Insolvency glossary

Insolvency comes with a lot of jargon at exactly the moment a director has least patience for it, so here are the key terms in plain English. If a creditor, accountant or letter has used a word you do not recognise, find it here, then follow the link for the full guide. Understanding the language is the first step to feeling back in control of the situation.

Administration

A rescue procedure that puts a company under a Licensed Insolvency Practitioner with a moratorium that stops creditor action while a rescue or sale is arranged.

Bounce Back Loan

A pandemic loan of £2,000 up to £50,000, with the government guaranteeing 100% to the lender. The company is responsible for repaying it. No personal guarantee was required, but misuse can expose a director personally.

Company Voluntary Arrangement (CVA)

A binding agreement to repay creditors over a fixed period, usually three to five years, while the company keeps trading.

Compulsory liquidation

A court-ordered winding up of a company, usually following a creditor winding-up petition.

Creditors' Voluntary Liquidation (CVL)

The director-led process to close an insolvent company, run by a Licensed Insolvency Practitioner. The most common UK insolvency procedure.

Director loan account

A record of money owed between a director and the company. Overdrawn means the director owes the company, which the liquidator can collect.

Members' Voluntary Liquidation (MVL)

The way to close a solvent company. The directors make a declaration of solvency stating that the company can pay its debts, with interest, within 12 months, and a Licensed Insolvency Practitioner is appointed as liquidator.

Notice of intention to appoint administrators

Written notice, of at least 5 business days, that the company or its directors must give a lender holding a qualifying floating charge before they appoint an administrator. A copy is filed at court (Insolvency Act 1986, Schedule B1, paragraphs 26 and 27).

Personal guarantee

A director's personal promise to repay a company debt if the company cannot. Can put personal assets at risk if the company fails.

Pre-pack administration

A sale of the business arranged before administration and completed on appointment, to preserve a viable business and jobs.

Proxy

A document in which a creditor names someone to speak, vote or abstain for them at a meeting in an insolvency, either for one meeting or for the whole case (Insolvency (England and Wales) Rules 2016, rule 16.2).

Statutory demand

A formal written demand for a debt, usually giving 21 days to pay before a creditor can present a winding-up petition.

Strike off

Removing a company from the Companies House register using form DS01. Only suitable for a solvent or dormant company with no debts.

Time to Pay arrangement

An agreement with HMRC to clear tax arrears in instalments. HMRC sets no fixed time limit: it depends on what you owe and what you can afford.

Winding-up petition

A court application by a creditor to close a company over an unpaid debt. The most serious creditor action.

Wrongful trading

Continuing to trade when there is no reasonable prospect of avoiding insolvent liquidation. Can make a director personally liable.