25th August 2020

Insolvency A – Z : Part 1

Welcome to Part 1 of our three-part blog on A-Z of Insolvency. Over the next three blogs you will find some of the most commonly used terms in insolvency.

A… is for Administration. Administration is a corporate rescue process with the principal objective being to allow a company to continue to trade whilst giving it breathing space to potentially allow rescue. The administrator takes over the running of the company, allowing restructuring if necessary. In certain circumstances an Interim Administrator can also be appointed. The running of the company can be passed back to the directors to control depending on the exit route from administration.

B… is for Breach of Contract. Insolvency Practitioners when appointed in a corporate insolvency, can decide whether to continue with contracts or not upon entering into a formal insolvency process. Some contracts automatically terminate on insolvency. Check your contracts!

C… is for Creditors’ Voluntary Arrangement. A CVA is an agreement between a company and creditors in relation to the payment of debts. Creditors can agree to payment in instalments over a period of time and can agree to write off some of the debts.

D… is for Debtor Contribution Order. In a sequestration the debtor may be required to make regular payments to the trustee from income for distribution to creditors and to meet the costs of the sequestration process. The amount of contribution is calculated using the Common Financial tool and the level of contribution can be varied or revoked during the sequestration process.

E… is for Equity. A Trustee in sequestration, or in a Trust Deed, will require to realise the equity in properties in which the debtor had an interest for the benefit of creditors. Proposals are often made by a third party or spouse to purchase the Trustee’s interest in order to prevent a forced sale of the family home.

F… is for Fraudulent Trading. Fraudulent Trading is when a company carries on trade with the intention of defrauding creditors prior to an insolvency process, such as Administration of Liquidation being entered into. Company officers may become personally liable for the Company’s debts.

G… is for Gratuitous Alienation. A gratuitous alienation is when property has been transferred to another for no, or inadequate, consideration prior to an insolvency process being entered into. Transactions which took place up to 5 years’ before the insolvency event can be challenged, depending on who the transaction was with.

H… is for Help! If you are experiencing financial difficulty, seek help from a money advice organisation, an Insolvency lawyer or an Insolvency Practitioner to discuss your options before matters get worse. If an individual decides to enter into any form of debt solution themselves (e.g. sequestration, trust deed, DAS), they are required to take money advice from a certified money adviser on their financial circumstances, consequences and other options.

If you have any questions, please get in touch with the Blackadders Insolvency Team who would be happy to help.

Susan Currie, Solicitor
Dispute Resolution
Blackadders LLP
@DisputeLawSusan

www.blackadders.co.uk

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