Please find below an explanation of some insolvency terms which you may find useful.

Administration

Administration is a procedure aimed at rescuing companies in financial difficulties. An Administrator can be appointed by the Court, by the Company or its Directors or by the holder of a floating charge. The principal purpose of an Administration Order is to rescue the Company in question.

A protective shell is put in place to protect the company from creditors who may not recover assets or otherwise pursue the Company for debts and so on without leave of the Court. The Administrator has wide powers to run the company whilst he seeks to achieve the purpose of the Administration.

Company Voluntary Arrangements

This involves a settlement proposal made by the Company's Directors to its creditors for repaying the Company’s debts at a rate less than full value but at a better return than that which Creditors could expect to receive in a formal insolvency. It usually allows the continued involvement of the Company's Directors in its ongoing affairs subject to monitoring by a Licensed Insolvency Practitioner, called the Supervisor.

Receivership

The term Receivership usually refers to Administrative Receivership although there are other types of receivership.

An Administrative Receiver is appointed by a creditor (usually a Bank) which has security (in the form of a floating charge) over most of a company's assets. A Bank will normally appoint a receiver when the Company is in default with its repayments. The duties are to realise and sell the assets of the business and to repay the appointing Bank.

Voluntary Liquidation

There are two types of voluntary liquidation, Members' Voluntary Liquidation and Creditors' Voluntary Liquidation.

Members' Voluntary Liquidation

('MVL') is a solvent liquidation where the company has sufficient assets in order to pay all of its liabilities in full within 12 months. This can be used, for example of the company has achieved the purpose for which it was formed. A meeting of the company's shareholders is required in order to pass a winding up resolution an appoint a Licensed Insolvency Practitioner called a Liquidator to realise the company's assets, pay off all creditors and return any surplus to the shareholders.

Creditors' Voluntary Liquidation

('CVL') is an insolvent liquidation where the company's assets are insufficient to pay creditors in full. The Liquidator is appointed in the same way as in an MVL. A creditors meeting is held to allow creditors to receive a report on the trading history of the company, and to ask questions of the directors as to the reasons for the business failure and so on. Creditors may seek the appointment of a different Liquidator and this will depend on the amount of votes in favour.

Compulsory Liquidation

Compulsory Liquidation is instigated by the Court, usually on the petition of a creditor, often the Inland Revenue or Customs and Excise in respect of in paid debts. Upon the making of the winding up order, the Official Receiver becomes Liquidator of the company alternatively he may decide to pass the case to a Licensed Insolvency Practitioner to act as Liquidator. Either way, the Liquidator's duty is to realise the Company's assets and distribute the proceeds to creditors. He will also to investigate the trading history of the company and report to the DTI on the conduct of the directors.