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Glossary of Terms

Insolvency Glossary

Administration order
A court order to arrange the payment of debts by an individual or company. A company can also be put into administration if a floating charge holder or the directors of the company itself file the requisite notice at court.

Administrative receiver
An Insolvency Practitioner appointed by the holder of a debenture that is secured by a floating charge that covers the whole or substantially the whole of the company's assets. The Insolvency Practitioner 's task is to collect in and realise the assets on behalf of the debenture holder.

Administrative receivership
The term applied when an insolvency practitioner is appointed as an administrative receiver. The right of a debenture holder to appoint an administrative receiver has been restricted by the Enterprise Act 2002.

Administrator
The insolvency practitioner appointed by the court under an administration order or by a floating charge holder or by the company or its directors filing the requisite notice at court.

Annulment
Cancellation.

Assets
These are belongings of the debtor that may be used to pay his or her debts.

Bankrupt
A debtor that, upon voluntary petition or one invoked by the debtor's creditors, is judged legally insolvent. The debtor's remaining property is then administered for the creditors or is distributed among them.

Bankruptcy Restrictions Order
If the official receiver considers that the conduct of a bankrupt has been dishonest or blameworthy in some other way, he (or she) will report the facts to court and ask for a BRO to be made. The court will consider this report and any other evidence put before it, and decide whether it should make a BRO. If it does, you will be subject to certain restrictions for the period stated in the order. This can be from 2 to 15 years.

Charge
The appropriation of real or personal property for the discharge of a debt without giving the creditor any property in, or possession of, the subject of security.

Charging Order
A charging order is a court order placing restrictions on the disposal of specific assets, i.e. property or securities, given after judgment and give priority of payment over other creditors.

Court-Appointed Receiver
A 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.

Charge
Security interest taken over property by a creditor to protect against non-payment of a debt (such as a mortgage).

Company Directors Disqualification Act 1986
An Act of Parliament, consolidation act on the disqualification of directors.

Compulsory liquidation
The placing of a company into liquidation after a petition to the court, usually by a creditor.

Contributory
Shareholders and every person liable to contribute to the assets of a company in the event of it being wound up.

Creditor
Someone who is owed money by a bankrupt or company (secured or unsecured creditor).

Debenture
A document in writing, usually under seal, issued as evidence of a debt or the granting of security for a loan of a fixed sum at interest (or both). The term is often used in relation to loans (usually from banks) secured by charges, including floating charges, over companies' assets.  The lender is often referred to as the debenture holder.

Director
A person who conducts the affairs of a company.

Disqualification
A procedure whereby a person has a court order made against them or gives an undertaking to the Secretary of State which makes it an offence for that person to be involved in the management or directorship of a company for the period specified in the order (unless leave has been granted by the court).

Dividend
Any sum distributed to unsecured creditors in an insolvency.

Fixed charge
A fixed charge is a form of security granted over specific assets. The debtor cannot sell the assets without the consent of the secured creditor or repaying the amount secured by the charge.

Floating charge
A floating charge is a form of security granted to a creditor over general assets of a company.  The assets may change (e.g. stock) and the company can use the assets without the consent of the secured creditor until the charge "crystallises" (becomes fixed). Crystallisation occurs on the appointment of an administrative receiver, on the presentation of a winding-up petition or as otherwise provided for in the document creating the charge.

Guarantee
A legal commitment in writing to repay a debt owed by a third party.

Individual Voluntary Arrangement (IVA)
A voluntary arrangement for an individual is a procedure whereby the person comes to an arrangement with their creditors in how their debt will be discharged. Such a scheme requires the approval of the court and is under control of a supervisor and insolvency practitioner.

Insolvent
The state of not being able to pay one's debts as they fall due or having an excess of liabilities over assets.

Insolvency Practitioner (IP)
An authorised person who specialises in insolvency. They are authorised by one of the chartered accountancy bodies, the law societies, the insolvency practitioners association or department of trade. The only person who may act as office holder in an insolvency proceeding.

Interim Order
An 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.

Judgment
Judgment is recognition of a debt by a court. The decision is given by a court at the conclusion of a trial.

Lien
Right to retain possession of assets or documents until settlement of a debt is made.

Liquidator
The person appointed to deal with the assets and liabilities of the company or partnership once the resolution to wind up has been passed or a compulsory winding up order has been made.

Liquidation (winding up)
The procedure whereby the assets of a company or partnership are gathered in and usually the closing down of the business. There are three types of liquidation - compulsory, creditors' voluntary and members' voluntary.

Liquidator
The Official Receiver or an insolvency practitioner appointed to administer the liquidation of a company or partnership.

Member (of a company)
A person who has agreed to be, and is registered as, a member, such as a shareholder of a limited company.

Mortgage
A transfer of an interest in land or other property by way of security, redeemable upon performing the condition of paying a given sum of money.

Nominee
The person chosen by the individual or corporate debtor to report on the debtors proposals for an IVA.

Officer (of a company)
A director, manager or secretary of a company.

Official Receiver
An officer of the court and civil servant employed by The Insolvency Service, who deals with bankruptcies and compulsory company liquidations.

Person
An individual or corporation.

Petition
A formal application made to a court.

Proof of Debt
The document submitted in an insolvency to establish a creditors claim, it may be informal (by letter) or in a prescribed form for bankruptcy and compulsory liquidations.

Preferential creditor
A creditor who is entitled to receive certain payments in priority to floating charge holders and other unsecured creditors. These creditors include occupational pension schemes and employees.

Proof of debt
A statutory form completed by a creditor in a compulsory liquidation to state how much is claimed. The form is supplied by the Liquidator.

Provisional liquidator
The person (OR/IP) appointed by the court to preserve a company's assets pending the hearing of a winding up petition.

Proxy
Authority given by a creditor or member to another person to attend a meeting and vote in their place - a 'proxy'.

Proxy form
A form which must be completed if a creditor wishes someone else to represent him or her at a creditors' meeting and vote on his or her behalf.

Public examination
When a company is being wound up or in bankruptcy proceedings, the Official Receiver may at any time apply to the court to question the company's director(s) or any other person who has taken part in the promotion, formation or management of the company or the bankrupt.

Receivership
The general term applied when a company is in administrative receivership.

Realise
Realising an asset means selling it or disposing of it to raise money, for example to sell an insolvent's assets and obtain the proceeds.

Receiver
The person appointed by the court or with the power to receive the rents and profits of property. Receivers who are not administrative receivers do not need to be insolvency practitioners.

Rescission
A procedure that cancels a winding-up order.

Release
Whereby the secretary of state agrees that the trustee has completed the administration case and the official receiver or insolvency practitioner is discharged.

Secretary of State
The Secretary of State for the Department for Business, Enterprise and Regulatory Reform

Secured creditor
A creditor with specific rights (security) over a person's assets for money owed.

Shadow director
A person who is not formally appointed as a director who gives instructions on which the directors of a company are accustomed to act.

Statement of affairs
A document sworn under oath, completed by a bankrupt, company officer or director(s), stating the assets and giving details of debts and creditors.

Supervisor
The person appointed to supervise the carrying out of a company voluntary arrangement once approved by creditors (and members).

UNCITRAL
United Nations Commission on International Trade Law.

Security
A 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 charge assets. Security documents can be very complex. The most common example is a mortgage over a property.

Statutory Demand
A formal notice requiring payment of a debt exceeding £750.00 within 21 days, in default of this demand bankruptcy or liquidation proceedings may be commenced without further notice.

Unsecured creditor
Any creditor who does not hold security for money owed. Some unsecured creditors may also be preferential creditors.

Voluntary liquidation
The placing of a company into liquidation by resolution of the members. There are 2 types of voluntary liquidation - members' voluntary liquidation for solvent companies and creditors' voluntary liquidation for insolvent companies.

Winding up order
An order made by the court, usually based on a creditor's petition, for the compulsory winding up or liquidation of a company or partnership.