Insolvency Terms & Declaring Yourself Bankrupt

The IVA team has extensive commercial experience in business and personal insolvency procedures. We undergo professional training helping us to ensure that the highest standards of practice are maintained at all times.

Business Insolvency Advice

Administration order

If one or more of your creditors has obtained a court judgement against you, the county court may make an administration order. Administration is a court-based procedure whereby you make regular payments to the court to pay towards your creditors. Your total debts must not be more than £5,000 and you should have enough regular income to make weekly or monthly repayments. You do not have to pay a fee for an administration order but the court will take a small percentage from the money you pay towards its costs. If you do not pay regularly, the order could be cancelled and you may become subject to the same restrictions as someone who is bankrupt. If your circumstances change and you cannot pay as ordered, you can apply to the court to change the order. The court which made the order will tell you what to do. Details of administration orders are available at your local county court.

Informal Arrangement

If you know that you cannot pay all your debts, you could consider writing to your individual creditors to see if you can reach some compromise. Include a timetable of when you will repay them. The disadvantage with an informal arrangement is that is it not legally binding so your creditors could ignore it later and ask you to pay in full. Your local Citizens Advice Bureau can advise and help you make this kind of arrangement.

When can you make an Individual Voluntary Arrangement?

It is better and cheaper for you to set up an individual voluntary arrangement before you become bankrupt but you can propose one afterwards. The IVA can be set-up within 6-8 weeks.

Insolvent (definition)

The position of not being able to pay your debts as they fall due or having an excess of liabilities over assets (negative equity).

For more information on Insolvency Click Here

County Court Summons

Meaning - A creditor has tried to recover their debt from you but without success. You may have offered an informal deal but now their patience is wearing thin.

You may have tried to stave payment off claiming the debt is invalid or issued a counterclaim. They have issued an action to commence recovering their money in the County Court.

What can I do, what should I do? - You have time to pay the claim of the creditor. Try to offer a payment deal sensibly before the action will be heard in the court. Try to do a deal or pay the debt. If you cannot pay it look at IVA page. If you cannot pay it you could be insolvent.

You can dispute the claim if it can be proven the debt is not correct. Look, carefully, at the forms for detailed instructions on how to defend the claim.

County Court Judgment

Meaning - Having pressed for payment the creditor has now got the court to agree that there is a valid claim for the money. You have 30 days from the date of the Judgment to pay in full plus any costs incurred. Otherwise the Judgment will be registered at the courts and with credit reference agencies.

Remember an outstanding Judgment is proof of your insolvency and allows a creditor to issue a bankruptcy petition. There were over 100,000 CCJ’s issued against businesses in 2006 in the UK, so they are quite a common tool to tackle late payment offenders.

What can I do, what should I do? - If possible always try to pay the debt within 30 days of Judgment. This will ensure that the Judgment is "set aside" and will not be registered with credit reference agencies. If you cannot pay it then this of course further proves insolvency. If it is registered then getting credit in future becomes much more difficult.

If you are under real cashflow pressure but are attempting to trade out call the creditor/ their solicitor or the bailiff and try to agree a phased payment. Often they will agree but they may use the non-payment to push for further action such as distraint or winding up.

You may be surprised at how long a time you can spread payment through this type of deal. Think about it, the creditor just wants paid, even at £50 per week this is better than bankruptcy because they will, inevitably, lose the whole amount in your bankruptcy.

Limitations Act 1980

If the 'debtor has made no payment to, or acknowledged in writing, the debt for a period of six years then that debt can not be pursued through the courts once the debtor has informed the creditor that he will not be paying the debt because it is statute barred.

Warrant

Meaning - As the creditor has not been paid under the judgment the creditor can apply to the court for a warrant of execution. If the debtor is in another area the court can forward this to the local court. A notice of warrant will be issued to the debtor. If payment is not made a bailiff of the court can be sent to collect payment or seize goods.

What can I do, what should I do? - As always a deal can be struck with the creditor and or the bailiff to repay over time. You have demonstrated an inability to pay the debt and are offering to settle in a period to be agreed. For small debts this is often acceptable to the creditor.

Statutory Demand

Meaning - Usually this action is taken after a creditor has obtained a Judgment. It is a formal demand for payment of an undisputed debt (over £750) - the debt must be paid within 21 days of the demand being issued.

Failure to pay a statutory demand can lead to a winding up petition being issued. In any event, the creditor has to pay to issue this document/action and it is now becoming much more serious.

What can I do, what should I do? - If you cannot pay the debt, talk immediately to a turnaround practitioner, review the contents of this website and make a plan for survival - such as an IVA, or urgent refinancing. Or if the business is simply not viable talk to an insolvency practitioner.

Walking Possession

Meaning - A bailiff (for the County Court) or Sheriff (for the High Court) has visited your premises and obtained entry under a distraint notice. He /she has asked for payment of the proven debt. If you have not paid this plus the court and his costs he can "take possession" of the goods, equipment, fixtures, stock etc on the premises.

Effectively if you do not reach a deal or pay in full he can remove and sell the assets in 5 days. To sell the assets after they are covered in this way is a criminal offence. If the bailiff has obtained a walking possession he can force entry to recover the goods after the 5 day period.

What can I do, what should I do? - Unknown to most people unless in debt; Sheriffs and bailiffs are an unusual breed. They will rely upon ancient laws to obtain entry to your property - such as open doors and windows. But they cannot force entry. Simply: your best defence is to close and lock all doors and windows where they can gain access!

It is also not usually possible for the bailiff to possess or remove goods that do not belong to your or your company - if you have a debenture the goods therefore are charged to a bank. Whilst this is not possession bailiffs do not (usually!) want to get embroiled in arguments with high street banks. If the goods are subject to HP then they cannot be taken.

In reality isn’t this is just deferring the inevitable? You are probably insolvent if a bailiff is calling.

Once walking possession is in place it is STILL possible to do a deal with the bailiff to keep the goods whilst making regular payments - default and he may remove them without notice.

Administrative receiver

An IP appointed by the holder of a debenture that is secured by a floating charge that covers the whole or substantially the whole of the company's assets. The IP's task is to realise those assets on behalf of the debenture holder.

Administrative receivership

The process where an insolvency practitioner is appointed by a debenture holder (lender) to realise a company's assets and pay preferential creditors and the debenture holder's debt. The right of a debenture holder to appoint an administrative receiver has been restricted by the Enterprise Act 2002.

Administrator

An IP appointed by the court under an administration order or by a floating charge holder or by the company or its directors filing the requisite notice at court.

Assets

Anything that belongs to the debtor that may be used to pay his/her debts.

Bankruptcy restrictions order or undertaking

A procedure will be introduced on 1 April 2004 whereby a bankrupt who has been dishonest or in some other way to blame for their bankruptcy may have a court order made against them or give an undertaking to the Secretary of State which will mean that bankruptcy restrictions continue to apply after discharge for a period of between two to fifteen years.

Charge

Security interest taken over property by a creditor to protect against non-payment of a debt (such as a mortgage).

Company Directors Disqualification Act 1986

An Act of Parliament about the disqualification of directors.

Compulsory liquidation

Winding up of a company after a petition to the court, usually by a creditor.

Contributory

Every person liable to contribute to the assets of a company if it is wound up. In most cases this means shareholders who have not paid for their shares in full.

Creditor

Someone owed money by a bankrupt or company.

Debenture

A document in writing, usually under seal, issued as evidence of a debt or the granting of security for a loan of a fixed sum at interest (or both). The term is often used in relation to loans (usually from banks) secured by charges, including floating charges, over companies' assets.

Director

A person who conducts the affairs of a company.

Disqualification

A procedure whereby a person has a court order made against them or gives an undertaking to the Secretary of State which makes it an offence for that person to be involved in the management or directorship of a company for the period specified in the order (unless leave has been granted by the court).

Dividend

Any sum distributed to unsecured creditors in an insolvency.

Fixed charge

A charge held over specific assets. The debtor cannot sell the assets without the consent of the secured creditor or repaying the amount secured by the charge.

Floating charge

A charge held over general assets of a company. The assets may change (such as stock) and the company can use the assets without the consent of the secured creditor until the charge "crystallises" (becomes fixed). Crystallisation occurs on the appointment of an administrative receiver, on the presentation of a winding-up petition or as otherwise provided for in the document creating the charge.

Guarantee

An agreement to pay a debt owed by a third party. It must be evidenced in writing for it to be enforceable.

Liquidation (winding up)

Applies to companies or partnerships. It involves the realisation and distribution of the assets and usually the closing down of the business. There are three types of liquidation - compulsory, creditors' voluntary and members' voluntary.

Liquidator

The Official Receiver or an insolvency practitioner appointed to administer the liquidation of a company or partnership.

Member (of a company)

A person who has agreed to be, and is registered as, a member, such as a shareholder of a limited company.

Nominee

An IP who carries out the preparatory work for a voluntary arrangement, before its implementation.

Officer (of a company)

A director, manager or secretary of a company.

Official Receiver

An officer of the court and civil servant employed by The Insolvency Service, who deals with bankruptcies and compulsory company liquidations.

Petition

A formal application made to a court.

Preferential creditor

A creditor who is entitled to receive certain payments in priority to floating charge holders and other unsecured creditors. These creditors include occupational pension schemes and employees.

Proof of debt

A statutory form completed by a creditor in a compulsory liquidation to state how much is claimed. The form is supplied by the Liquidator.

Provisional liquidator

OR/IP appointed to preserve a company's assets pending the hearing of a winding up petition.

Proxy form

Form that must be completed if a creditor wishes someone else to represent him or her at a creditors' meeting and vote on his or her behalf.

Public examination

When a company is being wound up or in bankruptcy proceedings, the Official Receiver may at any time apply to the court to question the company's director(s) or any other person who has taken part in the promotion, formation or management of the company or the bankrupt.

Receiver

The commonly used name for an administrative receiver. The term can also mean a person appointed by the court or with the power to receive the rents and profits of property. Receivers who are not administrative receivers do not need to be insolvency practitioners.

Receivership

A company in administrative receivership is often said to be "in receivership".

Rescission

A procedure that cancels a winding-up order.

Release

The process by which the Official Receiver or an insolvency practitioner is discharged from the liabilities of office as trustee/liquidator or administrator.

Secretary of State

The Secretary of State for the Department of Trade and Industry

Secured creditor

A creditor who holds security, such as a mortgage, over a person's assets for money owed.

Shadow director

A person who, without being formally appointed, gives instructions on which the directors of a company are accustomed to act.

Statement of affairs

A document sworn under oath, completed by a bankrupt, company officer or director(s), stating the assets and giving details of debts and creditors.

Supervisor

An IP appointed to supervise the carrying out of a company voluntary arrangement.

Unsecured creditor

A creditor who does not hold security (such as a mortgage) for money owed. Some unsecured creditors may also be preferential creditors.

Voluntary liquidation

A method of liquidation not involving the courts or the Official Receiver. There are 2 types of voluntary liquidation - members' voluntary liquidation for solvent companies and creditors' voluntary liquidation for insolvent companies.

Winding up order

Order of a court, usually based on a creditor's petition, for the compulsory winding up or liquidation of a company or partnership.