Legal phrases can be confusing, our guide will help you understand
Accountant in Bankruptcy (Scotland)
This is the official appointed to monitor personal insolvency procedures. They will also act as trustee where no insolvency practitioner is nominated on a sequestration petition.
Administration is an insolvency procedure which places a company under the control of a licensed insolvency practitioner and the protection of the court to achieve a specified statutory purpose. The purpose of administration is to save the company, or if that is not possible, to achieve a better result for creditors than if the company went into liquidation, or, if neither of those purposes are possible, to realise property to enable funds to be distributed to secured or preferential creditors.
A court order placing a company, that is or is likely to become insolvent under the control of an administrator in order to achieve the purpose of administration, following a petition by the company, its directors, its liquidator or a creditor.
A licensed insolvency practitioner appointed by the holder of a floating charge over the whole, or substantially the whole of the company’s property. An administrative receiver has wide powers, including the power to carry on the business of the company and to sell the business and any other assets comprised in the security to repay both secured and preferential creditors.
A licensed insolvency practitioner appointed in relation to a company to manage its affairs and to achieve the purpose of administration.
Property owned by the debtor (either a company or an individual) which will be realised by an office holder to facilitate a distribution to the debtor’s creditors.
An individual against whom a bankruptcy order has been made.
The process of dealing with the estate of a bankrupt.
An order made by the court against an individual which signifies that the individual is unable to pay his/her debts.
An application to the court made by a creditor (or the debtor themselves) for a bankruptcy order to be made in relation to the individual. In the case of a creditor, it is a condition that the debt owed exceeds £5,000.
A charge is a right given to a creditor to have a designated asset of the debtor appropriated to the discharge of the indebtedness, but not involving any transfer either of possession or ownership of the asset subject to the charge.
Company Voluntary Arrangement (CVA)
A procedure whereby a plan for reorganising the company’s debts or making a composition in satisfaction of its debts is put forward to creditors and shareholders. The company voluntary arrangement is under the control of a supervisor.
A composition is an agreement between a debtor and his/her creditors where creditors agree with the debtor and between themselves to accept a lesser sum from the debtor in satisfaction of their claims.
The placing of a company into liquidation by the court, normally as a result of a petition having been presented to the court by a creditor. Compulsory liquidation is the only means by which a creditor can instigate liquidation in relation to a corporate debtor.
A person to whom an individual or company is indebted.
Creditors’ Voluntary Liquidation (CVL)
A liquidation of a company which is commenced by way of a resolution of its shareholders, although the company’s creditors determine who is to act as liquidator at a meeting of creditors.
A document that acknowledges/creates a debt – the expression is often used to describe a document which gives the holder a fixed and floating charge over all the assets and undertaking of the company. The holder of a debenture is often referred to as a debenture holder and/or a secured creditor.
This is a legal process by which a creditor may pursue a debtor for recovery of a claim, once having obtained a Court Decree. A Court Decree establishes the amount of the debtor’s claim and is the Scottish equivalent of a County Court Judgment (CCJ).
Subject to one exception (where a criminal bankruptcy order is made), the bankrupt is discharged from his bankruptcy at the end of the period of one year from the bankruptcy commencing (although it is possible for the official receiver or the trustee to apply to court to suspend the automatic discharge in certain circumstances, e.g., the bankrupt has been uncooperative). The effect of discharge is to release the bankrupt from all bankruptcy debts (note that there are certain debts which survive bankruptcy).
The sum distributed to a creditor by the office holder, based upon the quantum of the creditor’s claim and paid from the proceeds of the sale of the assets realised by the office holder after certain costs and expenses of the insolvency have been met.
A form of security over specific assets preventing the debtor from dealing with the assets without the consent of the secured creditor.
A form of security granted to a creditor over the general assets of a company that may change over time in the normal course of business (e.g., stock). The entity that has granted the floating charge can continue to use the assets in its business until an event of default occurs and the floating charge crystallises.
A legal commitment to repay a debt if the principal borrower fails to repay. It is common for directors to provide personal guarantees to lenders who provide funding to their companies.
Insolvency/insolvent is defined as having insufficient assets to meet all debts (balance sheet test) or being unable to pay debts as and when they fall due (cash flow test).
Interim Liquidator (Scotland)
An interim liquidator is appointed by the court on the granting of the winding up order. Their role is to convene a meeting of creditors which will appoint a liquidator.
An individual who intends to propose a voluntary arrangement to his creditors can apply to the court for an interim order, which, if granted by the court, precludes bankruptcy and other legal proceedings against the debtor while the interim order is in force.
Interim Trustee (Scotland)
This is the trustee appointed by the court to deal with the safeguarding and administration of the debtor’s estate pending the election of a permanent trustee at a creditors meeting.
Licensed Insolvency Practitioner
A person authorised by the Secretary of State for the Department for Business, Energy and Industrial Strategy, The Law Society, the Insolvency Practitioners Association or one of the chartered accountancy bodies. A licensed insolvency practitioner is the only person who may act as an office holder.
The process where the assets of a company are realised and distributed to satisfy, in so far as possible, its liabilities. In the event of a surplus after payment of all liabilities plus statutory interest, this will be distributed to shareholders.
Meeting of Creditors
The various insolvency procedures provide for the convening of meetings of creditors in order for creditors to participate in the insolvency process.
The shareholder of a company or a partner of a Limited Liability Partnership.
Members’ Voluntary Liquidation (MVL)
A solvent liquidation where the shareholders of the company appoint a liquidator to realise assets and settle all the company’s debts in full, and the surplus after repayment of debts is distributed to the shareholders.
A licensed insolvency practitioner nominated in a proposal for an individual or company voluntary arrangement to act as supervisor of the arrangement.
An office holder is a liquidator, provisional liquidator, administrator, administrative receiver, supervisor of a voluntary arrangement or trustee in bankruptcy.
An official receiver (OR) is an officer of the court, a civil servant and a member of The Insolvency Service, part of the Department for Business, Energy & Industrial Strategy. The OR deals with bankruptcy and compulsory liquidations, although the Secretary of State can appoint a licensed insolvency practitioner as liquidator or trustee in bankruptcy as can the creditors.
Permanent Trustee (Scotland)
The Permanent Trustee is appointed by the creditors or the court following a creditors meeting to deal with the realisation and distribution of the debtor’s estate.
A petition is a written application to the court for relief or remedy.
Creditors whose debts are preferential as defined in Schedule b of the Insolvency Act 1986.
Proof of Debt
A document submitted by a creditor to the appointed office holder or the OR that evidences the creditor’s debt.
This is the name given to a licensed insolvency practitioner appointed by the court to safeguard a company’s assets after presentation of a winding up petition, but before a winding up order is made by the court.
Provisional Liquidator (Scotland)
A provisional liquidator is the licensed insolvency practitioner who may be appointed by the court to preserve the company’s assets pending the appointment of an interim liquidator following on from the service and advertisement of a winding up petition.
Authority given by a creditor or member to another person (the proxy holder) to represent the member/creditor (attend, speak and vote) at a meeting of members/creditors. The proxy may be a general proxy, which gives the proxy holder discretion as to how they will vote, or a special proxy that requires them to vote as directed by the member/creditor.
Retention of Title (also referred to as Reservation of Title)
A provision under a contract for the supply of goods which purports to reserve title in the goods with the supplier until the goods have been paid for.
A charge or mortgage over assets that secures the payment of a debt. If the debt is not repaid, the lender with the benefit of the security has a right to sell the charged assets.
Sequestration is the Scottish term for the bankruptcy of an insolvent estate of an individual or partnership.
Statement of Affairs
The document submitted to the office holder by a debtor (where personal insolvency appointment) or by the directors of the company (where corporate insolvency appointment) which details all the assets and liabilities of the debtor/company.
A formal notice requiring payment of a debt exceeding £5,000 within 21 days, in default of which bankruptcy or liquidation proceedings may be commenced without further notice. A statutory demand cannot be used where a debt is disputed (it is considered by the court to be an abuse of process).
A supervisor is the licensed insolvency practitioner appointed by creditors to supervise a voluntary arrangement approved by creditors.
Trust Deed (Scotland)
A trust deed is the deed which allows a debtor to transfer his estate voluntarily to a trustee for the benefit of his creditors. The trustee will deal with the estate as provided for by statute and by the terms of the trust deed.
Although this term is used in the context of various insolvency procedures, in relation to an individual debtor the trustee is the trustee in bankruptcy (either the official receiver or a licensed insolvency practitioner appointed by the Secretary of State or the creditors).
A creditor who does not hold security in relation to the debtor.
Winding up Order
An order made by the court for a company to be placed into compulsory liquidation.