Corporate and Personal Insolvency Lecture Notes

Comprehensive vocabulary flashcards covering both corporate and personal insolvency principles, procedures, and statutory tests under the IA 1986 and CIGA 2020.

Corporate Insolvency

The inability of a company to pay its debts, primarily governed by the Insolvency Act 1986 (IA 1986).

Statutory Demand (Corporate)

A formal demand for an outstanding sum of $£750$ or more; failure to pay or reach an arrangement within $21$ days of service deems a company unable to pay its debts.

Cash Flow Test

A test for insolvency based on whether a company is unable to pay its debts as they fall due.

Balance Sheet Test

A test for insolvency based on whether a company’s liabilities exceed its assets.

Liquidation (Winding Up)

The process whereby a business stops trading, its assets are sold, the proceeds are distributed to creditors, and the company ceases to exist.

Compulsory Liquidation

Liquidation commenced by a third party, usually a creditor, presenting a winding up petition at court based on the company's inability to pay debts.

Creditors’ Voluntary Liquidation (CVL)

A process initiated by the company itself when it is insolvent, often in response to pressure from creditors.

Members’ Voluntary Liquidation (MVL)

A liquidation process for solvent companies where directors must swear a statutory declaration of solvency.

Official Receiver (OR)

A civil servant and court official employed by the Insolvency Service who acts as the liquidator in compulsory liquidations unless a private liquidator is appointed.

Avoidance of Floating Charges (s 245 IA 1986)

A claim where a floating charge is void if created within a 'relevant time' (up to $2$ years for connected persons) without the company receiving fresh consideration.

Preference (Corporate)

A transaction where a company puts a person in a better position than they would have been in during liquidation, motivated by a desire to prefer that party.

Transaction at an Undervalue (Corporate)

A gift or transaction where the company receives significantly less consideration than it provided, occurring within $2$ years prior to the onset of insolvency.

Extortionate Credit Transaction

A credit transaction made within $3$ years of insolvency that requires grossly exorbitant payments or grossly contravenes ordinary principles of fair dealing.

Ring Fencing

The statutory setting aside of a portion of floating charge assets for unsecured creditors ($50\%$ of the first $£10,000$ and $20\%$ of the remainder up to $£800,000$).

Preferential Debts

Debts ranked above ordinary unsecured creditors, including employee wages up to $£800$, holiday pay, and secondary preferential debts owed to HMRC (PAYE and VAT).

Administration

A rescue process where an independent insolvency practitioner (administrator) is appointed to run the company with the primary objective of rescuing it as a going concern.

Qualifying Floating Charge Holder (QFCH)

A lender with a floating charge over the whole or substantially the whole of a company’s property, empowered to appoint an administrator out of court.

Moratorium (CIGA 2020)

A rescue regime under the Corporate Insolvency and Governance Act 2020 that protects a company from creditor action for $20$ business days to allow for rescue attempts.

Company Voluntary Arrangement (CVA)

A written agreement between a company and its creditors where creditors agree to accept partial payment or a longer timeframe for payment.

Pre-pack Administration

An arrangement where the sale of an insolvent company’s business is agreed before an administrator is appointed and executed immediately upon appointment.

Personal Insolvency

The inability of an individual to pay their debts when they are due now or in the future with no reasonable prospect of payment.

Statutory Demand (Personal)

A formal demand for a liquidated sum of $£5,000$ or more; failure to pay or set aside within $3$ weeks allows a creditor to jumpstart bankruptcy proceedings.

Bankruptcy

The process whereby an individual’s assets vest in a trustee in bankruptcy to be sold for the benefit of creditors.

Trustee in Bankruptcy

The person (either the Official Receiver or a private practitioner) in whom the bankrupt’s estate vests for the purpose of distribution to creditors.

Income Payments Agreement (IPA)

An agreement where the bankrupt pays a portion of their salary to the trustee for up to $3$ years if the salary exceeds their family's reasonable needs.

Individual Voluntary Arrangement (IVA)

A formal, binding agreement between a debtor and their creditors to settle debts, requiring approval by $75\%$ in value of the creditors.

Debt Relief Order (DRO)

An insolvency procedure for individuals with unsecured liabilities under $£50,000$, assets under $£2,000$, and disposable income under $£75$ per month.

Debt Respite Scheme (Breathing Space)

A standard legal protection for individuals from creditor action for up to $60$ days, introduced by 2020 regulations.

Bankruptcy Restriction Order (BRO)

A court order lasting between $2$ and $15$ years for 'culpable' bankrupts who have been dishonest, negligent, or reckless.

Administrative Receiver

A receiver appointed by a floating charge holder for charges created before $15$ September $2003$ to run the company and sell assets.