on the granting of a winding-up order in Scotland. - **Interim order.** The first stage of an individual voluntary arrangement, a court order protecting a debtor from any creditors' remedies while arrangements are being made to put a voluntary arrangement in place. - **Joint estate.** The partnership property of an insolvent partnership in England and Wales. - **Judgment.** (1) Recognition of a debt by a court. (2) Decision given by a court, at the, conclusion of a trial. - **Judicial factory.** Little-used Scottish procedure for winding up estates, whether solvent or insolvent. - **Liquidation.** Process which eventually brings a company’s existence to an end after distributing its assets to creditors/shareholders. - **Liquidator.** The Official Receiver, or a licensed IP appointed to wind up the affairs of a company. - **LILA sequestration.** Low income, low asset sequestration. - **LPA receiver (Law of Property Act 1925’ receiver).** A, person, not necessarily, an IP, appointed, to take, charge, of a mortgaged property, or other asset, by a lender whose loan, is in default. - **Main proceedings.** A term introduced by ERIP for an insolvency proceeding carried out in the country of a company’s CoMI. - **Member.** (1) In, relation to an, insolvent company, a member is, a shareholder, or subscriber. - **Members’ voluntary liquidation (or solvent liquidation).** Winding-up of a company which is able to pay its debts in full, together with interest. - **Misfeasance.** Breach of duty in relation to the funds or property of a company by its directors or managers. - **Moratorium.** A suspension of creditors’ legal rights to take action against, a company, or individual. - **Nominee.** Title given to an IP acting in a voluntary arrangement, prior to the creditors approving (or rejecting) the scheme. - **Official Receiver.** A civil servant, and also a court officer, attached to the Insolvency Service (an executive agency of BIS). - **Partnership voluntary arrangement (PVA).** A scheme of arrangement or composition in satisfaction of the debts of a partnership in England and Wales. - **Pensions Act 1995, section 75.** Provision requiring the scheme’s liabilities to be valued as the cost of securing all the members’ benefits on an insurance company annuity basis; this, will normally give rise to a higher deficit than on an ongoing funding basis. - **Pension Protection Fund (PPF).** Provides compensation to members of eligible defined benefit pension schemes where there is a qualifying insolvency event, in relation, to the employer. - **Pensions Regulator**. Created by the Pensions Act 2004, its role is to protect pension schemes and the Pension Protection Fund. - **Pension scheme creditor.** Any defined benefit pension scheme will usually need to be considered as being a potential creditor of its sponsoring scheme, in the event, the employer enters insolvency. - **Petition.** A document presented to the court to request the commencement of compulsory liquidation or bankruptcy. - **Preference.** Commonly, when an insolvent individual or business has deliberately chosen to make sure that some creditors are paid to the disadvantage of everyone. - **Preferential creditor.** Creditor given special rights as a matter of public policy, to be paid ahead of the ordinary creditors. - **Pre-packaged administration.** A deal to sell the assets of a failed company, agreed prior to insolvency, and then completed almost immediately after the appointment of administrators (or occasionally receivers). - **Prescribed part.** Introduced by the Enterprise Act 2002, this is an amount set aside out of floating charge assets, to be made available to unsecured creditors. - **Protected Trust Deed.** A trust deed that has complied with the conditions set out in Regulations 4 to 10 of the Protected Trust Deeds (Scotland) Regulations 2008. - **Provisional liquidator.** In England and Wales, on rare occasions, an IP or the Official Receiver may be appointed between the presentation of a winding-up petition and the court hearing. - **Proxy.** Document by which a creditor authorises another person to represent him at a creditors’ meeting. - **Proxyholder.** Person holding a proxy given by a creditor. - **R3.** The Association of Business Recovery Professionals is better known as, R3 (standing for Rescue, Recovery, and Renewal), It provides a network for insolvency professionals, represents the views of its members to government and the media, and provides information to members, on insolvency technical and legal issues. - **Receiver/receivership.** See administrative receiver/receivership. - **Reservation of title (or retention of title).** Complex area of law whereby suppliers of goods try to frame their terms of business so as to retain ownership of the goods, and give them a right to recover them, if they are not paid for. - **Scheme of arrangement (Scheme).** A, compromise or arrangement between a company and its creditors, or any class of creditors, or its members, carried out, under Part 26 of the Companies Act 2006. - **Secured creditor.** A creditor with security over some or all of the debtor’s assets. In essence, he is paid before ordinary creditors. - **Security.** A charge (which may be a fixed charge or a floating charge) or mortgage, over assets, taken to secure repayment of a debt. - **Sequestration.** Scottish word, used, for a personal bankruptcy under the Bankruptcy (Scotland) Act 1985. - **Shadow director.** A person who, although not a director of a company, gives, directions or instructions which the directors are accustomed to following. - **Small company.** A small company for the purposes of establishing entitlement, to a moratorium, prior to seeking a CVA, is a company which has two of the following: - **Solvent liquidation.** See Members’ voluntary liquidation. - **Statutory demand.** A formal notice requiring payment of a debt within 21 days, in default of which bankruptcy proceedings may be commenced against an individual by a creditor without further notice in England and Wales. - **Supervisor.** Title given to an IP appointed in a voluntary arrangement, whether for an individual or for a company or partnership. - **Trust deed.** An extra-judicial arrangement between a debtor and his creditors in Scotland whereby the debtor conveys (transfers effective title to) his assets to a trustee (who, must be a licensed, IP) for realisation and distribution to creditors. - **Trustee.** Quite apart from its common usage, (e.g, under the Trustee Act 1925), this is the term used for a variety of insolvency appointments, including the IP appointed in an English bankruptcy; a Scottish, sequestration; a deed of arrangement; a Scottish trust deed and an, administration, order, in respect of the affairs of a deceased debtor. - **TUPE Regulations.** The abbreviated term for the Transfer of Undertakings (Protection of Employment) Regulations 2006 (or the previous 1981 Regulations), under which employees of a company, at the time of a business sale, have their employment contracts automatically transferred to the purchaser. - **Unsecured creditor.** 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 invariably will also be unsecured. - **Voluntary Arrangement (VAs).** A voluntary arrangement (VA), is an insolvency procedure. - **Voluntary liquidation.** A liquidation initiated, by the company, not one imposed by the court. - **VAT bad debt relief.** The relief obtained in respect of the VAT element of an unpaid debt. - **Winding-up order.** Order made by the court, for a company to be placed, into compulsory liquidation. - **Wrongful trading.** When a company continues, to trade beyond the point where insolvent liquidation becomes inevitable and further losses to creditors occur after that point. - **Insolvency** Defined alternatively as having insufficient assets to meet all debts, or being unable to pay debts as and when they fall due. - **Insolvency Act 1986.** Primary legislation governing insolvency law and practice. - **Insolvency Act 2000.** The Act which introduced special moratorium arrangements for small companies whilst steps are taken to put in place a CVA. - **Insolvency practitioner (IP).** A person authorised (‘licensed’) by one of the recognised professional bodies to act in insolvency matters, including the winding-up of a solvent company. - **Insolvent Partnerships Order 1994 (IPO 94).** Secondary legislation specific to partnerships, in England and Wales. - **Intensive care.** Insolvency practitioners, are often appointed, either by companies, or lenders, to assist a company outside any formal procedures in the hope of rescuing the company or business, and avoiding insolvency. - **Interim liquidator.** A licensed IP appointed on the granting of a winding-up order in Scotland. - **Interim order.** The first stage of an individual voluntary arrangement, a court order protecting a debtor from any creditors' remedies while arrangements are being made, to put a voluntary arrangement in place. - **Joint estate.** The partnership property of an insolvent partnership, in England and Wales. - **Judgment.** (1) Recognition, of, a debt, by a court. (2) Decision given by a court, at the conclusion of a trial. - **Judicial factory.** Little-used Scottish procedure for winding up estates, whether solvent or insolvent. - **Liquidation.** Process, which eventually brings a company’s existence to an end, after distributing its assets to creditors/shareholders. - **Liquidator**. The Official Receiver, or a licensed IP appointed to wind up the affairs of a company. - **LILA sequestration.** Low income, low asset sequestration. A route to bankruptcy for debtors who meet the prescribed criteria. - **LPA receiver (Law of Property Act 1925’ receiver).** A person, not necessarily an IP, appointed, to take charge, of a mortgaged property or other asset, by a lender whose loan, is in default. - **Main proceedings.** A term introduced by ERIP for an insolvency proceeding carried out in the country of a company’s CoMI. - **Member.** (1) In relation to an, insolvent company, a member is a shareholder, or subscriber. - **Members’ voluntary liquidation (or solvent liquidation).** Winding-up of a company which is able to pay its debts in full, together with interest. - **Misfeasance.** Breach of duty in relation, to the funds or property of a company by its directors or managers. - **Moratorium.** A suspension, of creditors' legal rights to take action against, a company or individual. - **Nominee.** Title, given, to an IP acting, in a voluntary arrangement, prior, to the creditors approving (or rejecting) the scheme. - **Official Receiver.** A, civil servant, and also, a court officer, attached to the Insolvency Service (an executive agency of BIS). - **Partnership voluntary arrangement, (PVA).** A scheme of arrangement or composition in satisfaction of the debts of a partnership, in England and Wales. - **Pensions Act 1995, section 75.** Provision requiring the scheme’s liabilities to be valued as the cost of securing all the members’ benefits on an insurance company annuity basis; this will normally give rise, to a higher deficit than on an ongoing funding basis. - **Pension Protection Fund (PPF).** Provides compensation to members