Glossary

Terms are listed alphabetically.

Accountant in Bankruptcy (AiB)

The Accountant in Bankruptcy (AiB) is an Executive Agency of the Scottish Government. It is responsible for

·         administering the process of personal bankruptcy and recording corporate insolvencies in Scotland;

·         the determination of personal and entity bankruptcy applications;

·         making decisions on debt payment programme applications under the Debt Arrangement  Scheme;

·         protecting trust deeds;

·         maintaining public registers of all bankruptcies, trust deeds and statutory debt payment programme.

Administration

is designed primarily to save all or parts of an insolvent company and is overseen by an insolvency practitioner, referred to as an administrator. During an administration, creditors aren’t allowed to pursue the insolvent company for the money they are owed; this is known as a ‘moratorium’. The moratorium is to ensure all creditors are treated fairly and to avoid a ‘free for all’ where some creditors might get a better outcome at the expense of others simply by being faster or more aggressive – a situation that, if allowed, could easily get dangerously out of control. Administrations are handled by an insolvency practitioner who will try and work out the best way to get creditors as much of their money back as possible. The insolvency practitioner may decide to re-organise the business to improve its performance or sell parts of it to raise money to pay back creditors. You might also hear the term pre-packaged or pre-pack administration. Pre-packs are where the sale of all or parts of a business is arranged before it enters administration and the sale is completed shortly after an administrator is appointed.

Administrative Receivership

is where a secured creditor (typically a bank) appoints an insolvency practitioner as the administrative receiver to take control of a company that cannot repay its secured debt. The receiver can choose to continue to run that company, or sell some or all of the assets in order to repay the secured creditor (and preferential creditors). Any funds or assets left over after this are returned to the company’s management. Often, this is followed by the liquidation of the company and the distribution of the remaining assets amongst unsecured creditors. In an effort to boost business rescue, the law was changed in 2003 to significantly curtail secured creditors’ ability to initiate administrative receivership proceedings. Administrative receiverships have become quite rare (with business rescue procedures like administrations being used instead).

Assets

Anything that belongs to an insolvent company or individual that may be used to repay their debts.

Bankruptcy

is a procedure for an individual who is unable to pay their debts whereby a bankruptcy order is made by the court.  The order shows that the individual is unable to pay his or her debts.  During a bankruptcy – which typically lasts for one year – creditors are not allowed to pursue a debtor (‘the bankrupt’) to reclaim money owed to them. The Official Receiver, insolvency practitioner or Accountant in Bankruptcy (AiB) in Scotland is appointed to take charge of a bankrupt’s property and becomes known as the trustee. The trustee is allowed to sell the bankrupt’s property to raise money to repay creditors. This part of the process may take longer than the year-long protection offered by bankruptcy. At the end of the year, the bankrupt’s remaining pre-bankruptcy debts are written off (except for student loans, child support payments, and fines and debts incurred through fraud) and the debtor starts afresh. Bankruptcy is often known as Sequestration in Scotland.

Charge

A right over a particular property or type of asset given to a creditor by a debtor when borrowing money as protection for that creditor against the non-payment of that debt.  For example, when a bank lends money to an individual to buy a house, they take a ‘charge’ (or ‘mortgage’) over the property the loan is used to buy – if mortgage repayments are missed, the bank can take control of the property to repay the debt. This is known as a Standard Security in Scotland.

See also: Collateral; Security

Collateral

This is something that someone taking a loan agrees to give up should they fail to repay that loan e.g. their home or a business’ equipment.

Commissioner

A member of a creditors’ committee in a Scottish bankruptcy (known as sequestration).

Company Voluntary Arrangement (CVA)

is a procedure where creditors agree to reduced or rescheduled debt repayments which allows the insolvent company to survive. The original directors are generally allowed to retain control of the company.  The arrangement is overseen by an insolvency practitioner referred to as the supervisor.

Creditor

Someone owed money by an individual or business.

Creditors’ voluntary liquidation

Creditors’ voluntary liquidation (or CVL) occurs where the shareholders, usually at the directors’ request, decide to put a company into liquidation because it is insolvent. In a CVL, the creditors can appoint a liquidator of their choice. The CVL is the most common way for directors and shareholders to deal voluntarily with their company’s insolvency.

Debt arrangement scheme (The DAS)

is the Scottish government’s scheme which allows someone with financial difficulties to repay their debts through a debt payment programme.  All interest and charges are frozen from the date of commencement of the DAS, but the debtor repays all of the sums due to their creditors over an extended period. The DAS allows repayment of debts by individuals and businesses which are not companies to be repaid over a longer period of time, normally up to 10 years, but it could take longer than this.  They are processed by the AiB as the DAS Administrator, but can be set up by insolvency practitioners, regulated Money Advice Advisors or regulated debt charities.

Debt management plan (DMP)

is an informal arrangement between creditors and a debtor. DMPs are not subject to the same legal or regulatory controls as formal insolvency procedures. They can last a number of years (sometimes decades) and are designed to ensure all debts are repaid.  DMPs are usually handled by debt management companies or debt charities.

Debt relief order (DRO)

is available to individuals who have relatively low debts (under £20,000) and few or no assets (maximum of £1,000) i.e. those who are unlikely to be able to repay even a portion of their debt. The debtor is debt free (excluding student loans, child support payments and fines and debts incurred through fraud) after one year. DROs do not apply in Scotland.  DROs are managed by the Official Receiver.

Debtor

An individual or company who owes money.

Debts

Amounts owed by an individual or company

Decision Procedure

is a process by which creditors can decide whether or not to consent to a particular proposal.  These procedures currently apply in England and Wales only. A convener may seek a decision from creditors using one of the following procedures:

(a) correspondence;

(b) electronic voting;

(c) virtual meeting;

(d) physical meeting;

(e) any other decision making procedure which enables all creditors who are entitled to participate in the making of the decision to participate equally, for example the deemed consent procedure.

Deemed Consent

is a procedure by which an office holder can seek a decision by creditors in the proceedings but which does not require creditors to vote on the proposal - the decision will be deemed to have been made if less than 10%  of creditors in value object to the proposed decision.

This procedure currently applies in England and Wales only.

Discharge

A release of an individual subject to a bankruptcy or a debt relief order from certain types of their debts

Fixed Charge Lender/Secured creditor/mortgagee

These are creditors who have been granted rights (known as a ‘charge’, or ‘security’) to a specific property or asset belonging to the company or individual to whom money has been lent. If the loan is not paid back, the lender can take control of the asset the loan has been secured against and sell it. Banks are a typical fixed charge creditor – mortgages are an example of a loan secured by a fixed charge or standard security.

Floating Charge Lender

These creditors are similar to fixed charge lenders, except their lending isn’t secured against a specific asset but to a general type, or ‘class’, of asset. For example, a company might grant a fixed charge to its bank for a loan used to buy the business’ warehouse, but might grant a floating charge over ‘all stock in the warehouse’ to another lender when it takes out an overdraft to buy stock and consumables. The floating charge lender has to accept that the exact goods (and their value) against which the loan is secured can vary over time.

Gazette (editions are published in London, Edinburgh, and Belfast)

An official government publication, which contains legal notices about new insolvencies and the details of appointed Office Holders. The Gazette also includes notices of any creditors’ meetings. You can see the Gazette website here.

Individual voluntary arrangement (IVA)

is a formal binding agreement between a debtor and their creditors where creditors agree to a reduced or rescheduled debt repayment.  Typically, the debtor will contribute both existing assets and a proportion of future earnings to pay all or an agreed proportion of their debts. An IVA is overseen by an insolvency practitioner who is known as the supervisor.  The Supervisor will collect in and then distribute these funds to creditors. IVAs usually last for between three and five years but can be shorter or longer.  IVAs are not available in Scotland.

Insolvency

This is where an individual or company cannot pay the debts they owe when they are due and/or the individual or company owes more than they own. People or companies in this situation can end up in a formal insolvency procedure (‘an insolvency’). Formal insolvency procedures are legal procedures designed to get debts repaid and to return individuals and, where possible, businesses to financial health.

Insolvency practitioner

Insolvency practitioners are licensed independent specialists who are authorised to act in relation to an insolvent individual, partnership or company.  An insolvency practitioner is appointed to supervise formal insolvency procedures. Insolvency practitioners have to act in the interest of creditors – they can either help the debtor/company turn their finances around, or, when this isn’t possible, they will gather in all the debtor's or company’s assets (if there are any), turn them into cash and distribute the proceeds back to creditors (in accordance with an ‘order of priority’ determined by the government).

It is important to remember that where an individual or company has become insolvent, it is very likely that they will not have enough money or any money to pay back all or any of that which is owed. Insolvency practitioners will do their best to ensure that as much as possible is repaid.

Once formally appointed to look after an insolvent company or individual, the insolvency practitioners may be referred to as the ‘Office Holder’.

Insolvency Service

The Insolvency Service is the government agency for insolvency in England and Wales. There is a separate Insolvency Service for Northern Ireland, and the Accountant in Bankruptcy (AiB) covers personal insolvencies in Scotland.

Insolvency Services Account (ISA)

The account at the Bank of England into which money raised from the sale of assets in bankruptcies and compulsory liquidations has to be paid. Money is then paid to creditors out of these accounts. The Insolvency Service charges fees on money paid into these accounts.

Interim liquidator

In a Scottish compulsory liquidation the insolvency practitioner appointed by the court when the ‘winding up’ order as made is called the interim liquidator. They act as liquidator until the initial meeting of creditors (within 28 days) appropriate their appointment, or appoints an alternative.

Interim receiver

An interim receiver might be appointed by a court to protect and secure an insolvent individual’s property after a bankruptcy petition has been made to the court, but before the bankruptcy ‘order’ has been made.

Investigation of the failure of the business

In administrations and creditors voluntary liquidations an insolvency practitioner has an obligation to carry out an investigation into the conduct of the director(s) of the failed business and will welcome any input from creditors. If you have any additional information that may be helpful, please get in touch with the insolvency practitioner as a matter of urgency.

The insolvency practitioner has to submit a confidential report on his findings to the Insolvency Service, who may decide to try and have the director(s) disqualified.  If you think a director should have been disqualified but has not, you should write to the Insolvency Service and your local Member of Parliament (copying in your insolvency practitioner).

In compulsory liquidations and bankruptcy the duty to investigate and report falls to the Official Receiver. In Scotland, the insolvency practitioner carries out that duty.

Liabilities

See ‘debts’.

Lien

Lien is the right to retain possession of assets or documents until the settlement of a debt.

Liquidation:

Insolvent Liquidation is where a company is broken up and has its assets sold (or ‘liquidated’) to repay its debts. After liquidation, the insolvent company no longer exists. Liquidation is usually an option of last resort. A creditor or the company itself can start a liquidation procedure (known as a ‘Creditors’ Voluntary Liquidation’ or CVL). Compulsory liquidations are initiated through the court. Liquidations will involve an Official Receiver or an insolvency practitioner. In compulsory liquidations, in jurisdictions other than Scotland, the court will initially appoint an Official Receiver to act as a ‘liquidator’, in Scotland an insolvency practitioner will almost always be appointed to act as the ‘liquidator’. If the insolvent company or individual has significant assets, the case should be passed to an insolvency practitioner. All voluntary liquidations must be dealt with by an insolvency practitioner.

Solvent liquidation: Members’ voluntary liquidation is a solvent liquidation where the shareholders appoint the liquidator to realise assets and settle all the company’s debts, plus interest, in full within 12 months.

Nominee

An insolvency practitioner who carries out preparatory work for a voluntary arrangement before the arrangement begins.

Office Holder

See insolvency practitioners and Official Receivers and AiB.

Official Receiver

There are 22 Official Receivers covering England and Wales and one covering Northern Ireland.  An official receiver is a civil servant employed in a government department called the Insolvency Service.  They are also officers of the court.  Unlike insolvency practitioners, official receivers are not qualified under the same regime as insolvency practitioners but nonetheless can become liquidators of companies and trustees in bankruptcies.

There is no official receiver in Scotland.

Official Receiver’s Rota

Insolvency Practitioners can be appointed to cases initially dealt with by the Official Receiver (bankruptcies and compulsory liquidations) through a rota of local insolvency practitioner firms. The aim of the rota is to ensure transparency and fairness of appointments.

Opting Out

Where the Insolvency Act or Rules requires an office holder to deliver documents to creditors, they can decide that they don’t want to receive them by letting the office holder know.

This process of opting out currently applies in England and Wales only.

Order of Priority

The order in which creditors are repaid their debts as a result of an insolvency procedure is determined by something called the Order of Priority. This order, or hierarchy, has been set out by the government. At the top of the order are secured lenders like banks; towards the bottom are unsecured lenders like trade suppliers. Banks have priority so that they remain confident about lending large amounts of money to businesses. You can read more here

Petition

A formal application made to court to have an individual made bankrupt or a business liquidated. These can be presented to the court by either creditors or debtors themselves. In Scotland, a petition can also be made to the court to appoint administrators.

Preferential creditors

Certain types of creditor debts are given a legal priority in terms of repayment from an insolvency. These include the employees of an insolvent business, although only for certain debts: unpaid wages; holiday pay; and pension contributions. Only up to a set amount (determined by the government) will be paid out.

You might hear these creditors referred to as ‘prefs’.

Pre-packaged sale

A pre-packaged administration, usually referred to as a pre-pack, is an arrangement under which the sale of the company’s business and or assets is negotiated prior to the administration and is completed on or shortly after the administrator’s appointment.

Proof

A legal form completed by a creditor in a bankruptcy (known as sequestrations in Scotland), liquidations, voluntary arrangements, and administrations to state how much they believe they are owed. You will usually be asked by the insolvency practitioner, Official Receiver, or AiB to provide any supporting evidence you have for your claim – copy invoices, delivery notes, statements, etc. It is helpful to provide this a quickly as possible. You might see this referred to as a Statement of Claim form in a Scottish insolvency.

Protected Trust Deed

is a personal insolvency procedure available to Scottish residents only. It is voluntary but formal arrangement between a debtor and their creditors. The debtor makes ‘affordable’ monthly payments towards their debt for typically four years. A debtor grants a ‘Trust Deed’ in favour of the Trustee which transfers their assets to the Trustee for the benefit of creditors. It is overseen by the Accountant in Bankruptcy.

Proxy

A person or company can appoint someone to go to a creditors’ meeting and vote in their place – a proxy. This can be the chairman of the meeting. A proxy form will need to be completed if a creditor wishes this to happen – if you need a proxy form and haven’t already been given one, you should speak to the Office Holder handling the insolvency in which you’re a creditor.

Several insolvency firms offer creditor services including attending creditors’ meetings on clients’ behalves.

Realise

Realising an asset means selling it or disposing of it to raise money to repay creditors.

Reports: annual or progress

Insolvency practitioners are obliged to produce regular reports detailing their actions, including an account of what money they have received from insolvent companies and individuals and what has been paid out to creditors or as expenses to pay for the insolvency procedure (you might see this referred to as a receipts and payments account).  In most forms of insolvency procedure, an annual report has to be provided within one month of the anniversary of the appointment of the insolvency practitioner. In some insolvency procedures (including administrations in England and Wales), a report is required every six months.

Retention of Title (RoT)

Retention of Title is where you, as a creditor, have an agreement with a customer that says the goods you have supplied remain your property until the customer has paid for them. If you have a Retention of Title claim to make, you need to let the insolvency practitioner or Official Receiver know as soon as possible and provide them with a copy of your terms and conditions as well as the details of your claim.

‘Secured’ creditor

See ‘Fixed Charge’ Creditor.

Sequestration

The Scottish name for 'bankruptcy' (bankruptcy is often used but sequestration is the traditional name).

Small Debts

A small debt means a debt for £1,000 or under which the office holder can decide to treat as having been proved for the purpose of paying a dividend. If the office holder decides to treat your debt in this way, you will be notified and told that you will not need to submit a proof unless you believe that the amount due to you is different from the amount the office holder has advised you.  You must tell the office holder if your claim does differ and will then be required to submit a proof in support of your claim.    

It is important to understand that if you want to take part in any decision procedure you must submit a proof regardless of whether the office holder has notified you that your debt is being treated as a small debt.

This treatment of debts currently applies in England and Wales only.

Statement of Affairs

A legal document, including a statement of truth completed by a bankrupt or a company’s representative, listing assets and debts.

​Statement of Claim

See proof

Statement of Insolvency Practice (SIP)

Statements of Insolvency Practice are usually referred to as SIPs. SIPs set principles and key compliance standards with which Insolvency Practitioners are required to comply.  You may access the SIPs here

Supervisor

The insolvency practitioner who runs a company or individual voluntary arrangement.

Time records

The insolvency practitioner records time spent on a case so creditors can see what work has been done. The type of activity logged can include day-to-administration, responding to correspondence from debtors or creditors, attending creditors’ meetings, realising the assets of an insolvent business or individual, or investigating the conduct of an insolvent business’ directors. Details of the insolvency practitioner’s time records might be included in their annual report or progress reports to creditors.

Unsecured creditor

These are creditors who are owed money by a business or individual, but who do not have a charge to protect what they are owed.  Unsecured creditors normally make up the bulk of creditors in an insolvency (in number rather than the size of debts). This group includes trade suppliers, employees owed redundancy pay, any unsecured loans, and HM Revenue & Customs (for unpaid taxes are an unsecured debt). In Scotland, unsecured creditors are also referred to as 'ordinary creditors' or creditors with 'ordinary debts'.

Wind-up

Creditors, directors and shareholders can petition the court to ‘wind-up’ i.e. liquidate a company.