Our jargon buster is a handy reference guide to all of the technical terms of the insolvency industry.
Insolvent
When a company can’t pay its debts when they become due, or it has more liabilities than assets on its balance sheet.
Personal Guarantee
A director will be held personally liable if the business can’t pay what it owes, therefore allowing the lender to pursue you personally.
Directors Loan Account (DLA)
Money you take from your company’s accounts that cannot be classed as salary, dividends or legitimate expenses. Money that you as director borrow from your company and will eventually have to be repaid.
Creditors
These are the companies that your company owes money to, for example, HMRC is a ‘creditor’.
Solvent
This is the term used when a company can afford to pay it’s bills when they become due and/or the company assets are worth more than the level of debt outstanding.
Creditors Voluntary Arrangement (CVA)
A formal method for companies in financial distress to pay off their debts over a fixed period of time, preventing pressure from creditors.
Liquidation
A legal process that “winds up” an insolvent company by selling assets and property to repay debts. The company ceases trading, brought to an organised closure and will cease to exist.
Administration
An Insolvency Practitioner takes control of the company, who then either rescues the company, sells all the assets or the company as a whole, to get the best result for creditors.
Liquidator
This has to be an Insolvency Practitioner and is the person that becomes in charge of the company once it has entered liquidation.
Wrongful Trading
When a director/s knowingly continues to trade as a business, when the company is insolvent.
Strike Off
Also known as ‘dissolving a company’, is a method for closing down a company that is still solvent, without asset (basically a shell or dormant company).
Statutory Demand
A formal document which is a way of a creditors asking for a debt to be paid, usually an initial sign of a company’s insolvency.
Winding Up Petition
Where a creditor is seeking a court order to place the company into liquidation and to cease trading. Creditors use this course of action when all other debt collection methods have been exhausted.
Redundancy Claim
If you have traded for over two years and close your company, just like an employee, you and fellow directors can claim for redundancy. If the company has no funds it will be paid by the government.
Insolvency Practitioner
A licensed professional who has obtained the relevant qualifications to be able to advice and act on all matters to do with Insolvency.
Are there any definitions we should add to the guide? Drop us a line on our contact form or let us know via our socials; we’re on Facebook, Twitter, Instagram and Linked In.
