Glossary of Terms

The terms used by creditors and debt professionals can be confusing. Use our helpful glossary for a description of common terms in plain English. If you can’t find the term that you need then ask us by clicking here.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Administration

Administration is the process of giving a Company legal protection against action from its creditors while a solution to its business problems can be found. The administration process is focussed on managing the Company’s affairs for the benefit of its creditors.

As such a recovery or restructuring plan implemented while the Company is in Administration may involve the sale of assets, significant cost cutting or the ultimate liquidation of the business.

Administrator

The Administrator is the person who is responsible for managing the company through an Administration process. The Administrator is introduced by a company’s directors and/or shareholders and confirmed by its creditors at a creditor meeting. The Administrator must be a Licensed Insolvency Practitioner.

Amortisation

Amortisation is payments of debts in equal instalments of principle and interest, rather than just interest only payments.

Annual Percentage Rate

Annual Percentage Rate (or APR). This is the interest rate charged to a personal loan, credit card or mortgage for a whole year as opposed to the monthly rate. The APR will generally include compound interest, that is to say, interest which is earned on interest which has been added to the loan in previous months.

Antecedent Transaction

If something has been done in the run-up to insolvency which results in one creditor being treated more favourably than the others or where a person other than a creditor benefits from the actions of the bankrupt or company and the creditors suffer as a result, this would be deemed an antecedent transaction.

In these circumstances, the official receiver as trustee or liquidator of the estate may have the right of recovery. For example, where one or more debts have been paid or substantially reduced in preference to others, under the rule of antecedent transaction, it may be possible for the official receiver to recover the monies paid to the creditor preferred in this way.

Arrears

Arrears is the term used to describe loan or mortgage payments which are due but not yet paid. For example, if one month’s mortgage payment has been missed, the mortgage is said to be one month in arrears. If the monthly repayment on a loan is £250 and this has not been paid for 3 months, the loan can be described as being £750 (3 x £250) in arrears.

Assets

Assets are items of property which belong to individuals or companies. Assets could be real property such as land and buildings or personal property such as household items, cash, shares or vehicles. More significant assets would include and equity owned in a property, a motor vehicle if it is owned outright and expensive jewellery, furniture and antiques.

Attachment of Earnings

If an individual has been served with a County Court Judgment but continues not to pay their debt, the associated creditor can apply to the Court for an attachment of earnings. If granted, the employer will be ordered by the Court to make a deduction directly from the individual’s wages and pay this to the creditor. This deduction is called an Attachment of Earnings. The wages received by the individual will therefore be reduced by the monthly payment as ordered by the Court.

Balloon Payment

A balloon payment is the term used for the outstanding sum which would need to be paid at the end of a lease agreement to buy the leased goods outright. Motor vehicles are often supplied using a lease agreement. At the end of the lease period, the vehicle can either be returned to the supplier or bought outright by paying an outstanding lump sum. This lump sum is known as the balloon payment.

Bank

bank

Bankruptcy

Bankruptcy is a formal legal procedure which an individual can use if they have debt that they are unable to repay. The individual must apply to be made bankrupt at their local County Court. If granted, the responsibility for repaying their debt will be taken away from them.

If the bankrupt individual has any valuable assets these may be sold and the proceeds given towards repaying the outstanding debt. Valuable assets would normally include a property or car valued at over £1,500 but would not include reasonable household items such as clothing, bedding, reasonable household equipment and other basic items you and your family need in the home. If the individual has disposable income, they will be asked to pay this towards their debt for up to a maximum of 3 years.

Bankruptcy Restriction Order (BRO)

A bankruptcy restriction order (BRO) is a court order which extends the restrictions placed on a bankrupt person over the standard 12 month period.

Once an individual is declared bankrupt, if the official receiver considers that their conduct prior to the bankruptcy was dishonest or blameworthy in some other way, he (or she) will report the facts to court and ask for a Bankruptcy Restriction Order to be made. The court will consider this report and any other evidence put before it, and will decide whether it should make the order.

If a BRO is made, the bankrupt individual will be subject to the restrictions placed on them as a bankrupt for an extended period. This can be from 2 to 15 years. The more harm the behaviour has caused the creditors, in the court's opinion, the longer the BRO is likely to last.

Some examples of behaviour prior to bankruptcy which could lead to a BRO being granted are given below. However, it is important to note that if an individual has carried out any of these activities, it DOES NOT automatically mean that they will be subject to a BRO. Both the official receiver and the Court will take into account whether the actions were designed to specifically negatively effect creditors.

- Incurring debts that you knew you had no reasonable chance of repaying
- Giving away assets or selling them at less than their value
- Deliberately paying off some creditors in preference to others
- Gambling or making rash speculations or being unreasonably extravagant
- Failing to keep or produce records that would explain a loss of money or property
- Fraud or fraudulent breach of trust
- Causing your debts to increase by neglecting your business affairs
- Failing to supply goods or services that have been paid for
- Carrying on a business when you knew or ought to have known you could not pay your debts

Bankruptcy Restrictions Undertaking (BRU)

If the official receiver believes that the restrictions on a bankrupt person should be extended because their actions prior to the bankruptcy were dishonest or blameworthy, they may apply to the court for a bankruptcy restriction order (BRO).

If the bankrupt person accepts the claims of the official receiver, they can offer to enter voluntarily into a Bankruptcy Restrictions Undertaking (BRU). This has exactly the same effect as a BRO but does not involve going to court.

Because the bankrupt is admitting the unfit conduct, the period of the BRU is likely to be shorter than if the court made a Bankruptcy Restrictions Order. They will have the opportunity to put their argument to the official receiver, which may further reduce the period. By entering into a Bankruptcy Restrictions Undertaking, the bankrupt will also avoid having to attend a court hearing.

Beneficial Interest

Beneficial interest is the term used to describe the value or equity in a property which is held by the owner of the property. The term is often used in a bankruptcy procedure where the beneficial interest of a bankrupt’s property is passed to the Official Receiver.

Where there is little or no equity in a property, a bankrupt can buy back the beneficial interest in their property for a nominal sum, normally £1 and solicitor’s costs (which are generally a few hundred pounds).

Buying back the beneficial interest in this way is extremely important as it will prevent the official receiver from revaluing the property after 3 years and selling the property to realise any equity growth from the property at that time.

Beneficial Loan

A beneficial loan is a loan made by an employer to an employee on which interest is either not charged or is less than the official rate. The difference between the interest charged and the official rate is taxable.

Beneficiary

A person who is entitled to receive funds or property under the terms and provisions of a will or trust, insurance policy or security instrument. In connection with a mortgage loan the beneficiary is the lender.

Benefits

Benefits are monies paid to a person by the state and include income support, child benefit, job seekers allowance, disability benefit, housing benefit and council tax benefit.

Building Society

A ‘mutual’ non profit making institution originally set up to lend money to their members for house purchase. Building societies are mutual which means that they are owned by their members who are entitled to share in their profits and benefits.

Certificate of Satisfaction

A certificate issued by the Court to prove that a formal insolvency procedure such as and Individual Voluntary Arrangement or County Court Judgement has been settled in full.

Charging Order

A Charging Order is issued by the Court to turn an unsecured debt into a secured debt. The Court will agree that a Charge will be put against the debtor’s house or other property effectively making the debt secured.

Usually by gaining a charging order, creditors are simply looking to secure their debt to protect themselves against the debtor subsequently deciding to do an individual voluntary arrangement or declare bankruptcy.

If the debtor does not repay the particular debt to which the charging order relates, it is possible for the creditor to obtain an order of sale from the Court to force the repossession of the property. However, this action is currently relatively rare.

Citizens Advice Bureau

An office represented in most towns in the UK where the public can obtain free advice on an extensive range of civil matters such as social security, employment, housing matters such as mortgage and rent arrears, legal matters such as legal aid, family matters, taxation, debt and many other subjects.

Company Voluntary Arrangement

A Company Voluntary Arrangement also known as a CVA is a legally binding agreement between a Company and its Creditors to settle its debts over a fixed period of time (normally three to five years). The Company will normally making regular affordable monthly payments and may also introduce a lump sum payment. At the end of the arrangement, whatever debt is still outstanding is written off by the Creditors. The Company is then left debt free to trade normally.

County Court Judgement

A County Court Judgement or CCJ is an order by the Court requiring a debtor to pay what they owe to a specific creditor. A Creditor can apply to the court to have a Count Court Judgement put in place if they are unable to collect a debt owed to them because the debtor is unwilling or unable to pay.

Before any Judgement is issued by the court, the debtor will have the opportunity to defend their position as to why they think the debt is not owed. Alternatively the debtor can explain to the Court why they are not in a position to pay and suggest an alternative repayment plan. The Court will review these circumstances and issue a Count Court Judgement based on either an immediate order to pay the full amount owing or as a monthly payment plan.

Credit

Credit is an agreement in which a borrower receives something of value now and agrees to repay the lender later generally over a fixed period of time.

Credit Crunch

The credit crunch is the colloquial phrase used to describe the inability of individuals and companies to borrow money due to the reduction in bank’s willingness to lend as witnessed across the world’s economies throughout 2008, 2009 and beyond.

Credit File

A credit file is simply a list of all forms of credit that an individual has been given and a history of the repayments that have been made. The file includes all loan, mortgage, credit card, CCJ (county court Judgement), bankruptcy order, repossession, collection activities, electoral roll and fraud information that may exist under an individual’s name.

If an individual applies for credit – i.e. a new credit card, personal loan, mobile phone, mortgage, car HP or even to rent a property, the lender involved is able to check the individual’s file to assess whether they are a suitable person to lend to. The lender cannot see all of the individual’s personal information. All they have access to is a history of whether past and current credit repayments have been made on time and whether the individual is subject to any Default Notices, County Court Judgements, Bankruptcy or an IVA. They will use this information to help them make a decision about whether to lend to the individual or not.

Note: A credit repayment history is NOT the only criteria used by potential lenders when making a decision about whether to lend money or not. They also use additional criteria such as how long the potential borrower has lived in their current accommodation and whether they are a home owner etc.

Creditor

A creditor is an individual or company who is owed money by another individual or company. The creditor can be unsecured or secured.

Debt

Any money that is owed or due to someone else

Debt Arrangement Scheme

A Debt Arrangement Scheme (or DAS) is part of Scottish insolvency law. It is a bit like a debt management plan but is regulated so that once in place, creditors are unable to take legal action against the debtor or continue to add interest to accounts.

In order to carry out a DSA, first a debt payment programme (basically a debt management plan) must be put together. An approved money advisor must then agree to send the programme to a DAS Administrator for approval. Once the administrator has approved the programme, as long as the debtor sticks to the agreed payments, all further interest, fees and charges on your debt are frozen and they are protected from any further creditor action. In fact, creditors are unable to take enforcement action against the debtor from the moment that they indicate an intention to apply for a debt payment programme or have an application awaiting approval.

Unlike a protected Trust Deed, creditors do not have the opportunity to reject a DAS. However, there is no money written off the outstanding debt. 100% of the amount owed has to be repaid.

Debt Management Plan

A Debt Management Plan (also known as a DMP) is an informal or gentleman’s agreement with creditors to reduce monthly debt repayments so that they are more affordable to the Debtor. There is normally no agreement from the Creditors to reduce the total amount of debt owed and the freezing of interest and charges cannot be guaranteed. As such, the total period over which the debt is repaid is often significantly extended.

Debt Relief Order

Debt Relief Orders were introduced into law in England and Wales on the 6th April 2009. Their purpose is to resolve debt problems for people who have little or no disposable income or assets.

A Debt Relief Order works in a similar way to that of Bankruptcy. Once the Order is granted, the individual in debt will no longer be responsible for paying their debts and their creditors can no longer pursue them for repayment. They will not be required to make any payments towards their debt unless they can afford to do so. The duration of the order is be 1 year, at the end of which time the debt owed will be discharged leaving the individual debt free.

A person will only be eligible for a Debt Relief Order if their debt is less than £15,000, their disposable income is less than £50 per month and their assets total less than £300.

Debtor

A debtor is an individual or company who owes money to another individual or company. The debt owed can either be unsecured or secured.

Default Notice

This is a letter formally informing a debtor that they have not paid their debt and that they are in breach of their credit agreement. The notice is issued in respect of debts covered by the Consumer Credit Act 1974 and will be recorded as having been issued on an individual’s credit file.

Dependant

A dependant is generally regarded as a child under the age of 16 (or 18 if attending further education) who relies on another person for their sole financial support and maintenance. A dependant may also be a spouse, parent or certain other relative who relies on such support.

Directors Disqualification Report

Liquidators (generally insolvency practitioners) are required by law to report on the conduct of the directors of all businesses when they fail. The directors disqualifiaction report (or D1 report) is the formal name given to this report issued by a liquidator to the Insolvency Service. The report may find that the directors in question have acted properly in which case no further action is necessary.

Alternatively, where the liquidator believes the directors have acted improperly, the report may recommend that further investigation by the Insolvency Service is warrented. This may lead to a director being struck off the register of directors and held personally liable for company debts.

Discharged Bankrupt

Discharged bankrupt is the term given to an individual who has been released from their bankruptcy. If an individual is declared bankrupt, they will normally remain so for 1 year (although this could be more if they have been bankrupt previously). After one year, they are released or discharged from their bankruptcy.

Disposable Income

Disposable income is the amount of money remaining once all essential household expenditures (not including payments to unsecured debts) have been deducted from income. This remaining income is what is available to spend on non essential household expenditures, or for saving, or to use to repay outstanding debt. Disposable income is normally calculated on a monthly basis.

Enterprise Act of 2002

The Enterprise Act of 2002 is was a significant development in the law of insolvency for both companies and individuals. Within the area of corporate insolvency, the act introduced the abolition of the preferential treatment of Crown debt such as debt to the inland revenue (Corporation tax, PAYE and VAT). This came into force on the 15 September 2003.

The provisions of the act in terms of personal insolvency were particularly significant regarding the rules surrounding personal bankruptcy. Key changes to the bankruptcy rules included the automatic discharge of nearly all bankrupts after a maximum of 12 months. In addition a limit of three years was introduced within which time a trustee may deal with a bankrupt's interest in the sole or principal home of the bankrupt, the bankrupt's spouse or a former spouse before that interest revert to the bankrupt. The individual insolvency provisions came into force on 1 April 2004.

Equity

Equity is the value that the owner has in property after all credit and charges have been deducted from the value. Equity is commonly used to describe the money that would be remain from the sale of a house after all mortgages and other charges are paid back in full.

Finance Lease

Finance leasing is commonly used to finance motor vehicles or office equipment such as computers. The supplier will provide the vehicle or equipment to the customer but the ownership remains with the supplier. The customer will agree to pay a monthly payment or rental to the supplier for a fixed period of time – often two to three years. At the end of this period, the customer has the option to hand back the vehicle or equipment to the supplier with nothing more to pay. Alternatively, the customer may have the option to pay a lump sum to the supplier (known as a balloon payment) and buy the vehicle or equipment outright.

Freehold Property

Freehold property is the description given to a property which wholly owns the land on which it is built. Normally a house is described as a freehold property as the ownership of the land on which it is built is not owned by any third party. If a property is divided into flats, then the owners of each flat may collectively own the land or freehold on which they are built. Alternatively, the land may be owned by a third party and the flats categorised as leasehold properties. In this case the owners will have to pay a ground rent to the owner of the freehold.

Gross Income

The total income of an individual before deductions such as income tax and national insurance.

Guarantee

A guarantee is normally a legally binding commitment from a 3rd party that they will be liable to repay outstanding debt if the original debtor who borrowed the money is unable to pay it back. A common example of this would be someone who gives their guarantee that they repay a bank loan taken by a business if the business was unable to repay the loan.

Her Majesty’s Revenue and Customs (HMRC)

The combined offices of the Inland Revenue and Customs responsible to the Treasury for the collection of direct taxes which include income tax, national insurance, inheritance tax, corporation tax and value added tax.

Hire Purchase

Hire Purchase or HP is a form of financing the purchase of goods. As with a standard loan, the customer takes the goods up front but agrees to pay for them plus interest on a monthly basis over a period of time. However, where Hire Purchase differs from a loan is that the title (or ownership) of the goods remains with the supplier and does not pass to the customer until the final payment for them is made. In effect, the customer is simply hiring the goods until the final payment is made. If the customer does not maintain the payments, the supplier has the right to take back the goods and sell them elsewhere to try and recover their loss.

Over the past 10-15 years, hire purchase has become a less and less popular form of financing a purchase. This is because the value of the goods purchased falls so rapidly that keeping hold of their title is often to no advantage. They are worth so little after a year, that the supplier really does not want them back if they are not paid for.

Really the only goods purchased using hire purchase today are motor vehicles but even these agreements are becoming less and less usual.

Incapacity Benefit

A state benefit payable after the expiry of state sickness benefit if a person is still unfit for work. This benefit replaces the former invalidity benefit.

Income Payment Agreement

An Income Payment Agreement (IPA) is a legally binding agreement requiring an individual to make payments towards their creditors out of their income after they have been declared bankrupt. The agreement will generally last for three years (36 months). If the individual refuses to pay their Income Payment Agreement, the Official Receiver can then apply to the court for an Income Payment Order to enforce the payment. An Income Payment Order may be enforced by the Court through the use of an Attachment of Earnings.

Income Payment Order

An Income Payment Order (IPO) is a court judgement ordering an individual to make payments to their creditors out of their income after they have been declared bankrupt. The order will generally last for three years (36 months). An Income Payment Order will often be issued if a bankrupt person fails to pay an Income Payment Agreement (IPA) as required by the Official Receiver. An income payment order may be enforced by the Court through the use of an Attachment of Earnings.

Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement also known as an IVA is a legally binding agreement between a Debtor and their Creditors to settle debt over a fixed period of time (normally five years). The Debtor will normally making regular affordable monthly payments and may also introduce a lump sum payment. At the end of the 5 year period, whatever debt is still outstanding is written off by the Creditors. The debtor is left debt free to move on with their life.

Insolvency Practitioner

An Insolvency Practitioner (also know as a IP) is a professional person who has passed exams and is licensed to carry out formal insolvency work such as negotiating an Individual Voluntary Arrangement (IVA) or act as a a liquidator to wind up a company.

Insolvent

Insolvent is the word used to describe an individual or company who is unable to repay their debt. There are two different definitions of insolvency. The first is where an individual or company’s debts or liabilities are greater than their assets. The second is the position where an individual or company is unable to afford to maintain their debt repayments as and when they fall due.

Interim Order

An interim order is an order of the court which suspends all legal action against an individual or company by their creditors. The type of legal action suspended might be an application for a county court judgement (CCJ), a petition for bankruptcy or a winding up order. The interim order will normally be issued for 28 days. An insolvency practitioner has the option of applying to the court for an interim order to allow time for a debt management solution such as an individual voluntary arrangement (IVA) or company voluntary arrangement (CVA) to be presented to creditors.

Joint Liability

The legal liability of two or more people for debts incurred by them jointly. Joint liability only occurs if both parties were in agreement to the liability (normally confirmed by joint signatures). In the case of many credit card agreements, it is possible to have a second card holder who is able to use the account. However, the second card holder does not have joint liability for the debt incurred through using the card if the agreement is signed only by the primary card holder.

Leasehold Property

Leasehold property is the description given to a property which does not own the land on which it is built. Normally flats are described as leasehold properties as the ownership of the land on which they are built is owned by a third party. The owners of each individual flat will normally pay a ground rent to the owner of the freehold. It is possible that the owners of each flat may collectively own the land or freehold on which they are built.

Limited Company

The word Limited or Ltd after a company name indicates that the company is privately owned with limited liability status. This means that the directors and shareholders are not liable for the company’s debts if it is liquidated. Nearly all newly formed companies in the UK are incorporated as limited companies.

Liquidated Damages

A definite amount of damages, set forth in a contract to be paid for by the party breaching the contract. A pre-determined estimate of actual damages from a breach.

Liquidation

Liquidation is the act of closing down a Limited Company. The company’s trading is stopped and its assets are sold and turned into cash. This cash is then first used to pay off any outstanding debts that the Company owes. Any remaining funds are returned to the company shareholders.

Liquidator

A liquidator is the person who is responsible for closing a company, realising any assets and distributing these to outstanding creditors. The liquidator is normally introduced by the company’s directors and/or shareholders and confirmed by its creditors at a creditor meeting. The Administrator must be a Licensed Insolvency Practitioner.

Net Income

The income that an individual takes home after all taxes, national insurance and other deductions

Nominee

A Nominee is the Person (normally an Insolvency Practitioner) who has been chosen by an individual or company to propose an Individual Voluntary Arrangement (IVA)or Company Voluntary Arrangement (CVA) on their behalf. The Nominee will work on behalf of the Individual or Company until the IVA or CVA is accepted by the Creditors.

Phoenixing

Phoenixing (also known a pre-pack sale) is the process of forming a new company with the purpose of buying the assets, contacts and goodwill and even name of an old failing company. The old company assets are purchased at a reasonable market rate and the new business then starts to trade without the burden of the old company’s debts. The old business is then normally closed down through a process of liquidation.

Pre Paid Debit Card

Pre paid debit cards have become increasingly popular over the past 2-3 years. They are particularly useful for people who have poor credit ratings and are therefore unable to get a bank account with a debt card as standard. The card is issued with an accompanying bank account but cannot be used until funds have been paid into the account (i.e. the card has been topped up). The card (which is normally affiliated to Master Card or Visa) can then be used for everyday purchases. Once the funds available have run out, the card can no longer be used until new funds are deposited on to the card.

Preferred Creditor

A preferred creditor is a creditor who will be paid first before other creditors in the case of an individual becoming insolvent or a business being put into liquidation. In the case of an insolvent business, examples of preferred creditors would be outstanding employee wages and insolvency practitioner’s fees. In the case of insolvent individuals and companies, debts owed to the Inland Revenue such as Income and or Corporation Tax are not preferred and as such are treated on exactly the same standing as other non preferred creditors.

Protocol IVA

A protocol IVA is an IVA which adheres to the standards agreed by creditors and insolvency practitioners in the IVA protocol. The IVA protocol was introduced in 2008 and is a standard set of rules governing how most consumer IVAs are constructed including the length of time they will last, how equity in a property will be dealt with and the amount of nominee and supervisor fees that will be charged.

R3

R3 - the Association of Business Recovery Professionals - is the name of the trade body for insolvency practitioners (IPs). R3 stands for rescue, recovery and renewal. R3 is not a governing body and Insolvency Practitioners do not have to be a member of the organisation. However it has a powerful voice within the insolvency industry.

Repossession

Repossession is the term generally used where a creditor claims property over which they have a charge due to the non payment of a debt. The most common form of repossession is property repossession. A mortgage lender takes a legal charge over the property for which the mortgage has been used to buy. If the individual who took the mortgage then is unable to meet the repayments, the mortgage lender has a legal right to claim back the property and sell it in order to repay the debt. This is the act of repossession.

Restriction Order

A Restriction Order is an order by the court which stops the sale of an asset such as a property without the permission of the person who applied for the order or the court.

An insolvency practitioner will normally apply for a restriction order against a property owned by someone who enters into an Individual Voluntary Arrangement. This prevents the sale of the property without the prior knowledge and agreement of the insolvency practitioner.

Secured Creditor

A secured creditor is a creditor who has a claim over an asset of the individual or company who owes them money. If for any reason, the debt owed is not repaid, then the secured creditor can claim back or repossess the assets on which the debt was secured. The most common example of a secured creditor is a Mortgage Lender. If the mortgage is not repaid, the lender has the right to repossess the property on which the mortgage is secured. This property would then be sold by the creditor to realise the money they had originally lent.

Secured Debt (Also see secured creditor)

Secured debt is money which has been lent to an individual or company on the basis that if it is not repaid, the lender (or creditor) will be able to claim the asset on which the debt was secured. The most common form of secured debt is a mortgage. A mortgage is a loan secured against a property. If the mortgage is not repaid, the lender has the right to repossess the property and sell it to try and recoup the money originally lent.

Sequestration

Sequestration is the Scottish term for Bankruptcy. It is similar to Bankruptcy in the fact that if you enter into Sequestration, the responsibility for paying your debt is taken away from you. If you are able, you will be required to make regular disposable income payments to your court appointed trustee and you will have to give up any significant assets that you have such as home equity. Normally sequestration will last for 12 months after which you will be automatically discharged.

In order to apply for sequestration, you must be insolvent (unable to pay your debts) and be living in Scotland or have lived in Scotland within the last 12 months

SIVA

The SIVA or Simple Individual Voluntary Arrangement was due to become a simpler route for individuals to enter into an IVA where their debts were less then £75,000

The advantage of the SIVA for people in debt would have been that the process for getting an agreement with creditors would have been simplified. Instead of requiring 75% of the value of creditors who vote to accept the IVA, the SIVA would have required only 50% to say yes. This would have made it much easier for an Insolvency Practitioner to put the SIVA in place.

Unfortunately for many debtors, in Q4 of 2008, the Insolvency Service announced that the plans for introducing the SIVA had been halted and SIVAs will no longer be introduced into Law.

Sole Trader

A sole trader is an individual who is carrying on a business which is not a limited company. The business may take the name of the individual themselves or may operate under a trading name.

Statement of Affairs

A Statement of Affairs is a summary of an individual or company’s financial situation at any given moment in time. The statement normally comprises details of income, expenses, assets and debts.

Statute Barred

A debt is considered Statute Barred if a creditor has not contacted a debtor for a period of 6 years and no action has been taken on the account. Although the debt is still legally acknowledged as being owed, the creditor is not able to take any legal action against the debtor in order to recover the debt. It is considered unfair if a creditor or debt collector misleads the debtor into believing the debt is still legally recoverable. It is also considered an unfair practice if the creditor or debt collector press for payment after the debtor has stated they will not be paying the money owed. This could amount to harassment contrary to Section 40(1) of the Administration of Justice Act 1970.

Statutory Demand

A Statutory Demand is a formal notice requiring payment of a debt within 21 days. It can be issued against an individual or company. If the debt is not paid, bankruptcy or liquidation proceedings may be commenced without further notice. If you have received a statutory demand, you should not ignor this especially if the notice is sent from HM Revenue and Customs.

If you believe that you owe the amount on the statutory demand, this can be paid either by instalments or a lump sum. Alternatively if you feel that the demand made is incorrect, you may apply at your local County Court for it to be set aside. There could be a number of reasons for this:

- The debt owed is less than £750
- You dispute the amount owed
- You have a counterclaim of more than the amount owed
- You believe that the demand has been issued in error

Stubbs Gazette

The Stubbs Gazette is a weekly publication advertising all cases of personal and company insolvency in England and Wales. The Gazette lists all those individuals who have been declared bankrupt, undertaken Individual Voluntary Arrangements (IVA) or have received county court judgements (CCJ). It also lists companies which have been wound up, liquidated or gone into company voluntary arrangement (CVA).

The Stubbs Gazette is normally used by financial institutions such as banks and credit reference agencies to update their records.

Student Loan

A student loan is the name given to a Government backed initiative to give registered students access to cash loans to support them financially while studying. Student Loans are lent through the Student Loans Company (SLC) and repaid through the tax system only after the student has left higher education and is earning over £15,000.

There are two methods of repayment of Student loans. Loans given prior to 1998 are repaid within a mortgage-style scheme in which the monthly repayments are fixed and account holders whose incomes exceeded the deferment threshold of £15,000 are required to repay the entire instalment each month whether their income in £20,000 or £30,000. Loans given after 1998 are known as Income-Contingent loans because the repayment obligation tapers according to the gross income of the account holder.

Supervisor

The Supervisor is the term given to the person (normally an Insolvency Practitioner) who is chosen by the creditors to manage an Individual Voluntary Arrangement (IVA) or Company Voluntary Arrangement (CVA) once it has been accepted by the Creditors. The Supervisor works to make sure that the best interests of the creditors are met by ensuring that the individual or company pays as much of their debt back as reasonably possible during the course of the arrangement.

The IVA Protocol

The IVA Protocol is a set standard rules governing the terms and conditions of most consumer IVAs. They were agreed by creditors and insolvency practitioners in 2008. They include among other things rules about the length of time an IVA should last, how equity in a property will be dealt with and the amount of nominee and supervisor fees that will be charged. An insolvency practitioner does not have to use the IVA Protocol rules when drafting a new IVA for a client. However they will normally do so because IVAs that meet the Protocol will generally meet little resistance from creditors at the Creditor’s Meeting. As such most IVAs which have been started since 2008 will follow the IVA Protocol rules.

Transaction at Undervalue

A transaction at undervalue is simply the sale of goods or services for less than their true market value. In the context of insolvency, if goods have been purposely sold at undervalue to avoid them being seized by the trustee in bankruptcy and realised for the benefit of creditors, the trustee may have the authority to claim these goods back from their new owner.

As far as a bankrupt is concerned, the transaction at undervalue must have occurred during the 5 years prior to the presentation of the bankruptcy petition for them to be claimed back by the trustee in Bankruptcy. Where the transaction took place in the period of 2 to 5 years prior to the petition being presented, the bankrupt must either have been insolvent at the time or become insolvent as a result of the transaction. The burden of proof falls on the trustee to show that the bankrupt was insolvent at that time.

Where the transaction involved an associate of the bankrupt, there is a presumption that the bankrupt was insolvent at the time the transaction took place so that the trustee does not need to prove that the individual was insolvent. An associate can be the individual’s spouse, or a relative or relative’s spouse of either the individual or the individual’s spouse.

Trust Deed

A Trust Deed is very similar to an Individual Voluntary Arrangement but is available under Scottish Law to individuals residing in Scotland. The Trust Deed is an agreement with creditors to settle debt over a period of 3 years. This settlement is normally made in the form of regular payments from income and the surrender any valuable assets such as equity from property. At the end of the agreed period, creditors agree to write off any outstanding debt.

Creditors have 5 weeks from the date of the trust deed is advertised in the Edinburgh Gazette to object to the terms proposed by the Insolvency Practitioner. Provided that no more than one third in value or a majority in number of creditors object to the terms proposed, the Trust Deed will become "Protected", binding all creditors to its terms.

Trustee in Bankruptcy

The Trustee in Bankruptcy is a court appointed official who has responsibility for managing a bankrupt person during the period of their bankruptcy. The Trustee will review the individual’s income and expenditure statement to determine whether monthly payments must be made towards the outstanding debt through an income payment order. In addition, the trustee will take ownership of any of the bankrupt’s assets which are to be realised as part of the bankruptcy procedure and realise these for the benefit of the creditors.

TUPE

TUPE stands for Transfer of Undertakings and Permanent Employment. This is European employment law which requires that if a company is sold, its employees must be transferred with the business while maintaining their terms and conditions of employement and length of service benefits.

TUPE must be observed in a case of Pre Pack administration. Where the assets of a company are purchased as a whole, employees must also be transferred to the new business. Where employees are no longer required, they must be made redundant taking into account their full employment rights as if they were still employed by the old company.

Unsecured Creditor

An unsecured creditor is a creditor who has no claim over any of the assets of the individual or company who owes them money. If the money is not repaid, the unsecured creditor must pursue the debt in the Court.

Unsecured Debt (Also see unsecured creditor)

Unsecured debt is money which has been lent to an individual or company without any claim on any of the assets of that individual or company. If the debt is not repaid, then the lender does not automatically have the right to claim any of the debtor’s assets. A good example of unsecured debt would be a personal loan from a bank, an overdraft or credit card debt.

Validation Order

If a winding up petition has been issued against a company, it is then legally prevented from selling any assets or property and its bank accounts will be frozen. The only way that the company can unfreeze its bank accounts or allow assets to be sold is if such transactions are agreed by the court. If in agreement the court will grant what is known as a validation order.

The validation order normally covers specifically named transactions such as the sale of a specific asset or specific payments from the company bank account for example for staff wages.

Voluntary Surrender Form

A voluntary surrender form is the document you can sign and give to your mortgage lender if you decide to voluntarily leave your house and allow the lender to repossess it. The form is helpful for the lender as it protects them from any accusation that they forced you out of your home without following the proper repossession procedure. If you sign a voluntary surrender form, it is likely to speed up the repossession process and put stop to constant collection calls from your mortgage lender.

Walking Possession Order

A Walking Possession Order lists the goods which a bailiff will take from your property if you do not pay your debt within the time set out in a time to pay agreement made with them or if you miss an instalment. There is no actual time limit in which to pay the debt, it is simply a matter of negotiation between you and the bailiff. A walking possession order means that the goods that have been listed now legally belong to the bailiff and can be removed at any time in the future. Once you have signed a walking possession order a bailiff is then allowed to break into your property to reclaim the goods listed if necessary

Windfall

A windfall is the term normally used for an unexpected financial gain. This could be in the form of a unexpected gift, inheritance or even lottery win.

Winding Up Order

A Winding Up Order is an order from the Court to compulsorily liquidate or close a limited company.

If one or more of a company’s creditors feel the need to force the company to be closed and cease trading, the creditor will present a petition to wind up the company at the court (known as a winding up petition). If this petition is upheld, the company will be ordered by the Court or a local County Court (depending on jurisdiction) to be liquidated or “wound up”. Hence the term, Winding up Order.

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