Glossary of insolvency terms in England & Wales
Please note: For the purpose of this glossary, these explanations are deliberately brief. They should not be relied on as a comprehensive explanation of the terms and the reader is encouraged to contact Gibson Hewitt on 01932 336149 for more information.
|Debtor||The person (or company) who owes money to someone else|
|Creditor||The person (or company) to whom a debt is owed|
|Debt||A sum of money owed to someone else|
|Asset||An item of value eg, a house, car, debt, cash etc|
|Mortgage||A debt secured on an asset (typically a house)|
|Mortgagee||The company to whom the mortgage is payable (eg the bank)|
|A company or individual is insolvent if either:
i) they cannot repay their creditors as their liabilities fall due
ii) their liabilities exceed their assets
|Solvent||A company or individual is solvent if:
i) the can repay their liabilities to creditors as they fall due
ii) their assets exceed their liabilities
|Bankruptcy||A court based insolvency procedure for insolvent individuals. A debtor’s assets are realised by their Trustee in bankruptcy and used to pay their liabilities (so far as realisations allow)|
|Individual Voluntary Arrangement (IVA)||A voluntary procedure for insolvent individuals typically used as an alternative to bankruptcy. This process normally leaves a debtor in control of their assets.
A voluntary arrangement proposal is agreed between the debtor and their creditors.
Liquidation (aka winding-up)
|A formal process which closes a company.
Upon liquidation, control of the company passes from the directors to the liquidator
|Creditors Voluntary Liquidation (CVL)||The liquidation process used for an insolvent company when the process is commenced by the directors of the company. Generally seen as preferable to and more efficient than a compulsory liquidation|
|Members Voluntary Liquidation (MVL)||The liquidation process used for a solvent company when the process is commenced by a director of the company.
Often used as a tax efficient means of passing the residual assets in a company to its shareholders when the business has ceased
Any remaining creditors are required to be repaid in full with statutory interest from the date of liquidation
|Compulsory Liquidation (aka Compulsory Winding-Up||The court based liquidation process. Typically (but not always) this process is commenced by a creditor when the directors of the company fail to repay a debt when it falls due.|
|Company Voluntary Arrangement (CVA)||A voluntary procedure for insolvent companies typically used as an alternative to liquidation or administration. This process normally keeps the company directors in control of the company’s business.
The corporate equivalent to an IVA
|Administration||A protective insolvency procedure for companies. Normally used to enable a sale of a business as a going concern which might not be possible via a CVL|
|Debt Management Plan (DMP)||An agreement between an insolvent debtor and their creditors. An informal alternative to an IVA, however, a DMP does not typically compromise debts or stop interest accruing on those debts|
|Interim Order||A protective court order for a debtor in the short period prior to an IVA which prevents any creditor from taking legal action or proceeding with a bankruptcy petition|
|Statutory Demand||Used by a creditor owed at least £750 by a company £5,000 by an individual. If the debt has not been repaid within 21 days, the creditor may present a petition to the court|
|Bankruptcy Petition||Document filed at court by either the Debtor themselves or a creditor seeking a bankruptcy order against an individual when owed £5,000 or more|
|Winding up petition||Document filed at court by a creditor seeking a Compulsory winding-up order against a company when owed £750 or more|
|Bankruptcy hearing||The event at which a judge considers the merits of a bankruptcy petition and decides whether a bankruptcy order should be made|
|Winding up hearing||The event at which a judge considers the merits of a winding-up petition and decides whether a winding-up order should be made|
|Winding up order||The court order made by a judge (or High Court Registrar) which formally places a company into compulsory liquidation|
|Bankruptcy order||The court order made by a judge (or High Court Registrar, or Adjudicator), which formally makes an individual bankrupt|
|Voluntary Arrangement Proposal||A document agreed between creditors and the debtor in relation to either an IVA or a CVA. This document is typically drafted by an insolvency practitioner acting on behalf of the debtor.
This proposal is very flexible and will detail the terms upon which the Voluntary Arrangement is based and what the debtor is required to do to satisfy their debts.
Creditors are asked to vote whether or not with proposal should be accepted. If 75% of more (by value) of the creditors who vote, vote in favour then the voluntary arrangement is approved and binding on ALL creditors.
|Nominee’s Report||An independent report written by an insolvency practitioner principally considering the merits and viability of the IVA or CVA proposal|
|Dividend||Sums paid from an insolvency procedure to creditors and members.
Dividends to creditors are typically expressed in pence/£ and do not necessarily result in payment in full
|Statutory interest||The rate of interest payable to creditors in respect of court judgements and in the period after a formal insolvency period has commenced.
This rate of interest varies but is currently 8%