phoenix & co

The terms used in this glossary are a simple explanation of the legal/insolvency processes detailed on this web site. They are listed alphabetically.

Administration – Administration is a legal process that protects insolvent companies from aggressive creditors until a solution to its financial problems is found. Once in the process all legal actions against the company are stopped. The main aim of Administration is to protect the company while plans are drawn up to “Rescue” it, “Sell” it, or “Liquidate” it. An Administrator is appointed by the courts who will decide the best way forward, which might be to:

• Implement a “Recovery” plan such as a CVA.
• Sell the assets to a new or existing company .
• Sell the company.
• Liquidate the company.

Administration Order – An order made in a county court to arrange and administer the payment of debts by an individual, or an order made by court in respect of a company that appoints an administrator to take control of the company.

Administration Pre-Pack - Otherwise known as Pre-Packing or Phoenixing. It is a process whereby the Directors of an insolvent company start a new business that then buys the assets of the failing business. These viable parts of the old business are transferred into the new company allowing it to begin to trade successfully without the weight of debt and liabilities from the failing company.

Administrative Receivership – When a company fails to keep the terms of a loan, or faces financial difficulties, the lender (a bank for example) may be entitled to appoint an Administrative Receiver, who is mainly concerned in getting money back to the secured creditor, the bank. Since September 2005 the right to appoint is generally limited to “Debenture” holders, whose “Charge” existed at that date.
A “Charge” is taken out by the lender against the company’s’ assets and is then recorded in a legal documents called a “Debenture”.

Administrator – A person who acts as a controller of the company when a firm goes into administration. All company actions must go through the administrator and the administrator has overriding control over the whole business. He is appointed by the Court and is an insolvency practioner.

AGM – An Annual General Meeting where the shareholders voice any issues and directors give information of the past year and forecasts for the future, they also vote on any changes that are eligible to be made within the meeting, i.e. change of auditors and directors. this MUST be held every year. Does your company do this?

Annulment – Cancellation.

Arrears – A term used when you have not paid invoices or made payments on debts as agreed. If you do not pay the debt holder (creditor) may take action to claim the money back.

Asset – An asset is something which you own that holds value should you come to sell it, i.e. a house or stock etc

Bailiff – A bailiff is someone authorised to collect debt on behalf of a creditor. There are different types of bailiffs, like, County Court bailiffs, certificated bailiffs and private bailiffs who can be used to collect different types of debt. Different bailiffs have different powers to collect debt. See Distraint and Walking Possession

Bankruptcy – A formal procedure that can be used if a person cannot pay their debts as and when they fall due, or they owe more than they own. This causes you to lose control of your assets and you cannot act as a company director for the period of the bankruptcy ban period. Bankruptcy also adversely affects your credit rating.

Bankruptcy Restriction Order or Undertaking – A procedure, introduced in April 2004 whereby a bankrupt who has been dishonest or in some 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 2-5 years.

CCJ – A County Court Judgment or court action where a company/person will take you to court because you have not paid a debt. The court will order you to pay the debt within an allotted time and if you don’t the company will be able to take further action.

Charge – Security taken over property by a creditor to protect against non-payment of a debt.

Companies House – This is where ALL Ltd and PLC’s are registered, they store all information and make this info available to the public i.e. accounts, directors. Companies House also act to incorporate and dissolve companies

Company Directors Disqulification Act 1986 – An Act of Parliament about the disqualification of directors.

Compulsory Liquidation – A Compulsory Liquidation is initiated by a creditor who has taken all reasonable steps to recover an undisputed debt. A winding up petition is served and a liquidator is appointed. by the courts. Either the official receiver or an IP can be the liquidator. Even if the debt is paid at this stage the winding up hearing will still go ahead, damaging the directors reputation further. This process should be avoided if at all possible.

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.

Credit Rating – A tool that banks and financial service providers use to assess how likely you are to be able to honour your debt, if you have a good rating you will have access to more funds on better terms than if you have a poor rating. Your rating is affected by many facts, like defaulted before or have any court judgements, or been made bankrupt. CREDIT RATINGS apply to individuals and businesses.

Creditors – A company or persons who owe money to another company for services provided. Creditors are classed as liabilities as it is money outstanding

Creditors petition (bankruptcy) – Creditors can petition for a debtor to be made bankrupt if an individual creditor is owed more than £750. Alternatively, creditors can join together to meet the £750 requirement. Proceedings normally take place at the debtor’s local county court with bankruptcy jurisdiction. Creditors can only ask for someone to be made bankrupt if: the debt is unsecured; and for a fixed sum which the debtor ‘appears unable to pay’.

Company Voluntary Arrangement (CVA) – A CVA is a legal arrangement which allows a company in debt to keep trading and avoid liquidation. In a CVA the company and its creditors agree to an extended period of up to 5 years to repay debt. Once in place (creditors holding 75% of the total debt have to agree to the proposals) all future interest and other charges are frozen. Normally only an agreed percentage of the debts are repaid and once the CVA term is completed all the remaining “unsecured” debts are written off and the company continues to trade.
A “Statement of Affairs” is produced, together with a new Business Plan to see the viability of the process and an Insolvency Practitioner is appointed to draw up the arrangement, oversee its implementation and administer it. We at Phoenix & Co can choose the most appropriate IP for your particular needs, from our panel, or you are free to make your own choice.

CVL – Creditors Voluntary Liquidation: The liquidation of a company means to cease trading, sell all the assets and terminate all contracts. It is initiated by the shareholders of the company and done by an insolvency practitioner (see below).

Debenture – A documents in writing usually under seal issued as evidence of a debt or the granting of security for a loan. The term is often used in relation to loans 9usually from banks)secured by charges, including floating charges, over companies assets.

Debt Consolidation- Pay off all your debts (consolidate them) with a single loan.

Debt Management – An informal arrangement with your creditors to repay your debts with lower monthly payments.

Debt Relief Orders (DRO) – Introduced in April 2009 as a simple alternative to bankruptcy and available to individuals with relatively low liabilities, little surplus income, few assets and who are unable to pay off their debts in a reasonable time. The individual must take advice from a licensed debt advisor and an approved intermediary must assist the application, which costs less than £100.00 and which has to be approved by the Official Receiver.

Debtors – A company or persons who owe you money for services you have provided, but not yet paid for. Classed as a current asset.

Debtors petition (bankruptcy) – Where a debtor decides they want to make themselves bankrupt, in order to do this the debtor must personally petition to the county court. See bankruptcy.

Directors – The decision makers of the company. The directors control the business and are responsible for its successful running and management. They’re protected from personal risk by limited liability, but generally only if they act correctly!

Directors Disqualification – If a person is declared bankrupt or has committed certain insolvency offences then he or she can be barred from acting as a director by the DTI. It becomes illegal for that person to be a director or manager of a company for the period of disqualification.

Dissolution – A process that legally breaks up a company that no longer wishes to trade. In order to start the dissolution process the company must have ceased trading for 3 months.

Distraint – A popular tool for landlords where rent or other payments are not made. If the landlord has agreed a payment deal and the company is not keeping to it the landlord has various powers.

Distraint – An agent of the landlord can effect entry to remove goods or assets for sale to pay for the debt due. He /she does not need to wait for a long period for this to happen. In theory 1 week after a rent payment is due they can distrain. Nor does he/she need a judgment.

Dividend – Any sum distributed to unsecured creditors in an insolvency.

Domino Effect – If a partner as an individual has an insolvency problem (perhaps from overspending/borrowing, gambling or drinking (or all of these)) and is being pursued by a creditor(s) this can lead to problems. It is even possible for the spouse of a partner to become insolvent, thus leading to the loss of the matrimonial home which, for example, may underpin security granted to a bank.

DTI – Department of Trade and Industry: A Government agency which acts in the interests of all and aspire for higher productivity in all industries by promoting enterprise innovation and creativity. The DTI also aid in employment issues such as redundancy. The DTI runs the Insolvency Service in England & Wales.

Factoring – A service provided by financial institutions such as banks and lenders who pay the company for unpaid invoices and help collect the remaining funds for a fee and they charge for lending the company money for a period until the debt is repaid.

Fixed and Floating Charge – A mortgage, debenture or other security documentation, is likely to create charges over particular assets as security for borrowings or other indebtedness. There are essentially two types of charge, floating and fixed. A floating charge is appropriate to assets and material which is subject to change on a day to day basis, such as stock. Individual items move into and out of the charge as they are bought and sold in the ordinary course of events. The floating charge crystallises if there is a default or similar event. A floating charge is not as effective as a fixed charge but is more flexible.

Fraudulent Trading – This is the continuation of trading with no reasonable prospect of repaying debts and with the intentions of defrauding creditors.

Going Concern – Where the company is continuing to trade for the current period and can cover its costs and make some money.

Guarantee – An agreement, in writing, to pay a debt owed by a third party.

HMRC – Her Majesty’s Revenue and Customs: the government body which collects and regulates PAYE, NIC VAT etc.

Informal and Formal Arrangements – An informal arrangement is an agreement reached with one or more creditors, to repay debt, that is negotiated personally or on your behalf, but is not court ordered, like Formal Arrangements.

Insolvency practitioner – A professional who specialises in insolvency and is licensed by the DTI. Insolvency practitioners often act to close a company in the best possible way for all parties involved. Only IP’s can be a liquidator or Administrator.

Insolvent – A term that is used when a company/person cannot pay or cover their debts with the assets or funds they have as liabilities exceed assets.

Insolvent Company – A company that cannot pay its debts as and when they fall due. The company will suffer from major cash flow problems and cannot pay what it owes thus it is insolvent.

Interim Management is the temporary provision of management and skills.Interim Management can be seen as the short-term assignment of an interim executive manager to manage a period of transition, crisis or change within an organisation. Additionally, there may be nobody internally who is suitable,or available to take up the position in question.

Interim Order – When someone is applying for an IVA (see below) they can ask the court to protect them from legal or bankruptcy actions by someone they owe money to.

Investigating Accountants – Accountants who look at the business you run for the bank that is lending it money, they check accounts, forecasts, marketplace and management. The real reason the banks appoints them is to find out how secure debt is that the company holds!

IVA Personal or Individual (Sole Trader) Solutions – An IVA (Individual Voluntary Arrangement) is a legal arrangement which allows individuals to write off a percentage of their debts, paying back the balance over a period of time up to 5 years. If eligible for this government scheme and once in place, all interest and other charges stop, as do threatening letters and all contact from creditors.
As with a CVA an Insolvency Practitioner will be appointed to manage the process.

Joint Several Liability – Joint and Several Liability implies that all members are liable for the partnership debts in full or in part individually, dependent usually on their ability to pay. Thus a creditor(s) /liquidator can “go after” the member with the most assets to satisfy debts then the next and so on until all debts are satisfied or until all partners are made bankrupt.

Legal – If you are threatened with legal action or have received legal notices, do not ignore them. The problem will not go away. It will get worse. Handled quickly and professionally, legal action can be stopped, giving time to discuss and plan a solution.

Liability – A Liability is something that you owe to somebody, i.e. a mortgage, loan payment credit/store cards.

Limited Company – A business that legally sets itself as a separate person so that its directors and shareholders are not liable for any of it’s (proper) actions. The businesses are usually privately owned.

Limited Liability – A mechanism that allows Limited company and PLC shareholders to limit there responsibilities if the business falls into difficulties, where shareholders will lose no more than there investment in the business should it default.

Liquidation – Liquidation involves selling off all the company assets to raise money to repay creditors and then closing the company down. Before liquidation all “Recovery” options should have been considered, as this is the final process for an insolvent company. Liquidation can be voluntary or compulsory.

Liquidator – A liquidator is a person responsible for dealing with the winding up of a company and he/she must be an insolvency practitioner.

Moratorium – A period of time during which a certain activity is not allowed or required. Usually a moratorium is put in place to protect a person, business or company

No fault bankruptcy – Under the Enterprise Act 2002 the UK Government significantly relaxed the rules regarding bankruptcy. From April 2004 the sole trader or partner in a partnership, who has a failed business (where there are no issues of fraud, misfeasance, recklessness etc) is able to file for bankruptcy (see process above) and be discharged from that bankruptcy within say 12 months.

Nominee – A nominee is a licensed insolvency practitioner who helps propose a deal with their creditors under a proposal of a CVA/IVA and deals with legal issues and compliance such as chairing the creditors meetings, checking management accounts and forecasts.

Officer – A director, manager or secretary of a company.

Official Receiver – The Official Receiver is a civil servant in The Insolvency Service and an officer of the court. He (or she) will be notified by the court of the bankruptcy or winding-up order. He will then be responsible through his staff for administering the initial stage. This stage includes collecting and protecting any assets and investigating the causes of the bankruptcy or winding up.

Partnership – Simialr to a sole trader, however there is more than one owner and there can be several different people that own different amounts of the business.

PAYE – Pay As You Earn: A government scheme where your tax is deducted from your monthly wage and paid for you by your employer so that you do not have to calculate your own tax and National Insurance payments. The employer is responsible for collecting this tax and paying to the government. Failure to do so on time is a sign of insolvency

Personal Guarantee – A personal guarantee is a tool which financial service providers can use to guarantee their debt by requesting the director or partner in a business to personally guarantee the debt regardless of whether the debt is used by the company or not. Should the debt default, then the bank will call on this personal guarantee and the guarantor may/will have to pay the remaining debt.

Petition: If a company or an individual owes you money and has refused or neglected to pay the debt, you may apply to “Wind it up”(for a company) or for “Bankruptcy” ( for an individual) by presenting a “Petition” to court for that purpose. See a Statutory Demand.

Phoenixing is a process whereby the Directors of an Insolvent company, start a new business that then buys the assets of the failing company.The viable parts of the old business are transferred into the new company, allowing it to trade successfully without the weight of debt and liabilities from the failing business. “Rising from the Ashes” Phoenixing is also referred to as “Pre-Packaging” and is a process linked to Administration.

PLC – A Public Limited Company whose shares may be purchased by the public and whose share capital is not less then the statutory minimum. Not all PLCs are listed companies.

Prefential Creditor - A creditor who is entitled to receive certain payments in priority to floating charge holders and other unsecured creditors.

Proof Of Debt - A statutory form completed by a creditor in a compulsory liquidation to state how much is claimed. The form is supplied my the liquidator.

Proxy – Instead of attending a meeting, a person can appoint someone to go and vote in their place.

Proxt Form – A form must be completed if a creditor wishes someone else to represent him/her at a creditors meeting and vote on his/her behalf.

Public Examination – When a company is wound up or in bankruptcy proceedings, the Official Receiver may at any time apply to the court to question the company directors or anyone else involved in the management of the company or the bankrupt.

PVA – A Partnership Voluntary Arrangement: The same process as a CVA however this is used for a company that is a partnership as the proprietors are joint and severally liable. The PVA has the same benefits as the CVA.

Realise -Realising an asset means selling it or disposing of it to raise money.

Receiver – A receiver is appointed by a bank normally to collect and administer a company’s assets. The receiver then has a duty to collect the bank’s debts only by selling the assets; he/she is not generally concerned with the other unsecured creditors or shareholders exposure.

Receivership – When a company defaults on a loan or payment the debt holder can call on a receiver to go into the company to sell the companies assets in order to pay back some or all of the debt. The company in receivership will lose control of the business while the receivers sell the assets and the company will usually be liquidated, the business may be sold and there is usually a loss of jobs.

Redundancy – A reason for dismissal, redundancy involves the closure (either temporary or permanent) of the business as a whole or closure of a particular department this could suggest that the business has no further use for the department you are working in, are downsizing or could be facing difficulties.

Release – The process by which the Official Receiver or an Insolvency Practitioner is discharged from the liabilities of office as trustee/liquidator or administrator.

Rescission – A procedure that cancels a winding up order.

Secured Creditor – A creditor who holds security, such as a mortgage, over a persons assets for money owed.

SFLGS – Small Firms Loan Guarantee Scheme: By providing a government guarantee against default by borrowers, the Scheme enables high street banks and other financial bodies to lend between £5,000 and £250,000 to new and existing businesses. The DTI underwrites 75% of the loan. So if the company failed the bank will be able to claim up to 75% back form the DTI.

Shareholders – ‘Owners’ of the business, someone who has bought shares on the open market if it is a quoted PLC. Or owns a stake in a limited company. They have a say in how the business is run and earn a share of the profits as a dividend.

Simultaneous Voluntary Arrangements – Basically as the title suggest the mechanism is to link together a number of simultaneous individual voluntary arrangements to protect the partnership and the individual debtors. It allows the partnership arrangement to deal with partnership debts and individual arrangements to deal with any individual debts. It also protects the individual partners from the “fallout” of the partnership debts to the individual.

SME – Small to medium size enterprises (businesses)

SOFA – Statement Of Affairs: A statement of what you own, what assets you have and your liabilities and cost of living to summarise your financial affairs

Sole Trader – An owner of a business who is wholly responsible for the day to day running of the business and its debts. They are generally small firms with few employees

Statutory Demand – 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 or bankruptcy being issued. In any event, the creditor has to pay to issue this document/action and therefore he/she/it is now becoming much more serious.

Supervisor – The Supervisor collects payment of CVA/IVA contributions and ensures that contributions are kept up to date; failure to keep up to date can cause the supervisor to default and abort the CVA/IVA leading to liquidation/bankruptcy.

Trading Out – working through problems, this phrase is used where you continue to trade through tough times in order to rectify your problems and improve your company’s health.

Trustee in bankruptcy – A Person who holds property in trust for another. In bankruptcies the IP holds the property of the bankrupt in trust for creditors and is referred to as the trustee.

Turnaround practitioner – An advisor who specialises in helping ailing companies solve their problems and get back on their feet, a simple analogy of this would be to describe a turnaround practitioner as a company doctor.

Turnover – The money that a business takes in over a period of time through its activities is known as turnover.

Unsecured Creditor – A creditor who holds no security for money owed.

VAT – Value Added Tax: A duty that is paid on qualifying goods of 15.0% above the company’s selling price less any VAT paid for goods the company has bought in the same period. . This is collected by companies for the HM Revenue & Customs.

Voluntary Liquidation – A Creditors Voluntary Liquidation (CVL) is initiated by the Directors and Shareholders who nominate a Liquidator (who is an Insolvency Practitioner) to wind up the insolvent company. The IP will sell all the assets and share the proceeds with the creditors in accordance with their proven claims and priorities. The IP will also report on the conduct of the Directors, which in this case should show they behaved responsibly and no wrongful trading took place.

Walking Possession – A bailiff (for the County Court) or Sheriff (for the High Court) has visited your premises and obtained entry. 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.

Warrants – In law, a warrant can mean any authorisation. Often in statute the warrant of a particular person is required before certain administrative actions can take place. 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.

Wrongful Trading- A Director may be held liable for wrongful trading if they allowed the company to continue in business when they knew or ought to have known that there was no prospect of meeting the company liabilities as they fell due. Put simply lying about the current state of the company and hiding from reality.

Winding Up Petition (WUP) – A tool that can be used should a debtor continuously refuses to pay its debts so the company presents its petition to the court to have the company closed down.

Legal Advice: Clearly the descriptions are designed for general understanding, they may or may not be absolutely correct in every circumstance, we disclaim any potential or actual liability arising from any reliance upon any description in this glossary or any guide on this site.