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Glossary...

 

 

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

 

Accelerated payment notice : A notice issued by HMRC in respect of potential tax owing as a result of the use of tax avoidance schemes. Tax payment is requested on the notice, and HMRC state they will refund any tax paid if it subsequently transpires not to have been payable.

 

Administration: Administration is a formal insolvency procedure which may be instigated by the directors, company or the holder of a qualifying floating charge. The appointment of an administrator places a moratorium around the company and stops all legal actions.

 

Administrative Receivership : An administrative receivership is when an insolvency practitioner (IP) is appointed to control the whole or major part of a company's assets or property for the benefit of a secured creditor.

The IP is known as the administrative receiver and may be appointed by one or more debenture holders under a debenture created before 15 September 2003 and which remains in existence.

Administrative receivership was abolished for floating charges created on and after 15 September 2003 with certain exceptions (such as financial market transactions and public private partnerships).

 

Administrator : An administrator is appointed over a company in administration and must be a Licensed Insolvency Practitioner.

 

Articles of Association These are the written rules about how the company is run and include details such as powers of directors, officers and shareholders, quorums and procedures for meetings, and the procedure for distributions.

 

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B

 

Bankruptcy : Bankruptcy is a court order that an individual can apply for if they are in debt, or a creditor may also apply to make an individual bankrupt.

Following bankruptcy either the Official Receiver or an Insolvency Practitioner will realise the assets of an individual and distribute them accordingly.

 


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C

 

Company Voluntary Arrangement (CVA) : If a limited company or LLP is insolvent, it can use a Company Voluntary Arrangement (CVA) to pay creditors over a fixed period. If creditors agree, the limited company or LLP can continue trading during (and after) the term. Following the successful completion of a CVA, creditors bound by the arrangement may not enforce any part of the debt bound by (but not paid off during) the arrangement.

 

Compulsory Liquidation : Compulsory Liquidation is a procedure that applies to companies (and partnerships) and is started by a court order (winding-up) order following a petition. A petition may be presented by a creditor, the company itself, its directors or shareholders. Once a winding-up order has been granted an Official Receiver will be appointed to handle the early stages of a compulsory liquidation. If there are significant assets, an Insolvency Practitioner may be appointed as liquidator in place of the OR, either by the Secretary of State or at the first meeting of creditors or shareholders.

 

Consideration (legal) : Consideration is something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances. It is required for a contract to be legally binding.

 

Contingent liability : A contingent liability is a potential liability whereby whether or not it becomes an actual liability depends on a future event occurring or not occurring.

 

Creditors Voluntary Liquidation (CVL) : Creditors Voluntary Liquidation is instigated by the directors, who advise shareholders that the company is not viable, is insolvent and must stop trading. An insolvency practitioner is then instructed to call meetings of creditors and shareholders. The shareholders resolve to wind up the company. The creditors appoint a liquidator and vote on resolutions.

The assets of the company are then realised by the liquidator and distributed in the order of priority.

 

Crown Set Off : The legislation allows HMRC to set off unrelated debts due from an insolvent company, against amounts due to the company. For example, HMRC could withhold a VAT refund due to an insolvent company in lieu of an outstanding PAYE debt due from the company.


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D

 

Debenture: A debenture traditionally is the name given to a loan agreement where the borrower is a company. Typically, a debenture will set out the terms of the loan such as the amount borrowed, repayment terms, interest, charges securing the loan, provisions for protecting and insuring the property and terms for enforcement if the company defaults. Debentures are usually secured by fixed and floating charges on the company's property, but do not have to be. Debentures, as such, do not have to be registered, but charges securing them do.

 

Declaration of Solvency : A Declaration of Solvency is required for a MVL and needs to contain a statement of the company’s assets and liabilities. The directors must state that they have made a full enquiry into the company’s affairs, and have formed the opinion that the company can pay its debts in full, plus statutory interest, within 12 months from the commencement of winding up.

 

Director : An appointed or elected member of the board of directors of a company who, along with other directors, shares the responsibility for determining and implementing the company’s policy.

 

Director - De facto : Any person who is not technically a director but according to whose directions and instructions (rather than professional/expert advice) other directors and/or employees are accustomed to act.

 

Director - De jure: A person who is formally and legally appointed or elected as a director in accordance with the articles of association of the firm, and holds the office of a director.

 

Director - Shadow : Any person who is not technically a director but according to whose directions and instructions (rather than professional/expert advice) other directors and/or employees are accustomed to act.

 

Dissolution (Company) : Dissolution is when a Company is brought to an end. In an insolvency scenario this will be after the case has been concluded and any assets and property of the company redistributed.

 

Distributable reserves: This is the amount a company may legally distribute to shareholders by way of dividend.

 

Dividend: Funds paid to shareholders by the company (should be only from Distributable Reserves) in respect of their shareholding.


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E

 

Entrepreneurs’ Relief: Entrepreneurs’ Relief is a tax relief which is due, subject to meeting certain conditions, in respect of capital gains arising on ‘material disposals of business assets’. This can be applied in a Members Voluntary Liquidation.

 


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F

 

Factoring: Factoring (debt factoring) generally involves an invoice financier managing the sales ledger and collecting money owed by customers themselves. This means customers will know invoice finance is being used.

 

Fiduciary Duty: A fiduciary relationship is a relationship of trust and places a duty on company directors to act within the best interests of the company (not themselves) and to meet required standards of good faith and honesty when doing so.

 

Fixed Charge : A fixed charge is a charge over specific assets which must directly record the specific assets over which the charge relates and be registered.

A fixed charge is commonly made over property or large physical assets but can also be over book debts if the lender retains control of the debtors. On insolvency, fixed charge holders get paid from the proceeds of the sale of the relevant fixed assets before all other creditors.

 

Floating Charge: A floating charge is a general charge, commonly covering ‘all assets’. This type of charge must be registered at Companies House. Floating charge holders get paid in preference to unsecured ordinary creditors, but after fixed and preferential creditors.

 

Fraudulent Trading : Fraudulent Trading is where the business of a company has been carried out with the intent to defraud creditors of the company (or creditors of any other company), or for any other fraudulent purpose.

 


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G

 

Guarantor: A guarantor promises to assume responsibility for the debt obligation of another borrower if that borrower defaults.


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H

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I

Individual Voluntary Arrangement (IVA) : An Individual Voluntary Arrangement (IVA) is an agreement with an individual’s creditors to pay all or part of their debts over a fixed period of time. Generally an individual will agree to make regular payments to an insolvency practitioner (IP), who will divide this money between the creditors in full and final settlement of the amounts due.

 

Insolvency : Insolvency is when a person or entity are unable to pay their debts. In respect of a company this is defined in further detail in section 123 of the Insolvency Act.

 

Invoice Discounting (Confidential) : With invoice discounting the invoice financier lend money against your unpaid invoices (usually an agreed percentage of their total value). As customers pay their invoices, the money goes to the invoice financier which reduces the amount owing. This usually means more money on invoices from new sales can be borrowed up to the percentage originally agreed.

Customers need not be aware of this arrangement.

 

Invoice Finance : Invoice financing is where a third party agrees to buy unpaid invoices for a fee. Invoice financiers can be independent, or part of a bank or financial institution.

 

Issued share capital : The amount and type of share capital a company has issued to shareholders.


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J

Joint and several: Under joint and several liability, a claimant may pursue an obligation against any one party as if they were wholly liable and it becomes the responsibility of the defendants to sort between themselves the respective proportions of the liability and payment.


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K

 


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L

Law of Property Act (LPA) Receiver: A LPA Receiver is a person (or company) who is appointed to take charge of a mortgaged property when the borrower has defaulted. The main aim is to either sell the property or to collect a rental income for the lender. They are commonly used when property developers fail when their borrowings will largely be secured on specific properties. A LPA Receiver need not be a licensed Insolvency Practitioner.

 

Legal Charge: A Legal charge gives a lender of money the right to take someone's (defined) property if that person or entity does not pay back the money they borrowed or defaults in some way. This is generally used when property mortgages are taken out.

 

Limited by Guarantee : A company set up without share capital. Shareholders liability for the company’s debts is limited to the amount guaranteed.

 

Limited by Shares : A company set up with share capital. Shareholders' liability for the company’s debts is limited to the amount paid (or owing) in respect of shares held.

 

Limited Liability Partnership (LLP) : A LLP is an alternative corporate business set up that gives the benefits of limited liability but allows its members the flexibility of organising their internal structure as a traditional partnership. The LLP is a separate legal entity and, while the LLP itself will be liable for the full extent of its assets, the liability of the members will be limited.

 

Liquidator : A Liquidator can be appointed to deal with solvent (MVL) Liquidations, or insolvent (Compulsory or Creditors Voluntary) liquidations. They may be either a licensed Insolvency Practitioner or an Official Receiver.


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M

 

Members Voluntary Liquidation (MVL) : A Members Voluntary Liquidation is a method of orderly winding down a solvent company and distributing its assets. There can be tax advantages to closing down a company in this manner. A MVL is instigated by the Directors signing a Declaration of Solvency. The shareholders then vote to place the Company into liquidation and appoint a Liquidator.

 

Memorandum of Association: The Memorandum of Association is a statement made by each member confirming their intention to form a company and become a member of that company. If the company is to have a share capital on formation, each member also agrees to take at least one share.

 

Messuage : Messuage is an archaic term sometimes used in conveyancing, and is almost synonymous with dwelling house.

 

Misfeasance : In the context of a company, directors have duties not to misapply company money or property and breach any duty of trust when dealing with company money (amongst others).

 

Moratorium : In the context of a Company Voluntary Arrangement (‘CVA’), a moratorium effects a delay of legal obligations or payment. Amongst other effects, during the period a moratorium is in force for a company, a winding up petition cannot be made against the company, a resolution or order to wind up the company cannot be made and an administrator or administrative receiver cannot be appointed.


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N

 

Nominal Share Capital : The amount and type of share capital a company is authorised to issue per its Memorandum of Association or Application to Register (Form IN01).

 

Nominee : An Insolvency practitioner acts as Nominee when dealing with an IVA or CVA prior to its approval or rejection by creditors.


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O

 

Official Receiver (OR): An Official Receiver is an officer of the Insolvency Service of the United Kingdom, and an officer of the court to which they are attached. Amongst other roles they act as Trustee in bankruptcy, provisional liquidator, liquidator or receiver.

 

Ordinary Shareholder : A person or body who owns ‘ordinary’ shares in a company.


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P

 

Pari Passu: Pari passu is a latin phrase that in the context of funds allocation in insolvencies is used to mean ranking equally.

 

Partnership Voluntary Arrangement (PVA) : If a partnership is insolvent, it can use a Partnership Voluntary Arrangement (PVA) to pay creditors over a fixed period. If creditors agree, the partnership can continue trading during (and after) the term. Following the successful completion of a PVA, creditors bound by the arrangement may not enforce any part of the debt bound by (but not paid off during) the arrangement.

 

Pay as you earn (PAYE): The Pay As You Earn (PAYE) system is a method of paying income tax and national insurance contributions whereby an employer deducts tax and national insurance contributions from wages or occupational pensions before paying these to the employee.

 

Pay in lieu of notice: When an employee finishes a job they should normally give or be given what is called 'notice'. This is set out either in a contract of employment, or by statutory minimums. If an employer does not give notice to an employee money should be paid to the employee as an alternative to being giving full notice.

 

Phoenix Company : A phoenix company is term used to describe a successor business to an insolvent predecessor.

 

Power of Attorney : A power of attorney is whereby someone (the donor) appoints someone else (the attorney) to act on their behalf. This gives the attorney the legal authority to deal with third parties such as banks or the local council and to sign documents and enter into contracts on their behalf.

 

Preference : Under Insolvency legislation a preference is when a company does, or allows something to be done, which has the effect of putting a creditor (or surety or guarantor for the company’s debts) in a better position than they would have been in.

 

Preference Shareholder : A person or body who owns ‘preference’ shares in a company. Preference shares often have lesser voting rights than ordinary shares but, in the event of the company being wounwd up, preferential shareholders get paid before ordinary shareholders.

 

Preferential Creditor (Unsecured): A preferential creditor is a creditor receiving a preferential right to payment upon the debtor's bankruptcy under applicable insolvency laws ahead of ordinary unsecured creditors and floating charge creditors, but after fixed charge creditors.

Subject to certain restrictions, employees’ holiday pay/wages are classed as preferential – if they are paid via redundancy payments fund then the Redundancy Payments Service becomes a preferential creditor in respect of amounts paid. If there is a shortfall, in those cases where someone earns in excess of the government limit, they may be able to claim preferentially too. The right of the HMRC to rank as a preferential creditor was removed by the Enterprise Act 2002.

 

Pre-Pack Sale: A pre-pack sale is a sale of an insolvent company’s business (or the majority of its assets) which is negotiated and agreed prior to the enactment of a formal insolvency process, but implemented shortly thereafter. These are often (but not always) to the same or similar management team to that of the failed company.

 

Prescribed Part : There are provisions of the insolvency legislation that require a liquidator/an administrator to set aside a percentage of a company’s assets for the benefit of the unsecured creditors in cases where the company gave a “qualifying floating charge” over its assets to a lender on or after 15 September 2003. This is known as the “prescribed part of the net property.” A company’s net property is that left after paying the preferential creditors, but before paying the lender who holds a floating charge.

 

Private Limited Company (Limited or Ltd) : A Limited Company is one which is registered at Companies House and whose owners (shareholders) have their liability in respect of the company’s debts restricted to either the amount invested or guaranteed.

 

Proof of Debt : A proof of debt is a prescribed form which must be completed and returned to the Insolvency Practitioner dealing with a case if a creditor wishes to register a claim as a creditor of an insolvent company.

 

Provisional Liquidator : A provisional liquidator is appointed when a petition is presented to wind up a company and an application is also made for the appointment of a provisional liquidator, as the petitioner has concerns that assets are in jeopardy or that for the business to continue until the petition is heard is not in the public interest. The court may appoint either the official receiver or a licensed insolvency practitioner as provisional liquidator.

 

Proxy : A proxy is a document which authorises a person's or company's votes to be cast by a different person.

 

Public Limited Company (Plc) : A Plc is a company which has limited liability and has offered shares to the general public. A Plc’s shares can be acquired by anyone and holders are only limited to potentially lose the amount paid for the shares.

Only Plc’s may be listed on the London Stock Exchange.


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Q

 

Qualifying Floating Charge : A qualifying floating charge is a charge which was created as a floating charge after 15 September 2003 and relates to the whole or substantially the whole of the company’s property.

 

Quorum : A quorum is the minimal number of officers and members of a committee or organisation, who must be present for valid transaction of business to occur. The quorum requirements for meetings will be stated in the company’s Articles of Association.


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R

 

Redundancy : Redundancy is a form of dismissal from employment. It happens when employers need to reduce their workforce.

 

Redundancy Payments Service : The Redundancy Payments Service is part of The Insolvency Service and deals with redundancy and associated payments in England, Scotland and Wales. Payment is made direct to employees from this department.

 

Restructuring : Restructuring is a business term for the act of reorganising the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organised for its present needs.

 

Retention of Title (RoT) clause : A retention of title clause is a clause in the terms of sale which, when successful, retains ownership of goods sold with the seller until the goods have been paid for.


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S

 

Sale of Goods Act : The Sale of Goods Act consolidates the law relating to the sale and purchase of goods. It sets out a strict set of rules that retailers and sellers must abide by.

 

Sequestration : Sequestration is the Scottish version of bankruptcy.

 

Set Off : Subject to meeting certain criteria as set out in the Insolvency Rules, the legislation allows set off (ie a creditor may deduct from the amount they owe to a debtor the amount they are owed by the debtor) in respect of ‘mutual dealings’ between the parties.

 

Share Capital : Share capital is the funds held by a company, raised by issuing shares in return for cash or other considerations.

 

Supervisor : An Insolvency practitioner acts as Supervisor when dealing with an IVA or CVA approved by creditors.

 

Surety : A surety promises to assume the responsibility for the debt obligation of a borrower if that borrower defaults.


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T

 

Table A Articles : Table A is the standard articles of Association. For new companies registered on or after 1 October 2009, Table A has been replaced by the Companies Act 2006 Model Articles.

 

Transaction at an Undervalue : A transaction at an undervalue (per the Insolvency Act) is when a company has either gifted (or entered into a transaction with a person for no consideration) or entered into a transaction where the consideration in money or money’s worth, is less than the consideration provided by the company.

 

Trustee in Bankruptcy : A Trustee (in bankruptcy) is appointed to deal with the affairs of a bankrupt. They may be either a licensed Insolvency Practitioner or an Official Receiver.


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U

 

Unsecured Creditor : An unsecured (non-preferential) creditor is a creditor other than a preferential creditor that does not have the benefit of any security interests in the assets of the debtor. This usually includes trade creditors and HMRC.


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V


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W

 

Winding Up (Company) : Winding Up is the orderly closing down of a company. This can be via various routes such as striking off or liquidation. Whether a company is solvent or insolvent, obligations to customers, suppliers and employees must be brought to a close.

It is an offence for a Director to apply for the striking off of a company with outstanding debts.

 

Wrongful Trading : Wrongful Trading is where a company has entered into insolvent liquidation and, prior to the winding up, the director continued to trade despite either knowing or being a position whereby they ought to have concluded, that there was no reasonable prospect of the company avoiding insolvent liquidation.


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X


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Y

 


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Z

 


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