|
|
Aim
We have introduced a glossary of some of the terms used on the main website.
Unfortunately this business is full of jargon as are many others, but we
thought the following guide would help the reader understand things in more
laymen’s terms.
If you have any suggestions for additions to this please email us and we
will happily add a section!
The Beginning……….
Administration – When a company goes into administration, it is
usually because it has fallen into financial difficulties, so an
administrator is called in to run the company to see whether the company can
continue or be sold so that new owners can turn the company around. If it can’t
then the company will be closed down and the assets sold to cover its
financial responsibilities.
Administrator – A person who acts as a controller of the company when
a firm goes into administration. All company actions must go through the
administrator and the administrator has overriding control over the whole
business.
AGM – An Annual General Meeting where the shareholders voice any
issues and directors give information of the past year and forecasts for the
future, they also vote on any changes that are eligible to be made within
the meeting, i.e. change of auditors and directors.
Arrears – A term used when you have not paid invoices/made payments
on debts and has built up and needs to be paid, if you do not pay the debt
holder may take action to claim the money back.
Asset – An asset is something which you own that holds value should
you come to sell it, i.e. a house or stock etc
Bankruptcy – An option that can be used if a person cannot pay their
debts as and when they fall due. This mechanism causes you to lose control
of your assets and cannot be a company director for the period of the
bankruptcy or ban period. Bankruptcy also adversely affects your credit
rating.
CCJ – A court action where a company/person will take you to court
because you have not paid a debt. The court will order you to pay the debt
within an allotted time and if you don’t the company will be able to take
further action.
Companies House – This is where ALL Ltd and PLC’s are registered,
they store all information and make this info available to the public i.e.
accounts, directors. Companies House also act to incorporate and dissolve
companies
Credit Rating – A tool that banks and financial service providers use
to assess how likely you are to be able to honour your debt, if you have a
good rating you will have access to more funds than if you have a poor
rating. Your rating is assessed on whether you have defaulted before or have
any court judgements.
Creditors – A company or persons who owe money to another company for
services provided. Creditors are classed as liabilities as it is money
outstanding
Creditors petition (bankruptcy) – Creditors can petition for a debtor
to be made bankrupt if an individual creditor is owed more than £750.
Alternatively, creditors can join together to meet the £750 requirement.
Proceedings normally take place at the debtor’s local county court with
bankruptcy jurisdiction. Creditors can only ask for someone to be made
bankrupt if: the debt is unsecured; and for a fixed sum which the debtor
‘appears unable to pay’.
CVA – A Company Voluntary Arrangement: Where a company is in an
insolvent position a CVA may be used in order to set up a deal where a
percentage of the debt is paid over a period time in order to ease the
current cash flow problems and pressure on the directors. This allows the
directors to focus on improving the business.
CVL – Creditors Voluntary Liquidation: The liquidation of a company
means to cease trading, sell all the assets and terminate all contracts. It
is initiated by the shareholders of the company and done by an insolvency
practitioner (see below).
Debtors – A company or persons who owe you money for services you
have provided, but not yet paid for. Classed as a current asset.
Debtors petition (bankruptcy) – Where a debtor decides they want to
make themselves bankrupt, in order to do this the debtor must petition to
the county court. See bankruptcy above.
Directors – The decision makers of the company. The directors control
the business and are responsible for its successful running and management.
They’re protected from personal risk by limited liability, but generally
only if they act correctly!
Directors Disqualification – If a person is declared bankrupt or has
committed certain insolvency offences then he or she can be barred from
acting as a director by the DTI. It becomes illegal for that person to be a
director or manager of a company for the period of disqualification.
Dissolution – A process that legally breaks up a company that no
longer wishes to trade. In order to start the dissolution process the
company must have ceased trading for 3 months.
Distraint - A popular tool for landlords where rent or other payments
are not made. If the landlord has agreed a payment deal and the company is
not keeping to it the landlord has various powers.
Distraint means that an agent of the landlord can effect entry to remove
goods or assets for sale to pay for the debt due. He /she does not need to
wait for a long period for this to happen. In theory 1 week after a rent
payment is due they can distrain. Nor does he/she need a judgment.
Domino effect - If a partner as an individual has an insolvency
problem (perhaps from overspending/borrowing, gambling or drinking (or all
of these)) and is being pursued by a creditor(s) this can lead to problems.
It is even possible for the spouse of a partner to become insolvent, thus
leading to the loss of the matrimonial home which, for example, may underpin
security granted to a bank.
DTI – Department of Trade and Industry: A Government agency which
acts in the interests of all and aspire for higher productivity in all
industries by promoting enterprise innovation and creativity. The DTI also
aid in employment issues such as redundancy. The DTI runs the Insolvency
Service in England & Wales.
Factoring – A service provided by financial institutions such as
banks and lenders who pay the company for unpaid invoices and help collect
the remaining funds for a fee and they charge for lending the company money
for a period until the debt is repaid.
Fixed and Floating Charge - A mortgage, debenture or other security
documentation, is likely to create charges over particular assets as
security for borrowings or other indebtedness. There are essentially two
types of charge, floating and fixed. A floating charge is appropriate to
assets and material which is subject to change on a day to day basis, such
as stock. Individual items move into and out of the charge as they are
bought and sold in the ordinary course of events. The floating charge
crystallises if there is a default or similar event. A floating charge is
not as effective as a fixed charge but is more flexible.
Fraudulent trading – Put simply fraudulent trading is the
continuation of trading with no reasonable prospect of repaying debts and
with the intentions of defrauding creditors.
Going Concern – Where the company is continuing to trade for the
current period and can cover its costs and make some money.
HMCE – Her Majesty’s Revenue and Customs: the government body which
collect and regulate customs and duties i.e. VAT etc
Insolvency practitioner – A professional who specialises in
insolvency, Insolvency practitioners act to close the company in the best
possible way for all parties involved.
Insolvent – A term that is used when a company/person cannot pay or
cover their debts with the assets or funds they have as liabilities exceed
assets.
Insolvent company – A company that cannot pay its debts as and when
they fall due. The company will suffer from major cash flow problems and
cannot pay what it owes thus it is insolvent.
Interim order - When someone is applying for an IVA (see below) they
can ask the court to protect them from legal or bankruptcy actions by
someone they owe money to.
Investigating accountants - Accountants who look at the business you
run for the bank that is lending it money, they check accounts, forecasts,
marketplace and management. The real reason the banks appoints them is to
find out how secure debt is that the company holds! See a guide to
Investigating
accountants.
IVA – An Individual Voluntary Arrangement: Very similar to a company
voluntary arrangement. However the IVA is for individuals as opposed to
companies and removes the burden of personal debt to make a fresh start and
improve their lives.
Joint Several Liability - Joint and Several Liability implies that
all members are liable for the partnership debts in full or in part
individually, dependent usually on their ability to pay. Thus a creditor(s)
/liquidator can "go after" the member with the most assets to satisfy debts
then the next and so on until all debts are satisfied or until all partners
made bankrupt.
Liability – A Liability is something that you owe to somebody, i.e. a
mortgage, loan payment credit/store cards.
Limited Company – A business that legally sets itself as a separate
person so that its directors and shareholders are not liable for any of it’s
(proper) actions. The businesses are usually privately owned.
Limited Liability – A mechanism that allows Limited company and PLC
shareholders to limit there responsibilities if the business falls into
difficulties, where shareholders will lose no more than there investment in
the business should it default.
Liquidation – When a company dies. Once the process starts the
company is administered by a liquidator who disposes of all assets, and
distributes the proceeds to creditors and any remainder to shareholders. The
company is then struck off from the companies register once this process is
complete.
Liquidator - A liquidator is a person responsible for dealing with
the winding up of a company and he/she must be an insolvency practitioner.
Moratorium - A period of time during which a certain activity is not
allowed or required. Usually a moratorium is put in place to protect a
person, business or company
No fault bankruptcy - Under the Enterprise Act 2002 the UK Government
has significantly relaxed the rules regarding bankruptcy. From April 2004
the sole trader or partner in a partnership, who has a failed business
(where there are no issues of fraud, misfeasance, recklessness etc) will be
able to file for bankruptcy (see process above) and be discharged from that
bankruptcy within say 12 months.
Nominee – A nominee is a licensed insolvency practitioner who helps
propose a deal with their creditors under a proposal of a CVA/IVA and deals
with legal issues and compliance such as chairing the creditors meetings,
checking management accounts and forecasts.
Official receiver - The Official Receiver is a civil servant in The
Insolvency Service and an officer of the court. He (or she) will be notified
by the court of the bankruptcy or winding-up order. He will then be
responsible through his staff for administering the initial stage. This
stage includes collecting and protecting any assets and investigating the
causes of the bankruptcy or winding up.
Partnership – The same as a sole trader, however there is more than
one owner and there can be several different people that own different
amounts of the business.
PAYE – Pay As You Earn: A government scheme where your tax is
deducted from your monthly wage and paid for you by your employer so that
you do not have to calculate your own tax and National Insurance payments.
The employer is responsible for collecting this tax and paying to the
government. Failure to do so on time is a sign of insolvency
Pension Fund – This is a ‘pot’ of money into which contributions are
made to build a fund to pay retirement pensions and funds that are drawn on
to pay these pensions to ex-employees who were eligible for a pension.
Personal Guarantee – A personal guarantee is a tool which financial
service providers can use to guarantee their debt by requesting the director
or partner in a business to personally guarantee the debt regardless of
whether the debt is used by the company or not. Should the debt default,
then the bank will call on this personal guarantee and the guarantor
may/will have to pay the remaining debt.
PLC – A Company that trades shares of its business on the stock
exchange which can be owned by anyone. The company has limited liability and
are generally quite large firms and have to disclose all actions. The
minimum share capital level is £50,000 and it must file annual accounts
within 6 months of the year end.
PVA – A Partnership Voluntary Arrangement: The same process as a CVA
however this is used for a company that is a partnership as the proprietors
are joint and severally liable. The PVA has the same benefits as the CVA.
Receiver – A receiver is appointed by a bank normally to collect and
administer a company’s assets. The receiver then has a duty to collect the
bank's debts only by selling the assets; he/she is not generally concerned
with the other unsecured creditors or shareholders exposure.
Receivership – When a company defaults on a loan or payment the debt
holder can call on a receiver to go into the company to sell the companies
assets in order to pay back some or all of the debt. The company in
receivership will lose control of the business while the receivers sell the
assets and the company will usually be liquidated, the business may be sold
and there is usually a loss of jobs.
Redundancy – A reason for dismissal, redundancy involves the closure
(either temporary or permanent) of the business as a whole or closure of a
particular department this could suggest that the business has no further
use for the department you are working in, are downsizing or could be facing
difficulties.
SFLGS – Small Firms Loan Guarantee Scheme: By providing a government
guarantee against default by borrowers, the Scheme enables high street banks
and other financial bodies to lend between £5,000 and £250,000 to new and
existing businesses. The DTI underwrites 75% of the loan. So if the company
failed the bank will be able to claim up to 75% back form the DTI.
Shareholders – ‘Owners’ of the business, someone who has bought
shares on the open market if it is a quoted PLC. Or owns a stake in a
limited company. They have a say in how the business is run and earn a share
of the profits as a dividend.
Simultaneous Voluntary Arrangements - Basically as the title suggest
the mechanism is to link together a number of simultaneous individual
voluntary arrangements to protect the partnership and the individual
debtors. It allows the partnership arrangement to deal with partnership
debts and individual arrangements to deal with any individual debts. It also
protects the individual partners from the "fallout" of the partnership debts
to the individual.
SOFA – Statement Of Affairs: A statement of what you own, what assets
you have and your liabilities and cost of living to summarise your financial
affairs
Sole Trader – An owner of a business who is wholly responsible for
the day to day running of the business and its debts. They are generally
small firms with few employees
Statutory Demand - Usually this action is taken after a creditor has
obtained a Judgment. It is a formal demand for payment of an undisputed debt
(over £750) - the debt must be paid within 21 days of the demand being
issued. Failure to pay a statutory demand can lead to a winding up petition
or bankruptcy being issued. In any event, the creditor has to pay to issue
this document/action and therefore he/she/it is now becoming much more
serious.
Supervisor – The Supervisor collects payment of CVA/IVA contributions
and ensures that contributions are kept up to date; failure to keep up to
date can cause the supervisor to default and abort the CVA/IVA leading to
liquidation/bankruptcy.
Trading Out – working through problems, this phrase is used where you
continue to trade through tough times in order to rectify your problems and
improve your company’s health.
Trustee in bankruptcy – A Person who holds property in trust for
another. In bankruptcies the IP holds the property of the bankrupt in trust
for creditors and is referred to as the trustee.
Turnaround practitioner – An advisor who specialises in helping
ailing companies solve their problems and get back on their feet, a simple
analogy of this would be to describe a turnaround practitioner as a company
doctor.
Turnover – the money that a business takes in over a period of time
through its activities is known as turnover. It is not all PROFIT!
Unique Selling Proposition (USP) – why do your customers buy from you
– what is it about your product and/or service that distinguishes your from
your competition)? You may have more then one for different product/service
lines or segments of your business.
VAT – Value Added Tax: A duty that is paid on qualifying goods of
17.5% above the company’s selling price less any VAT paid for goods the
company has bought in the same period. . This is collected by companies for
the HM Revenue & Customs.
Walking Possession - A bailiff (for the County Court) or Sheriff (for
the High Court) has visited your premises and obtained entry. He /she has
asked for payment of the proven debt. If you have not paid this plus the
court and his costs he can "take possession" of the goods, equipment,
fixtures, stock etc on the premises. Effectively if you do not reach a deal
or pay in full he can remove and sell the assets in 5 days. To sell the
assets after they are covered in this way is a criminal offence. If the
bailiff has obtained a walking possession he can force entry to recover the
goods after the 5 day period.
Warrants - In law, a warrant can mean any authorisation. Often in
statute the warrant of a particular person is required before certain
administrative actions can take place. As the creditor has not been paid
under the judgment the creditor can apply to the court for a warrant of
execution. If the debtor is in another area the court can forward this to
the local court. A notice of warrant will be issued to the debtor. If
payment is not made a bailiff of the court can be sent to collect payment or
seize goods.
Wrongful trading - A Director may be held liable for wrongful trading
if they allowed the company to continue in business when they knew or ought
to have known that there was no prospect of meeting the company liabilities
as they fell due. Put simply lying about the current state of the company
and hiding from reality.
WUP – Winding Up Petition: A tool that can be used should a debtor
continuously refuses to pay its debts so the company presents its petition
to the court to have the company closed down.
The end….
Summary
Most of the items above are mentioned in more detail on the site somewhere,
try using the search facility to find more detailed guides.
If you have any suggestions for further additions, or do you think the
explanations above are still slightly confusing then please let us know!
Legal advice: Clearly the descriptions are designed for general
understanding, they may or may not be absolutely correct in every
circumstance, we disclaim any potential or actual liability arising from any
reliance upon any description in this glossary or any guide on this site.
|
