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Glossary of liquidation terms

Here we aim to turn the ‘official’ words and terms into plain English. If you are unsure as to how this may affect you then please give us a call.

Glossary of liquidation terms


A term used when a debt has not been paid on time and payments are late and overdue. If the debt is not paid then action may be taken to get the money back.


Anything owned by an individual or company, which has a value now or will have in the future e.g. vehicles, shares, money including that in the bank account, property and money owed to you.

Book debts

This is money owed to a company or individual for goods or services that have been supplied.

Business debts

These are debts that are in the trading name of a sole trader or partnership. For businesses who have the same trading name as their personal name,  business debts are ones that have been built up specifically from the business.

Business insolvency

Business insolvency can be defined in two different ways:

  • cash flow insolvency - unable to pay debts as they become due
  • balance sheet insolvency - having negative net assets (liabilities exceed assets)

CCJ stands for County Court Judgement, which is a court action where an individual or company has taken another person or company to court for unpaid debts. The court will order the payment of the debt within a set period of time and if it is not, the person or company owed the money will be able to take further action.

Companies House

All limited companies, LLPs and PLCs are registered here. All information is stored and available to the public. Companies House also set up (‘incorporates’) and closes down (‘dissolves’) companies.

Company debts

Money owed by a company to a third party, such as a supplier or a lender.


Any business, person or body owed money by a company or person. It can also be someone who will (or may) be owed money in the future due to obligations which have been taken on.

Creditors' Meeting

A meeting of Creditors generally held to appoint a liquidator/trustee or to consider a proposal for a voluntary arrangement. Creditors have the opportunity to vote for or against a proposed voluntary arrangement.

Creditors' Voluntary Liquidation (CVL)

A process in which the company will stop trading, all contracts will be ended and assets sold. The shareholders of the company will decide to liquidate the company and work with an insolvency practitioner to complete the process. In some cases, the business of the company can be sold to another company as a going concern.


Individuals or companies that owe money to a third party for goods or services provided, such as customers.


Monies that are owed to an individual or company for goods supplied or services provided.

Default notice

A notice issued by a creditor before the start of legal action. It allows the debtor seven days to pay the amount stated. If the debt is not settled in this time, then the creditor can take court action.

Department for Business, Innovation and Skills (DBIS)

DBIS is a government agency working to help the UK respond to the challenge of globalisation and create the conditions for business success. Promoting enterprise innovation and creativity, DBIS run The Insolvency Service in England and Wales and assist in many employment issues such as redundancy.

Director Disqualification

If a director has been found to have acted improperly, the Insolvency Service may decide that they should be disqualified as acting as a director or for a period of time.


A director is responsible for the running, management and control of a company. Directors are protected from personal risk by the limited liability of a company. However, they must act professionally and correctly to ensure this protection.


The process of breaking up a company that is no longer trading. In order to start dissolution proceedings a company must not have been trading for at least three months.


A tool used by landlords where there is unpaid rent. If the landlord has agreed a payment plan for rent which has not been stuck to, they have various options including instructing an agent to enter the property and remove goods or assets to cover the value of the debt. This can be carried out within one week of a missed payment. A court judgment is not required to allow this to happen.


Provided by some financial institutions, this is a service where companies receive payment for their unpaid sales invoices and assistance in the collection of the debts. The factoring company takes a percentage of this debt as a fee.

Fixed and Floating Charges

Fixed and floating charges are a technical way for a financial institution lending money to secure some of it.  A fixed charge is usually ‘secured’ on a specific asset, such as property or machinery. With a fixed charge, the company that borrows money could not sell the asset without the permission of the organisation that has lent it.  

A floating charge is not tied to a specific asset however is usually secured on things like raw materials or component stocks. The borrower can use the stock to do business replacing them when necessary.  However should the charge be applied or ‘crystallise’, (i.e. as a result of not paying interest on time) whatever stock that is  covered by the floating charge which is in the business at that time becomes subject to the charge and cannot be used without the permission of the charge holder (the lender).

Fraudulent trading

This is where the business continues to trade without any way of repaying the debts and with the intention of defrauding creditors. Any director who is considered to have traded in this way risks disqualification or becoming personally liable.

Going concern

Where a company is trading and making a profit.  The business of a company can sometimes be sold as a going concern, (using the same trading name, employees, customer list etc.). Legal advice should always be taken by both the seller and buyer before negotiations take place.


This is where a company (trading entity) is unable to pay its debts as they become due.

Insolvency Practitioner

Is a licenced professional who specialises in dealing with insolvency. They are authorised by the Secretary of State or other recognised professional bodies such as the ACCA.


When a company or individual cannot afford to repay their debts as and when they are due. Alternatively, their liabilities are greater than their assets.

Joint and several liability

If one or more person enters into an agreement (such as a mortgage or rent agreement), then all those named on the agreement are liable for the full amount. A good example of this would be a joint mortgage where the mortgage company can seek to get any money outstanding one the mortgage from either or both people named on the mortgage.

Legal Charge

A form of security to ensure payment of a debt (e.g. a mortgage)


A company or individual’s debts and obligations (e.g. bank loans, mortgages, credit cards, wages and rent)

Limited company

Is a company with its own legal identity.  A limited company has members who own shares in the company and directors who are responsible for its running. Directors and shareholders are not personally liable for any of the company's actions providing they act in accordance with their duties as set out by the Companies Act.

Limited Liability

Owners of a company have their personal liability for the company's debts limited. Their liability is limited to the value of the shares they own. In other words their liability is limited to the amount they agreed to pay for the shares when they purchased them.


When a company becomes insolvent, directors can chose to recommend to the shareholders that the company be placed into CVL (Creditors’ Voluntary Liquidation).  It then stops trading and once a Liquidator is appointed, its assets are sold and the resulting funds used towards paying its debts. 


A licensed insolvency practitioner given the responsibility of dealing with the winding-up of a company.

Negative equity

This occurs when the value of an asset used to secure a loan is less than the money owed on the loan itself. (E.g. if the value of a property drops on the market and is worth less than the mortgage on it, this is negative equity)

Net assets

Is defined as a company's assets minus its liabilities. This is known as ‘net worth’ for individuals.

Net liabilities

Is a company's liabilities minus its assets.

Official Receiver

An officer of the court and civil servant employed by The Insolvency Service, who deals with bankruptcies and compulsory liquidation.

Pension fund

A fund into which pension contributions are paid and held.

Personal Guarantee

This is a guarantee given by an individual to pay a company debt or loan if the company is unable to. This is usually a condition requested by a lender or a supplier when allowing a company to buy goods on credit. A director of a company will be asked to sign the guarantee and should the company not make the repayments as agreed, the lender or supplier will ‘call on’ the personal guarantee to repay either part or all of the remaining money owed.

Preferential creditor

A creditor entitled to receive payments ahead of unsecured creditors. These include certain elements of employees' claims and outstanding payments to occupational pension schemes.


A way of voting without actually attending a meeting in person. A proxy holder may be appointed to attend and vote at a creditors' meeting on behalf of a company or individual by completing a proxy form and lodging it in accordance with the directions set out in the letter enclosing the notice of the meeting.


Redundancy is where an employee is laid off due to their role no longer being required. It could be that the company is reducing in size or closing a department or closing the whole company. Employees may be able to make a claim to the Insolvency Service if the company cannot afford to pay what is owed to them in full.

Secured debt

A debt that is guaranteed against a particular asset (or set of assets).

Shadow director

Anyone who is directly involved in running a company, even though they are not  registered as a director at Companies House. They may be involved in making important decisions about the business or effectively ‘calling the shots’.


Own stakes in limited companies and can vote on how a company is run. They can receive a share of the profits as a dividend. Quoted PLC shares can be purchased on the open market i.e. the FTSE

Statement of Affairs

Prepared by the directors, usually with the help of a licensed Insolvency Practitioner, it is a statement of a company's assets and liabilities at the date of its winding up, Receivership or Administration.


The total money a company receives for its services before any costs are taken off

Unsecured creditor

A creditor who does not hold security against an asset (e.g. credit cards)

Value Added Tax (VAT)

A duty charged on goods and services which are liable for VAT. A business will usually have to register for VAT if its taxable turnover exceeds a level set by the Government.

Winding Up Petition

A creditor can apply to a court for a winding up petition to be heard if a company does not pay monies due to them. If successful this will lead to the company being wound up compulsorily with directors having limited control over the process.