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Glossary
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ASSOCIATESAssociates of individuals include family members, relatives, partners and their relatives, employees, employers, trustees in certain trust relationships and companies which the individual controls. Associates of companies include other companies under common control SPECIFIC OR FIDELITY BONDInsurance cover required by a person who acts as an insolvency practitioner to protect creditors' money. CHARGING ORDERCourt order placing restrictions on the disposal of certain assets, such as property or securities, given after judgement and gives priority of payment over other creditors. COMPOSITIONAn agreement between a debtor and his creditors whereby the compounding creditors agree with the debtor and between themselves to accept from the debtor payment of less than the amounts due to them in full satisfaction of their claim. CONNECTED PERSONSDirectors or shadow directors and their associates and associates of a company. COURT APPOINTED RECEIVERA 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. CREDITORS COMMITTEEA creditors' committee is formed to represent the interests of all creditors in supervising the activities of an administrator or trustee in bankruptcy, or receiving reports from an administrative receiver. DEBENTUREA document stating the terms of a loan, usually to a company. Debentures may be secured on part or all of the 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. DISQUALIFICATION OF DIRECTORSA director found to have conducted the affairs of an insolvent company in an "unfit" manner may be disqualified, on application to the court by the DTI, from holding any management position in a company for between 2 and 15 years. FIXED CHARGEA fixed charge is a form of security granted over specific assets, preventing the debtor dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim on the proceeds of sale, and the creditor can usually appoint a receiver to realise the assets in the event of default. FLOATING CHARGEA floating charge is a form of security granted to a creditor over general assets of a company, which may change from time to time in the normal course of business (e.g. stock). The company can continue to use the assets in its business until an event of default occurs and the charge crystallises. If this happens, the secured creditor can realise the assets to recover his debt, usually by appointing an administrative receiver, and obtain the net proceeds of sale subject to the prior claims of the preferential creditors. FRAUDULENT TRADINGWhere a company carries on business to defraud creditors or for any fraudulent purpose. It is a criminal offence and those involved can be made personally liable for the company's liabilities. INSOLVENCY PRACTITIONER (IP)Person licensed by one of the chartered accountancy bodies, the Law Societies, The Insolvency Practitioners Association or the Department of Trade. The only person who may act as an office holder in an insolvency proceedings. INTERIM ORDERAn 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. LPA RECEIVERA receiver appointed under the provisions of the Law of Property Act 1925 (not necessarily an insolvency practitioner) to take charge of a mortgaged property by a lender whose loan is in default, usually with a view to sale or to collect rental income for the lender. Common in the case of the failure of a property developer, who's borrowing will largely be secured on specific properties. LIENRight to retain possession of assets or documents until the settlement of a debt. LIQUIDATION COMMITTEECommittee of creditors who receive information from the liquidator and sanction some of his actions. MISFEASANCEBreach of duty in relation to the funds or property of a company by its directors or managers. OFFICE HOLDERA liquidator, provisional liquidator, administrator, administrative receiver, supervisor of a voluntary arrangement, or trustee in bankruptcy. OFFICIAL RECEIVER (OR)Officer of the court, civil servant, member of the department of trade insolvency service, deals with bankruptcies and compulsory liquidations. ONEROUS PROPERTYThe term onerous property in the context of a liquidation or bankruptcy, applies to unprofitable contracts and to property that is unsaleable or not easily saleable or that might give rise to a continuing liability. A liquidator or a trustee can disclaim such property. PREFERENCEA payment or other transaction in the period preceding a liquidation, administration or bankruptcy, which places a creditor or a person connected with the insolvent, respectively, in a better position than they would have been otherwise. A liquidator, administrator or trustee in bankruptcy may recover any sums that are found to be preferences. PREFERENTIAL CREDITORDefined in Schedule 6 of The Insolvency Act 1986. Has priority when a liquidator, administrative receiver or trustee distributes funds. PROOF OF DEBTDocument submitted by a creditor to the insolvency practitioner giving evidence of the amount of the debt. PROVISIONAL LIQUIDATORAn insolvency practitioner appointed to safeguard a company's assets after presentation of a winding-up petition but before a winding-up order is made. PROXYDocument whereby a creditor authorises another person to represent him at a meeting of creditors. The proxy may be a general proxy, giving the proxy holder a discretion as to how he votes, or a special proxy requiring him to vote as directed by the creditor. A company can only be represented by a proxy holder. RECEIVERIs often used to describe an administrative receiver, who may be appointed by a secured creditor holding a floating charge over a company's assets. More accurately, a receiver is the person appointed by a secured creditor holding a fixed charge over specific assets of a company in order to take control of those assets for the benefit of the secured creditor. RECOGNISED PROFESSIONAL BODY (RPB)An organisation approved by the secretary of state as being able to authorise its members to act as insolvency practitioners. RESERVATION OF TITLE (OR RETENTION OF TITLE)A provision under a contract for the supply of goods that purports to reserve ownership of the goods with the supplier until payment has been received for the goods. A complex and continually evolving area of law. SECURITYA 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 charged assets. Security documents can be very complex. The commonest example is a mortgage over a property. SHADOW DIRECTORA person who is not formally appointed as a director, but in accordance with whose directions or instructions the directors of a company are accustomed to act. However, a person is not a shadow director merely because the directors act on advice given by him in a professional capacity. SPECIAL MANAGERA person appointed by the court in a compulsory liquidation or bankruptcy to assist the liquidator, official receiver or trustee in managing the insolvent business. STATUTORY DEMANDA formal notice requiring payment of a debt exceeding ?750 within 21 days in default of which bankruptcy or liquidation proceedings may be commenced without further notice. TRANSACTION AT AN UNDERVALUEA transaction at an undervalue can describe either a gift or a transaction in which the consideration received is significantly less than that given. In certain circumstances an administrator, a liquidator or a trustee can challenge such a transaction. UNSECURED CREDITORCommonly used to refer to any ordinary creditor, who has no preferential rights, although, in fact preferential creditors will almost always also be unsecured. VAT BAD DEBT RELIEFThe relief obtained in respect of the VAT element of an unpaid debt. WINDING-UP ORDEROrder made by the court for a company to be placed in compulsory liquidation WINDING-UP PETITIONA winding-up petition is a petition presented to the court seeking an order that a company is put into compulsory liquidation. WRONGFUL TRADINGApplied to companies in liquidation where a director allowed the company to continue trading in circumstances where he should have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation. The directors involved may be made personally liable to make a contribution to the company's assets. |
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This document explains the relevant position only in general terms. We do not intend it to be used as formal advice about a specific situation, for which you should consult with a qualified insolvency practitioner and not rely upon this document. Portland would be pleased to advise you formally and you should contact one of the directors listed to arrange this. Portland regrets it is unable to accept any responsibility to anybody who seeks to rely on this document. |
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