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Insolvency and Restructuring

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Insolvency and Restructuring Glossary of Terms: Insolvency and Restructuring the creation of the mortgage. Administration Bankruptcy Compulsory Liquidation Administration is the court supervised Bankruptcy is a statutory process under process by which a Licensed Insolvency which a Licensed Insolvency Practitioner Practitioner called an administrator takes called a Trustee in Bankruptcy, or the Official a Compulsory Liquidation is a court initiated control of an insolvent company with a view Receiver, collects in and sells the assets of a Liquidation commenced by the issue of a to saving the Company or its business or Bankrupt to pay off his liabilities. winding-up petition which must be selling the assets for a better price than on a advertised in the London Gazette. Liquidation. The job of the administrator is to act in the interests of creditors generally: BIS compare this with the role of the Corporate Rescue Administrative Receiver. As soon as a BIS stands for the Department for Business, company goes into Administration actions Innovation and Skills. Corporate Rescue, also known as “corporate by creditors (e.g. to enforce court orders or recovery”, refers to the saving of a Company repossess assets) are put on hold. or its business either by an informal or formal Commercial Rent Arrears Recovery Insolvency Procedure. Administrative Receiver Commercial Rent Recovery Arrears (“CRAR”) Creditor’s Voluntary Liquidation is a replacement for the remedy of Distraint an Administrative Receiver is a Licensed which will be available to landlords of Insolvency Practitioner appointed by the commercial premises when the relevant part a Creditor’s Voluntary Liquidation is a holder of a Debenture whose role is to sell of the Tribunals, Court and Enforcement Act Liquidation initiated by the Directors of a secured assets for the benefit of the holder 2007 comes into force (expected in April Company and requiring a 75% vote in favour of the Debenture. A Company will generally 2012). by the shareholders and where the Directors go into Liquidation after Administrative are unable to make a Declaration of Receivership. Generally a Debenture Solvency. created after September 2003 no longer CVA gives the holder of a Floating Charge the right to appoint an Administrative Receiver. Crystallisation a CVA (Corporate Voluntary Arrangement) is a procedure under which 75% by value of the Administrative Receivership Unsecured Creditors of a Company agree to Crystallisation refers to the point in time at accept part payment of what they are owed which a Floating Charge takes effect to and/or to accept delayed payment. This prevent the Company disposing of assets Administrative Receivership is the process arrangement is supervised by a Licensed without the consent of the holder of a under which a Debenture holder appoints a Insolvency Practitioner. Unlike an Debenture. Licensed Insolvency Practitioner to take Administration, with a CVA the Directors control of a Company’s business with a view stay in control of the Company. Typically to realising assets to pay off the Debenture creditors will be offered not less than 30p in Debenture holder. This process cannot generally be the £: VAT Bad Debt Relief means that used for Debentures created after creditors will be able to claim unpaid VAT as September 2003. a Debenture is legal agreement entered into relief from HMRC. by a Company with a Secured Creditor (normally a Bank) under which various Bankrupt securities are given over the Company’s Chattel Mortgage assets: the securities typically include a Floating Charge. For the securities in a a Bankrupt is an individual who is insolvent a Chattel Mortgage is a mortgage created by Debenture to be legally effective as against and whose affairs are being administered by a Company over specifically identified the liquidator of a Company, the Debenture a Trustee in Bankruptcy. chattels (meaning plant, equipment or other must be registered at Companies House movable assets). To be legally effective within 21 days of its creation together with against the liquidator of a company, notice of an MR01 Form. such a charge must be given to Companies House on an MR01 Form within 21 days of Procedure (instead of Administrative Declaration of Solvency Receivership) for the sale of a business as a IVA going concern by preventing the appointment of administrative receivers a Declaration of Solvency is a statutory IVA stands for ‘Individual Voluntary except under Debentures granted before declaration made by Directors to the effect Arrangement’. Under an IVA an individual September 2003. that a Company is expected to be able to reaches an agreement with 75% by value of pay its liabilities within a 12 month period. its Unsecured Creditors to pay them only The declaration has annexed to it a part of what they are owed and/or to defer False Accounting Statement of Assets and Liabilities. payment to them. The process must be supervised by a Licensed Insolvency False Accounting refers to the making of Practitioner. Directors’ Disqualification Order incorrect accounting entries by a Company’s Directors with a view to deceiving creditors. This is a criminal offence. Insolvency a Directors’ Disqualification Order is an order banning a person from being a Director of a Company or being concerned in Insolvency can either be balance sheet Fixed Charge its promotion or management. Licensed insolvency (where liabilities exceed assets) or Insolvency Practitioners are required to cash flow insolvency (where liabilities cannot report to BIS within 3 months of their a Fixed Charge is a charge over specific, be paid as they fall due). appointment as to the conduct of each identifiable property (which can include Director (or person who was a Director in future property) which prevents the Company granting the charge from disposing Insolvency Procedure the preceding 12 months). A person can be disqualified for up to 15 years. of that property. A Fixed Charge will typically be granted over such assets as real property Insolvency Procedure means one or more of (land and buildings) and intellectual property the procedures under the Insolvency Act Distraint which will need to be retained by the 1986 in which assets are realised by a Company for the purposes of carrying on its Licensed Insolvency Practitioner for the business. Compare Floating Charges which Distraint, also known as “distress”, means benefit of a Company’s creditors. are granted over assets, such as stock in the legal process by which a bailiff or other trade, with which the Company will need to Court Officer takes possession of goods with deal when carrying on its business. a view to selling them at auction. The net Judgment Debt proceeds after the costs of sale are used to pay off the Judgment creditors (creditors Floating Charge a Judgment Debt is the sum owed by a who have obtained a court judgment), Company or individual to a creditor who has Landlord or HMRC each of whom can use obtained a court judgment in his favour. this process. In the case of a Landlord and a Floating Charge is a charge contained in a HMRC no Court Order is needed meaning a Debenture that enables a Company to give Company in financial difficulty can be at security whilst retaining possession and legal Licensed Insolvency Practitioner severe risk. Protection may be provided by ownership of its assets and being able to sell Administration, a Moratorium ahead of a them in the ordinary course of business until a Licensed Insolvency Practitioner is a CVA or (to a certain extent) by a Winding-up Crystallisation. person (usually an accountant) who is Petition. authorised by BIS to be responsible for MR01 Form Insolvency Procedures. Distress for rent arrears will be abolished by the Tribunals, Court and Enforcement Act 2007 and replaced with new procedures. MR01 Form is the form filed at Companies Liquidation See Commercial Rent Arrears Recovery. House to give notice of a Debenture or other security and relevant particulars. This form puts other creditors on notice as to what Liquidation is the process of collecting in a Enterprise Act security has been given to the creditor who company’s assets and paying off its liabilities, also known as “winding up”. Where the has filed the form. company’s liabilities exceed its assets this The Enterprise Act 2002 which established process should be undertaken by a Licensed Administration as the preferred Insolvency Insolvency Practitioner whose function is to protect the Company’s assets, hold Directors Phoenix Company Security to account and pay creditors according to a statutory priority. a Phoenix Company is a new company which a Security over the assets of a company takes over the business and assets of a generally takes the form of a Debenture London Gazette company that has become insolvent. The containing Fixed Charges and/or Floating name by which the insolvent company was Charges or can be a mortgage or legal charge the London Gazette is the official known is a Prohibited Name unless certain over real property independent of a publication that lists insolvency events procedures are followed. Failure to follow Debenture. including advertisements in relation to these procedures is a criminal offence and winding-up petitions. A bank will freeze a the Director becomes personally liable for all of the debts of the new company. See the Statement of Assets and Liabilities company’s bank account on seeing the advertisement. Everyman Legal Fact Sheet entitled “Phoenix Companies: Restrictions on the Re- use of a Statement of Assets and Liabilities is a Names following Insolvency”. statement of the Directors produced as part Members’ Voluntary Liquidation of an Insolvency Procedure in which they list the Company’s assets and liabilities and the Preference a Members’ Voluntary Liquidation is a estimated shortfall to Secured Creditors and Liquidation initiated by the Directors of a Unsecured Creditors.
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