INSOLVENCY IN BRIEF

This is a brief explanation of some of the terms you may come across in insolvency proceedings. Please note that this glossary is for general guidance only. Many of the terms have a specific technical meaning in certain contexts that may not be covered here.

Annulment: Cancellation.

Assets: Anything that belongs to the debtor that may be used to pay his/her debts.

Bankrupt: Someone who has had a bankruptcy order made concerning him.

 

Bankruptcy order: An order that a court issues against someone if they cannot pay their debts

when they are due to be paid.

 

Charge: Security interest taken over property by a creditor to protect against non-payment of a debt (such as a mortgage).

Court Liquidation: Official Liquidation is the name given to the form of liquidation which is brought about by Order of the High Court. The procedure is brought about by way of petition. The petition can be taken by the company itself or creditors of the company.

Creditor: Someone owed money by a bankrupt or company.

Creditors Voluntary Liquidation: In a Creditors' Voluntary Liquidation, the Liquidator is appointed to the company by the Creditors of the insolvent company

Debenture: A document in writing, usually under seal, issued as evidence of a debt or the granting of security for a loan of a fixed sum at interest (or both). The term is often used in relation to loans (usually from banks) secured by charges, including floating charges, over companies' assets.

Director: A person who conducts the affairs of a company.

Disqualification: A procedure whereby a person has an  order made against them  which makes it an offence for that person to be involved in the management or directorship of a company for the period specified in the order (unless leave has been granted by the court).

Dividend: Any sum distributed to unsecured creditors in an insolvency.

Examinership: A process whereby the protection of the Court is obtained to assist the survival of a company. It allows a company to restructure - it is an alternative to winding up the company in financial difficulties.

Fixed charge: A charge held over specific assets. The debtor cannot sell the assets without the consent of the secured creditor or repaying the amount secured by the charge.

Floating charge: A charge held over general assets of a company. The assets may change (such as stock) and the company can use the assets without the consent of the secured creditor until the charge "crystallises" (becomes fixed). Crystallisation occurs on the appointment of a receiver, on the presentation of a winding-up petition or as otherwise provided for in the document creating the charge.

Guarantee: An agreement to pay a debt owed by a third party. It must be evidenced in writing for it to be enforceable.

Insolvency Practitioner: A person who specialises in insolvency

Liquidation (winding up): Applies to companies or partnerships. It involves the realisation and distribution of the assets and usually the closing down of the business. There are three types of liquidation - court, creditors' voluntary and members' voluntary.

Liquidator: An insolvency practitioner appointed to administer the liquidation of a company or partnership.

Member (of a company): A person who has agreed to be, and is registered as, a member, such as a shareholder of a limited company.

Officer (of a company): A director, manager or secretary of a company.

Petition: A formal application made to a court for a Bankruptcy Order against an individual or Winding Up Order against a Partnership or Company..

Preferential creditor: A creditor who is entitled to receive certain payments in priority to floating charge holders and other unsecured creditors. These creditors include the Revenue Commissioners, occupational pension schemes and employees.

Proof of debt: A statutory form completed by a creditor in a bankruptcy or liquidation to state how much is claimed. The form is supplied by the Liquidator.

Proxy: Instead of attending a meeting, a person can appoint someone to go and vote in their place - a 'proxy'.

Proxy form: Form that must be completed if a creditor wishes someone else to represent him or her at a creditors' meeting and vote on his or her behalf.

Realise: Realising an asset means selling it or disposing of it to raise money, for example to sell an insolvent's assets and obtain the proceeds.

Receiver: The person appointed to deal with the Receivership. The term can also mean a person appointed by the court or with the power to receive the rents and profits of property.

Receivership: A Receiver is usually appointed by a secured creditor under a Debenture containing a fixed and/or floating charge over all or most of the company's assets. The Receiver is usually appointed because either the principal under a debenture is in arrears, the interest under a Debenture is in arrears, or some other event has happened by which under the terms of the debenture the security has become enforceable. The powers of a Receiver are essentially to manage the business of the company, carry it on and realise assets so as to repay the debenture holder.

Rescission: A procedure that cancels a winding-up order.

Secured creditor: A creditor who holds security, such as a mortgage, over a person's assets for money owed.

Shadow director: A person who, without being formally appointed, gives instructions on which the directors of a company are accustomed to act.

Statement of affairs: A document completed by a bankrupt, company officer or director(s), stating the assets and giving details of debts and creditors.

Unsecured creditor: A creditor who does not hold security (such as a mortgage) for money owed. Some unsecured creditors may also be preferential creditors.

Voluntary liquidation: A method of liquidation not involving the courts or the Official Receiver. There are 2 types of voluntary liquidation - members' voluntary liquidation for solvent companies and creditors' voluntary liquidation for insolvent companies.

Winding up order: Order of a court, usually based on a creditor's petition, for the compulsory winding up or liquidation of a company or partnership.