Glossary

Bankruptcy Restriction Orders
An order made by the court under which a person who has been made bankrupt is subject to the restrictions of bankruptcy for between two and 15 years if the court decides they have been dishonest or are to blame for their situation.

Creditor
A person who is owed money by another.

Creditors Committee
A board of between three to five creditors who have agreed to act to supervise the administration of certain insolvency processes including liquidation and bankruptcy.  The office holder will look to the members of the creditors’ committee to obtain the necessary agreement and authority on different issues.

Debtor
This can refer to a person who has been made bankrupt or to a person who owes you money.

Debenture
A loan document that usually requires security over the borrower’s assets.

Fixed charge
A debt that is protected by having security over ‘fixed’ assets of a company, e.g. a property.  These creditors are paid prior to any other class of creditor.

Floating charge
A debt that is protected by having security over ‘floating’ assets of a company, e.g. stock. These creditors are paid after fixed charge creditors and preferential creditors but before non-preferential creditors.

Fraudulent trading
Where a company has carried on business with intent 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.

Income Payment Agreements
An agreement reached between a person who has been made bankrupt and their trustee that they will pay a set monthly amount to their bankruptcy estate for the benefit of their creditors for a period of up to three years.

Insolvency Act 1986
The main insolvency legislation containing the insolvency law.

Insolvency Practitioner
A person who is licensed by a professional body to act as an office holder.

Non-preferential creditor
Any creditor who is owed money by a company or individual which is not protected by security.  Employees are non-preferential creditors for arrears of wages exceeding £800, redundancy pay and pay in lieu of notice.

Office Holder
A licensed Insolvency Practitioner who has taken the appointment in an insolvency process.

Preference
A payment which places a creditor or an associate of a company or an individual, in a better position than they would have been otherwise.  The sums paid under a preference can be recovered by a liquidator, an administrator or a trustee in bankruptcy.

Preferential creditors
These creditors are paid in priority to floating charge creditors and non-preferential creditors.  Employees are preferential creditors for arrears of wages up to £800 and all outstanding holiday pay.

Shadow Director
A person who is not a registered director at Companies House but in accordance with whose directions or instructions the company is accustomed to act.  Ordinarily this would not extend to a person giving advice in a professional capacity.

Statutory Demand
A legal demand for payment to be received within 21 days.  Failure of a debtor to make payment following the 21 days can lead to the creditor issuing a petition for a bankruptcy or liquidation.

Statutory interest
If there are sufficient funds in an insolvency process and creditors have been paid in full, they are entitled to receive interest on their claim. The rate of interest is set by Statute.

Transactions at an undervalue
Assets transferred at an undervalue prior to insolvency can be recovered by a liquidator, an administrator or a trustee in bankruptcy.

Wrongful trading
Where a company has continued to trade after the time where the directors knew or ought to have known that the company was insolvent.