Definitions of insolvency terms and expressions for England and Wales

"Creditors have a better memory than debtors."

These definitions are brief summaries of the Insolvency Act 1986 and are intended as a guide only. We would always recommend you seek professional advice from an Insolvency Practitioner

Administration Order

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 and assets to allow a reorganisation or ensure the most advantageous realisation of its assets whilst protecting it from action by its creditors.

Bankrupt

Someone against whom a bankruptcy order has been made and who has not been discharged from bankruptcy.

Bankruptcy Order

The court order making an individual bankrupt (this replaces the concept of the receiving order and adjudication of bankruptcy in the old Act cases).

Charge

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 security.

Charging Order

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

Company Voluntary Arrangement (CVA)

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

Court-Appointed Receiver

A person not necessarily a licensed insolvency practitioner, appointed to take charge of assets 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, e.g. to settle a partnership dispute.

Debenture

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.

Individual Voluntary Arrangement (IVA)

A voluntary arrangement for an individual is a procedure whereby the person comes to an arrangement with their creditors in how their debt will be discharged. Such a scheme requires the approval of the court and is under control of a supervisor and insolvency practitioner.

Insolvent

The state of not being able to pay one's debts as they fall due or having an excess of liabilities over assets. (probably 90% of the adult population in this country or indeed the world are insolvent in real terms).

Insolvency Practitioner (IP)

Person authorised by one of the chartered accountancy bodies, the law societies, the insolvency practitioners association or department of trade. The only person who may act as office holder in an insolvency proceeding.

Interim Order

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.

Judgement

Recognition of a debt given by a court.

Lien

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

Liquidation

The procedure whereby the assets of a company or partnership are gathered in and realised, the liabilities met and surplus, if any, distributed to creditors.

Liquidator

The person appointed to deal with the assets and liabilities of the company or partnership once the resolution to wind up has been passed or a compulsory winding up order has been made.

Mortgage

A transfer of an interest in land or other property by way of security, redeemable upon performing the condition of paying a given sum of money.

Nominee

The person chosen by the individual or corporate debtor to report on the debtors proposals for an IVA or CVA.

Official Receiver

A civil servant employed by DTI to head the regional offices whose responsibilities cover bankruptcies and compulsory liquidations.

Petition

A written application for relief or remedy to the court.

Proof of Debt

The document submitted in an insolvency to establish a creditors claim, it may be informal (by letter) or in a prescribed form for bankruptcy and compulsory liquidations.

Proxy

The authority given by a creditor or member to another person (proxy holder) to attend a meeting and speak and vote at a meeting on behalf of the creditor or member.

Receivership

The general term applied when a person is appointed as a receiver or administrative receiver over certain assets.

Security

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 charge assets. Security documents can be very complex. The most common example is a mortgage over a property.

Statutory Demand

A formal notice requiring payment of a debt exceeding £750.00 within 21 days, in default of this demand bankruptcy or liquidation proceedings may be commenced without further notice.

Unsecured Creditor

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