Quick Insolvency Guide
Bankruptcy: Write off your debts but subject to various restrictions. Your home may be at risk together with any other assets you may have.
IVA: Individual Voluntary Arrangement. An agreement with those to whom you owe money to avoid bankruptcy. Fewer restrictions than bankruptcy.
CVL: Creditors Voluntary Liquidation. Applicable to companies rather than individuals, but also partnerships. Corporate bankruptcy used where the company is insolvent and cannot continue to trade.
CVA: Company Voluntary Arrangement. Corporate equivalent to IVA. See above.
Administration: Court driven procedure to allow limited companies to continue trading whilst a rescue package is agreed.
Administrative Receivership: A secured creditor appoints an Insolvency Practitioner to run the company and recover their money.
MVL: Members Voluntary Liquidation. A solvent liquidation for companies where all liabilities are paid and generally shareholders recover their investment.
Statutory Demand
Both in the case of individual and corporate insolvency the process may be started by a creditor's statutory demand, requiring payment of the debt. This is a cheap and often effective remedy in its own right in securing recovery of the funds due from the debtor. However the implication of a Statutory Demand in the case of an individual insolvency is different from that in the case of corporate insolvency. There is no procedure in corporate insolvency to have a Statutory Demand "set aside". The only way that an equivalent facility can be secured is by obtaining from the creditor an undertaking not to petition for the winding up of the company on the basis of the Statutory Demand in question. In the absence of such an assurance, a debtor who seeks to prevent the company being wound up on the grounds of the service of the Statutory Demand must seek an Order from the Court providing a mandatory injunction upon the creditor preventing the creditor from issuing a petition. Needless to say, the costs of such a procedure can be quite heavy and securing an undertaking is therefore usually reasonably freely offered where it is self evident that the Statutory Demand should not have been served. The usual reason for disputing the validity of a Statutory Demand is that the debt is disputed.
Bankruptcy petition
If the statutory demand is not met then the creditor may petition for bankruptcy.
Winding up Petition
It is not necessary to serve a Statutory Demand although it is wise to do so. If, however, a creditor believes that the debtor is unable to pay its debt as they fall due which can be deemed to be the case by a failure to respond to a Statutory Demand, a petition to wind up the company can be presented to court (generally the High Court in London but can sometimes be the county court). There is a relatively standard form of wording but it nevertheless needs to be accurate and correct because it is possible to have a Petition thrown out, at the cost of the petitioning creditor, if the details are not correct.
Publicity
A petition must be advertised in an appropriate newspaper or publication. The usual publication is the London Gazette but it can be included in a local or national newspaper.
Service
Service of the petitioner will usually be on the registered office if a company, or personally on the debtor if it is a bankruptcy petition. Both the content of the petition and the confirmation of service is usually supported by a witness statement/affidavit.
What happens on the petition being heard?
The court can either dismiss the petition, adjourn the petition or grant the petition and in any event can impose conditions and/or orders for costs against one or more parties.
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