Insolvency Help Centre

Insolvency is a vast and complicated subject, hopefully in this section we can help demystify some of the processes and language used.

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Insolvency Signs

Terminology

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Insolvency Signs

 

“What signs should I look out for that indicate my company is insolvent?”

There are three insolvency areas you can review that can help you determine your answer.

 

The Cashflow Review

Your company maybe insolvent if:

  • you are not paying the NIC and Income Tax deductions from employees to the HMRC on the 19th of the month following the month they were deducted
  • You are regularly paying creditors on 90+ days but the paying terms to your trade creditors are sold to you on 30-day terms
  • You are not paying its bills on time; receiving lots of threats; county court judgements, county court summons’

As a director, there is a legal requirement for you to understand this issue and if you believe the company has an inadequate amount of cash to meet its fiscal demands, you must take action.

 

The Balance Sheet Review

Does the company owe more than what is due in?

If the answer is yes, then the company could be insolvent.

You are legally required to present accounts that show a true and fair picture of the business, therefore, it is better not to overstate stock level and work in progress.

It is important to point out that this test should include prospective or possibly unforeseen liabilities.

If your company has a negative balance sheet it is insolvent.

 

Legal Action Review

If a creditor has obtained a County Court Judgement this may demonstrate the company’s insolvency and the creditor may petition to wind up the company.

If a creditor has obtained a Statutory Demand for greater than £750 and it remains unpaid for more than 21 days, then the creditor may ask the court for a WUP.

So if your company has a CCJ or a WUP, it is insolvent.

 


 

What if my company fails in two or more insolvency areas?

The answer is act now!

Call Us Now On 0333 920 9818

Remember, if the company is insolvent you must act to maximise creditors’ interests.

Terminology

Below is on alphabetical list of the most common terms (and there definitions) used in insolvency.

Administration

If a company loses financial control, to protect the interests of its shareholders it can be put into administration. An administrator is appointed who will take charge and restructure the company’s procedures and hopefully put on the road to becoming solvent. If they are unable to the company will be sold and its assets will be sold off.

 

Administrator

A person who is appointed by the court to take control of a company when its in administration.

 

AGM

Annual General Meetings are attended by shareholders and directors and it gives them the opportunity to review and react to any information about the businesses activities in the past year.

 

Arrears

Arrears are outstanding debts that haven’t been paid.

Asset

An asset is an item of company property that has a value  i.e. a house or stock etc.

 


 

Bankruptcy

When you are personally unable to pay your debts or you owe more than you own, then you can be declared bankrupt. During the  bankruptcy period you might lose control of your assets and you will be disqualified from being a company director. Bankruptcy will also affect your credit rating.

 

CCJ

A County Court Judgement or court action where a company / person will take you to court because you have not paid your debts. You will be ordered to pay the debt within a certain time or risk further action.

 

Companies House

All Ltd and PLCs in the UK are registered here. They store and make public all information regarding accounts and directors. Companies House also act to incorporate and dissolve companies.

 

County Court

A county court deals in civil matters. These are non-criminal cases and it is usually where business matters are addressed.

 

Credit Rating

A credit rating is ranking by which financial institutions can rate your personal financial risk. If you have a good rating then will be more likely to acquire loans etc. Your rating can be adversely affected if you have previously defaulted on payments.

 

Creditors

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

 

CVA

A Company Voluntary Arrangement is an arrangement to make monthly payments to your company’s creditors based on what the company can afford rather than what it owes.

 

CVL

A Company Voluntary Liquidation is a formally binding agreement between your company and its creditors whereby the company’s  assets are liquidated.

 


 

DBIS – Department of Business, Innovation, and Skills

DBIS is the Government agency which  runs the Insolvency Service in England & Wales.

 

Debenture

A form of security over assets of a company in exchange for a loan.

 

Directors

A Directors controls the direction of the company and is a key decision maker. They are responsible for its successful operation of the business.

 

Dissolution

A process that legally breaks up a company that no longer wishes to trade. The process can start after the company has ceased trading for three months.

 


 

Factoring

A financial service whereby a company’s outstanding invoices are sold to an institution. Initially, the funder advances the company up to 90% of the value of the invoice and upon its settlement by the debtor, pays the company the remainder of the value minus fees.

 

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.

 

Fraudulent trading

Where a director has consciously sought to defraud its creditors with no intention of paying them back.

 


 

Going Concern

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

 


 

High Court

Her Majesty’s High Court of Justice is based in Westminster and is a senior to a County Court.

 

HMRC

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

 


 

Insolvency practitioner

A licensed professional who specialises in insolvency. IPs can either be an administrator or a liquidator and the aim of their role is to get the best result for everyone involved.

 

Insolvent

If you or your company cannot pay its debts or owes more than owns then it is insolvent.

 

Interim order

When someone is applying for an IVA  they can ask the court to protect them from legal or bankruptcy actions by someone they owe money to.

 

IVA

An Individual Voluntary Arrangement is a personal version of a company voluntary arrangement.

 


 

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 its (proper) actions. The businesses are usually privately owned.

 

Limited Liability

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

 

Liquidation

Liquidation brings your company’s existence to an end. The assets are sold off, the creditors are reimbursed and it is taken off the companies register.

 

Liquidator

A liquidator deals with the closure of the company. This role can only be facilitated by an insolvency practitioner.

 


 

Moratorium

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

 


 

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 creditor’s meetings, checking management accounts and forecasts.

 


 

Official Receiver

The Official Receiver is a civil servant and officer of the court. They handle the initial stages of any court action and conducting an initial investigation.

 


 

Partnership

Similar 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.

 

Phoenixism

An insolvent company is closed down and the business is moved to a new company.

 

Pension Fund

A fund from which pensions are paid, accumulated from contributions from employers, employees, or both.

 

Personal Guarantee

A personal guarantee is when directors act to personally guarantee a loan as a gesture of their faith in the venture. If it defaults then the director is liable for the remaining debt.

 

PLC

A Company that trades shares of its business on the stock exchange which can be owned by anyone. The company has limited liability and are generally quite large firms and have to disclose all actions. The minimum share capital level is 50,000 and it must file annual accounts within six months of the year end.

 


 

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.

 

Receivership

The period in which the receivers have taken control of the company and are selling its assets.

 

Redundancy

If a section of the business is no longer commercially viable then its staff maybe offered redundancy as a way of ending their employment contracts.

 


 

Shareholders

A shareholder is an individual or institution (including a corporation) that legally owns a share of stock in a public or private corporation. As owners of the company they make key decisions and benefit from dividends.

 

Seize goods

The Enforcement Officer takes away and sells goods to pay off debt owed

 

SIP 16

Statement of Insolvency Practice 16 are regulations an Insolvency practitioners must adhere to in dealing with a pre-pack administration.

 

Sole Trader

An owner of a business who is wholly responsible for the day to day running of the business and its debts.

 

Statutory Demand

A formal demand for payment of a debt worth over £5000 which has to be paid in 21 days. Non-payment of a statutory demand can lead to further action.

 

Supervisor

The Supervisor facilitates the collection of payment in an IVA / CVA

 


 

Turnover

The amount money that a business earns in certain time frame.

 


 

Unique Selling Proposition (USP)

The specific characteristic that distinguishes your company from its competitors.

 


 

VAT

Value Added Tax: A duty that is paid on qualifying goods. It is collected by companies for the HMRC.

 


 

Warrants

In law, a warrant can mean any authorisation. In a 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

If your company is insolvent and you act in an improper and irresponsible way then you can be perceived as acting wrongfully.

 

WUP

A Winding Up Petition is made to a court and if successful the offending company can be closed down.

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