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Administration A business will generally go into administration because it has experienced financial difficulties which may have been caused for a variety of reasons, for example, an unpaid debt or inability to meet HMRC obligations. At this point an Administrator will be called in to oversee the running of the company in a bid to determine whether the company can continue to trade or be sold to new owners who are confident they can turn the company around. If the company cannot be sold, it will be closed down and all of its assets will be sold to pay any outstanding debts that remain.
Administrator The Administrator acts as the controller of a company which has entered into administration. The Administrator has full control over the entire business and is appointed by the courts.
Arrears These are accrued in circumstances where you have failed to pay invoices or make payments on your debts which have then subsequently accrued.
Asset This is something which is owned and is of value should you choose to sell it. An asset can be a physical item such as a house or car but can also be a less tangible item such as the goodwill of a business.
Bankruptcy This is a serious option which should only be considered in cases where a person is unable to pay their debts as and when they become due or there is little to no chance of them repaying their debts at any point in the future. Bankruptcy means that you will lose control of your assets and will be unable to act as a company director for the period of the bankruptcy ban. Bankruptcy will also impact your ability to obtain credit and will affect your credit rating. It does however mean that you will become debt free and be able to make a fresh start.
County Court Judgement (CCJ) A County Court Judgement can be obtained against you by a creditor (company or person) in circumstances where you have failed to pay a debt. A CCJ is awarded by the court and if you fail to pay the outstanding amount, the creditor will be able to take additional action, such as instructing bailiffs.
Companies House take responsibility for maintaining information regarding all Ltd Companies and PLC’s. Information is readily available for review by the general public.
Credit Rating Every person has their own credit rating which determines the amount of credit that will be available to you. Your credit rating is based on your previous financial performance and will review a number of areas including whether you have CCJ’s awarded against you or whether you have paid your bills on time. A better credit rating will give you access to a higher level of borrowing.
Creditors owe money to a company for goods or services provided. A creditor can be an individual or another business.
Creditors petition (bankruptcy) Creditors are able to petition for a debtor to be made bankrupt in cases where you owe more than £5000, the debt is unsecured and you have been unable to pay to date. Proceedings take place in the debtor’s local county court.
Company Voluntary Arrangement (CVA) This is used in circumstances where a company is edging towards an insolvent position and is struggling to pay its debts. A CVA enables the directors to pay the debt off over a period of time (sometimes only a small percentage of the debt is repaid) which eases the cash flow of the business and removes the pressure from the directors, allowing them to focus on getting the business back to a profitable position.
Creditors Voluntary Liquidation (CVL) This is generally used when the Company’s directors choose to voluntarily close the business in a way that is efficient and professional. By liquidating the company, it will cease trading and all of the assets will be sold to repay outstanding debts. It is initiated by the shareholders of the company and the process is managed by a Licensed Insolvency Practitioner.
Debtors An individual or company who owe money for goods or services that have been provided but not yet paid for.
Debtors petition (bankruptcy) this is used when an individual decides they wish to make themselves bankrupt and is presented to the county court.
Directors These are the people who control the business and assume responsibility for making decisions and ensuring it is correctly managed. The Directors are protected from personal risk, however, this is waivered if they have failed to conduct themselves properly.
Directors Disqualification If a Director has failed to conduct themselves properly, has committed specific insolvency offences or if they have been declared bankrupt, they will be barred from acting as a company director for a specific disqualification period.
Dissolution This process is used when a company decides it no longer wishes to trade. The dissolution process can only be utilised when the company have ceased trading for 3 months.
Fraudulent trading This occurs when a director continues to trade whilst knowing that it is unlikely that the business will be able to repay its debts and will be potentially defrauding creditors.
Going Concern this is when a company continues to trade for a specific period of time with the intention of paying all of its debts whilst continuing to make money.
Her Majesty’s Revenue and Customs (HMRC) A government organisation which manages the collection and regulation of PAYE, NIC, VAT payments
Licensed Insolvency Practitioner An insolvency specialist who is regulated by an insolvency governing body such as the Insolvency Practitioners Association. The IP is often tasked with closing a business in a way that provides the best outcome for all parties. An Insolvency Practitioner is the only person who is able to act as a Liquidator or Administrator.
Insolvent term that is used when an individual or company is unable to pay its debts as and when they become due or in circumstances where their liabilities exceed the assets.
Interim order An individual who is in the process of applying for an IVA can ask the court to protect them from legal or bankruptcy action taken by a creditor.
Individual Voluntary Arrangement (IVA) This is a procedure that can be used by an individual who is struggling to manage their finances and pay their debts. All outstanding debts are consolidated into a single, affordable monthly payment which is repaid to creditors over a specified period of time. Any remaining debts are wiped away at the end of the IVA term.
Liability This is something that you owe to somebody, for example, a mortgage, a vehicle hire purchase agreement or a store card.
Limited Company usually a privately owned business which is set up to ensure its directors and shareholders are not liable for any of its actions. This protection is not afforded should the directors be found guilty of wrong trading or improper conduct
Liquidation This is when the company is shut down by a liquidator who will manage the process, dispose of all of the assets and then makes a distribution to creditors and shareholders (if applicable). Once this has been finalised, the company will be struck off from the companies register.
Liquidator A Licensed Insolvency Practitioner who takes responsibility for managing the winding up of a company.
Moratorium often put in place to protect a person or business, this is a period of time where a certain activity is prohibited.
Nominee A Licensed Insolvency Practitioner who takes responsibility for managing the process of a CVA / IVA, proposing an offer and dealing with creditors, managing legal issues and all compliance tasks such as chairing a meeting of creditors.
Official Receiver A civil servant who works for the Insolvency Service that receives notification by the court of a bankruptcy or winding-up order. They are then responsible for conducting initial investigations as well as collecting and protecting any assets.
Pay As You Earn (PAYE) A scheme set up by the government where your tax and national insurance payments are collected out of your wages and paid on your behalf to the government by your employer. Failure for a business to make these payments is often a sign of insolvency.
Personal Guarantee Often used as a tool to ask directors or partners of a business to take responsibility for a debt incurred by a company in order to provide or extend a credit line. This means there may be a wider access to loans, asset finance (etc) but does mean that if the company is unable to meet its obligations, the director or partner will be personally liable for the repayment which could put their own assets at risk.
Redundancy This is often caused when a business or department decides to close and there is no further requirement for employees meaning they are redundant.
Shareholders These either own the business, have a share of a limited company or have bought shares if the company is a PLC. They will have input as to how the business is run and be eligible to take a share of the profits.
Statement of Affairs This is a summary which details your assets (what you own) and your liabilities (what you owe) as well as listing your living expenses and overall expenditure.
Sole Trader This is the owner of a business who is solely responsible for the running and management of the business including the payment of its debts. In many cases, this will be a small business with few employees.
Statutory Demand – This is a formal demand for payment for an undisputed debt (over £5000) which is usually obtained after a CCJ has been obtained. Following a statutory demand being issued, payment must be made within 21 days – failure to do so can lead to a winding up petition or bankruptcy being obtained.
Supervisor is in charge of managing a CVA / IVA procedure, ensuring contributions are kept up to date by the debtor and distributing them to creditors at regular intervals. Failure to meet your obligations could result in the Supervisor deciding to default the CVA/IVA which would lead to liquidation or bankruptcy.
Trustee in bankruptcy A Licensed Insolvency Practitioner holds the property of the bankrupt in trust for creditors and is known as the trustee.
Turnaround practitioner A professional advisor, often a Licensed Insolvency Practitioner who specialises in helping struggling businesses to get back on track to a profitable position.
Turnover This is the total money that a business takes within a specified timeframe. It is important to note that turnover is not the same as profit.
Walking Possession A Bailiff is able to enter your premises and take possession of goods, fixtures, equipment (etc) if you have failed to make payment of a proven debt including an additional amount for court and bailiff fees. If when they enter your premises you are unable to make a deal with them, they are able to remove and sell the assets within a 5 day period. They will be able to forcibly enter the premises after the 5 day period to remove the goods. It is important to note that if you choose to sell the goods after they have been marked for recovery is a criminal offence.
Wrongful trading A Director can be held accountable for wrongful trading in circumstances where they have allowed the business to continue trading, despite knowing there would be little prospect of being able to repay its debts as and when they become due.
Winding up Petition This is generally used when the owners of a business have continuously failed to pay their debts. A Creditor is able to present a petition to the courts in order to have the company closed down.