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Many of the terms used in Liquidation, Bankruptcy
and Insolvency process for companies and businesses are
confusing to people who are not familiar with the courts. Listed
below are
some of the most common terms - please click on to the terms for
the definition or explanation.
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The term applied to the process for dealing with
the assets and estate of a bankrupt. A bankrupt is the person who
receives the bankruptcy order that the court makes. The order looks
at the what is owned by the bankrupt and orders the sale of all
that is owned for the benefit of the creditors involved. |
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I suppose as good a definition as any would be '
A form of security attaching to a specified asset or group of assets
which can be realised in satisfaction ( in part or in whole ) of
the debt secured ' or ' A form of security realisable by power
of sale of the asset or assets specified '. There are endless definitions
and a mortgage ( which is usually a first charge on property )
is only one form. A Fixed and/ or Floating Debenture is another
, a repairer's or landlord's lien is another etc.etc. i.e. the
word 'command' doesn't come into it. They are usually only enforceable
by Court order ( for possession or sale ).
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The agreement reached between the debtor and all
creditors to accept from the debtor an amount which may be less
than the full amount owed, and that the said amount shall satisfy
the
claim in full. |
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The procedure implementing a plan for the reorganization
of a company or business for the satisfaction of its debtors which
will always be put before the creditors and shareholders. The scheme
is controlled by a supervisor and the involvement of the court
is limited. |
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This document acknowledges or creates a debt and
confers a fixed or floating charge over all of the assets of a
company or business. It may also effect the company's' undertakings. |
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A receiver is appointed over assets that are subject
to a fixed charge.The appointed receiver can only deal with assets
that are appointed to him.He acts as the agent of the charge holder. |
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The interim order is granted by the court to an individual
who intends to propose a voluntary arrangement to existing creditors.
When in place - such an order will put in abeyance bankruptcy proceedings
and any other legal proceedings whilst the order is in force. |
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The court appointed receiver sorts out
assets which are subject to legal dispute. This procedure is often
resorted to in partnership disputes. |
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The Law of Property Act 1925 contains statutory powers
of receivers appointed under a fixed charge. The appointed person
will take charge of all mortgaged properties owned by a lender
whose loan is in default entitling the person to sell the property
or collect rental income owed. |
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A committee formed by creditors' to represent the
interests held by all for supervision of the administrator or trustee
in bankruptcy.The creditors' committee receive reports from the
administration receiver or the liquidation committee. |
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A creditor is granted a form of security over assets
of a company or business which may be subject to fluctuation such
as stock values. Under the charge a company can continue to trade
the assets until default occurs, when the secured creditor can
appoint an administrative receiver to realize the assets by enforced
sale subject to prior claims of preferential creditors'. |
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The creditor takes a petition to court for the compulsory
liquidation of a company or business for the purposes of satisfying
all debts owed |
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The Creditors' Voluntary Liquidation (CVL) is commenced
by the resolution of the company or business shareholders and is
controlled by the creditors who will choose the liquidator. |
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Creditors' may receive a Individual Voluntary Arrangement
(IVA) where an individual puts forward a scheme involving the
reorganization of their business affairs so as to satisfy existing
debts.The scheme will have the approval of the court and will be
under the control of a supervisor. |
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The court will make an administration order when
a business declares that it will be facing insolvency or bankruptcy.
The company will then be under the control of a an administrator.
this action is applied for by the company itself or even sometimes
a creditor. This gives a company some protection from its creditors
as assets are sold off and loans existing or new are reorganized. |
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If the court makes an administration order it will
appoint a licensed Insolvency Practitioner to ensure the purposes
of the order are carried out. A plan to achieve this will be worked
out by the administrator. |
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The holder of a floating charge will appoint the
Administration Receivership. The administrator will allow the company
to continue
and sell off any assets as necessary to repay secured and preferential
creditors. A Business or company is said to be in administrative
receivership when a licensed insolvency practitioner is appointed
as an administration
receiver |
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The creditor can present a winding-up-petition to
a company or business having insufficient means with which to pay
creditors'. A company which is unable to pay its debts is said
to be insolvent. The proven inability to pay is sufficient grounds
for a bankruptcy petition to be brought under the Insolvency Act
1986.A company or business will be in a state of insolvency
when its assets are inadequate for the clearing of all debts held,
including any other liabilities as they fall due plus the costs
involved in liquidation. |
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An act preventing an individual from holding a directorship
of any company or business. |
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Person licensed to deal with a company or business
facing bankruptcy or Insolvency procedures. |
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Also known as winding-up. Liquidation is a process whereby a
company or business sells off its assets in order to satisfy creditors
and shareholders The company does not exist following
this process. |
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Creditors who form a committee to receive information from the
liquidator and are involved in the sanction of the liquidators
actions. |
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Negotiated settlement |
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A negotiated settlement of a companies or business affairs agreed
by all involved but avoiding the expense of formal procedures. |
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Official Receiver |
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The official receiver is an Officer of the Court, or can be a
civil servant as well as a member of the Department of Trade Insolvency
Service. All of the aforementioned sort out or enable
bankruptcies
and compulsory
liquidations. |
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Partnership
Voluntary Arrangement |
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Company or business voluntary arrangement procedure as outlined
in The Insolvency Partnership Order 1994 |
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Petition |
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An application to the court for instruction as to remedy or relief |
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Preference |
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An insolvent company, business or individual makes a payment
to a creditor which places them in a better position than they
were before payment.The liquidator, administrator or trustee in
bankruptcy can recover preferenced payments when the payments were
made within two years in some cases and within six months of insolvency
in others. A preferential creditor as defined in Schedule 6 of
The Insolvency Act 1986 has priority in the distribution of funds. |
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Proof of Debt |
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The licensed Insolvency Practitioner or receiver will receive
Proof of Debt from the creditor, essential in compulsory liquidations. |
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Receiver |
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or administrative receiver, who is appointed by a secured creditor
holding a fixed charge over a company's specific assets
in order to take control of those assets for the benefit of the
secured creditor. |
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Reservation of Title (or
Retention of Title) |
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Part of the supply of goods act which entitles the supplier
to reserve ownership of the goods until they are fully paid for.
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Scheme
of Arrangement |
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Denotes an existing arrangement for debt settlement between a
company or business and its creditors under section 425 of the
companies act 1985.Three fourths of a majority vote is needed to
put the agreement in place and make it binding with court approval. |
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Secured Creditor |
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Any existing secured creditors are always paid first from any
available funds resulting from the sale of assets of an insolvent
company or business. |
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Security |
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A charge or mortgage over assets, commonly property taken
to secure payments of a debt. In the event the debt is not paid,
the lender has a right
to sell
the charged assets. |
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Statutory
Demand |
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A company or business receiving a formal statutory demand faces
bankruptcy or liquidation proceedings if they do not pay a debt
which must exceed £750
within 21 days. Should not
be used where the debt is disputed. |
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Transaction
at an Undervalue |
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This is a gift or a transaction in which the consideration received
is significantly less than that given. The transaction can be challenged
by an administrator, a liquidator or a trustee in bankruptcy. |
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Trustee |
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A term that can be used in place of the licensed insolvency practitioner
appointed in an English bankruptcy; a Scottish sequestration; a
deed of arrangement; a Scottish trust deed and an administration
order (of the affairs of a deceased director). |
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Turnaround |
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A procedure whereby professionals seek to rescue and rejuvenate
failing company's' or businesses. |
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Unsecured
Creditor |
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Used to refer to any ordinary creditor who has no preferential
rights, although, in fact preferential creditors will almost always
also be unsecured. In any event, the last in the queue for the
money, apart from shareholders. |
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VAT
Bad Debt Relief |
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The relief obtained in respect of the VAT element of an unpaid
debt. Previously available only when the debtor became insolvent,
relief is now available where debt is 6 months old at the relevant
date. |
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Wrongful
Trading |
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The director is held responsible where a company in liquidation
continues trading in circumstances where he should have reasonably
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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