Glossary of terms for contract law, finance and insolvency

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Adjournment

Postponement of a court hearing.

Administration order

An order made in by a court in respect of a company that appoints an administrator to take control of the company. A company can also be put into administration if a floating charge holder, a creditor, or the directors or the company itself file the requisite notice at court.

Administrative receiver

An Insolvency Practitioner appointed by the holder of a debenture that is secured by a floating charge that covers the whole or substantially the whole of the company's assets. The Insolvency Practitioner's task is to realise those assets on behalf of the debenture holder.

Administrative receivership

The process where an insolvency practitioner is appointed by a debenture holder (lender) to realise a company's assets and pay preferential creditors and the debenture holder's debt. The right of a debenture holder to appoint an administrative receiver has been restricted by the Enterprise Act 2002.

Administrator

An Insolvency Practitioner appointed by the court under an administration order or by a floating charge holder, or creditor, or by the company or its directors filing the requisite notice at court.

ADR

Alternative dispute resolution such as arbitration, mediation and conciliation.

Affidavit

Sworn written statement signed by a deponent, who swears that its contents are true to the best of his knowledge and belief. It must be witnessed by a practising solicitor or commissioner for oaths.

Agent

Person with power to contract on behalf of others, binding them as if they were signing the contract themselves. The person represented by the agent is called the principal.

Annulment of bankruptcy

Court procedure for where a bankruptcy order is cancelled.

Appeal

Challenge to a court decision to a higher court.

Arrears

Accumulated debt which has not been paid on the due date.

Bailee

Person who accepts property through a contract of bailment, from the bailor, and who has certain duties of care while the property remains in his possession.

Breach of contract

Failure or refusal to fulfil a term of a contract.

Burden of proof

A rule of evidence that requires a party to a court action to prove something, otherwise the contrary will be assumed by the court. For example, in civil trials, the Claimant has the test of proving their case is the strong.

Case law

Published court decisions which establish legal precedents, binding lower courts.

Chambers

A court room, where a Judge may hear matters in private.

Charging order

Court order placing restrictions on the disposal of certain assets, such as property or securities, given after judgment and gives priority of payment over other creditors.

Composition

An agreement between a debtor and their creditors whereby the compounding creditors agree with the debtor and between themselves to accept from the debtor payment of less than the amounts due to them in full satisfaction of their debts.

Compulsory liquidation

Winding up of a company after a petition to the court, usually by a creditor

Connected persons

Directors or shadow directors and their associates and associates of a company.

Consent order

Court order agreed between both sides.

Contract

Agreement between two or more persons which obliges each party to do (or refrain from doing) a certain thing. A valid contract requires an offer, acceptance of that offer and consideration.

Contract law

Contract law is the basis of all commercial dealings. The terms of a contract may be express or implied. Express provisions may be varied by statute. Unfair contract terms are now excluded by legislation, and, in areas such as employment and the sale of goods, the law imports a wide range of implied terms into new and existing contracts.

Counsel

A barrister acting for the defence or the prosecution in a court of law.

Counterclaim

Respondent’s claim against a Claimant in the same action.

Court appointed receiver

A person, not necessarily a licensed insolvency practitioner, appointed to take charge of assets usually where they are subject to some legal dispute. Not strictly an insolvency process, the procedure may be used other than for a limited company – for example, to settle a partnership dispute.

Creditor

Someone owed money by an individual, or company or partnership.

Creditors’ committee

A creditors’ committee is formed to represent the interests of all creditors in supervising the activities of an administrator or trustee in bankruptcy, or receiving reports from an administrative receiver.

Cross guarantee

A guarantee (normally given to a bank) by a company or several companies that are part of the same group of companies where money is left to one or more of the companies in the group.

De facto director and managers

A person who is not a De Jure Director but performs the acts or duties of a director.

De jure director

A person who is formally and legally appointed a director.

Debenture

A document in writing, usually under seal, issued as evidence of a debt or the granting of security for a loan of a fixed sum at interest (or both). The term is often used in relation to loans (usually from banks) secured by charges, including floating charges, over companies' assets. Often also referred to as a floating charge and the lender is often referred to as the debenture holder.

Debtor

An individual or company that owes money to a creditor, or, a person who has been declared bankrupt or subject to an individual voluntary arrangement.

Defence

Response to a claim by a Defendant.

Defendant

Person, company or organisation which defends a civil action taken by a plaintiff and against whom the court is asked to order damages or corrective action to redress some unlawful or improper action alleged by the Claimant. Also a person charged with a criminal offence.

Director

A person who conducts the affairs of a company.

Discovery

Sworn disclosure of documents and records.

Disqualification of director

A director found to have conducted the affairs of an insolvent company in an ‘unfit’ manner may be disqualified, on application to the court by the Secretary of State for Business, Innovation and Skills, from holding any management position in a company for between 2 and 15 years.

Dividend

Any sum distributed to unsecured creditors in an insolvency.

Evidence

Testimony of witnesses at a trial, or the production of documents or other materials to prove or disprove a set of facts.

Ex parte

(Latin: on the part of) Court application made without notice to the other side. One party is therefore neither present nor represented.

Exhibit

Document or object oftern attached to an affidavit which shown to a judge or jury as evidence in a trial.

Fidelity bond

Insurance cover required by a person who acts as an insolvency practitioner to protect creditors’ money.

Fieri facias

(Latin: cause to be made) A writ of fieri facias commands a sheriff to take and auction off property to pay a debt (plus interest and costs) owed by a judgment debtor.

Fixed charge

A fixed charge is a form of security granted over specific assets, preventing the debtor dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim on the proceeds of sale, and the creditor can usually appoint a receiver to realise the assets in the event of default.

Floating charge

A floating charge is a form of security granted to a creditor over general assets of a company, which may change from time to time in the normal course of business (e.g. stock). The company can continue to use the assets in its business until an event of default occurs and the charge crystallises. If this happens, the secured creditor can realise the assets to recover its debt, and obtain the net proceeds of sale subject to the prior claims of the preferential creditors.

Fraudulent trading

Where a company carries on business with intent to defraud creditors or for any fraudulent purpose. It is a criminal offence and those involved can be made liable to make such contributions (if any) to the company's assets.

Garnishee

Now known as Third Party Debt Order.

Guarantee

An agreement to pay a debt owed by a third party. It must be evidenced in writing for it to be enforceable.

Guarantor

Person who pledges collateral for another's contract.

Injunction

Court order that forbids a party to do something (prohibitory injunction) or compels him to do something (mandatory injunction). It may be enforced by committal to prison for contempt.

Insolvency Practitioner (IP)

Person licensed by one of the chartered accountancy bodies, The Law Society, The Insolvency Practitioners Association or the Department of Trade. The only person who may act as an office holder in an insolvency proceedings.

Insolvent

Person not able to pay his debts as they become due. Insolvency is a prerequisite for bankruptcy.

Interim order

An individual who intends to propose a voluntary arrangement to their creditors may apply to the court for an interim order, which, if granted, precludes bankruptcy and other legal proceedings whilst the order is in force.

Liability

A debt that remains unpaid by an individual or company.

Lien

Right to retain possession of assets or documents until the settlement of a debt.

Liquidation committee

Committee of creditors appointed to assist the liquidation in conducting the liquidation.

Liquidator

The Official Receiver or an Insolvency Practitioner appointed to administer the liquidation of a company or partnership.

LPA receiver

A receiver appointed under the provisions of the Law of Property Act (LPA) 1925 (not necessarily an Insolvency Practitioner) to take charge of a mortgaged property by a lender whose loan is in default, usually with a view to sale or to collect rental income for the lender. Common in the case of the failure of a property developer, whose borrowing will largely be secured on specific properties.

Mediation

Form of alternative dispute resolution involving an agreed mediator acting as a facilitator to help the parties negotiate an agreement. The mediator does not adjudicate on the issues or force a compromise; only the parties involved can resolve the dispute. The result of a successful mediation is called a settlement.

Member (of a company)

A person who has agreed to be, and is registered as, a member, such as a shareholder of a limited company.

Misfeasance

Breach of duty in relation to the funds or property of a company by its directors.

Mitigation

Facts which, while not negating an offence or wrongful action, tend to show that the defendant may have had some excuse for acting the way he did. For example, provocation may constitute mitigating circumstance.

Nominee

An Insolvency Practitioner who carries out the preparatory work for a voluntary arrangement, before its implementation.

Novation

Substitution of a new contractual debt for an old debt by agreement between the debtor, the creditor and a third party who takes on responsibility for the original debt.

Office holder

A liquidator, provisional liquidator, administrator, administrative receiver, supervisor of a voluntary arrangement, or trustee in bankruptcy.

Officer (of a company)

A director or secretary of a company.

Official Receiver (OR)

An officer of the court, who acts as an interim receiver (for an individual), provisional liquidator (for a company), receiver, trustee or liquidator.

Onerous property

The term onerous property in the context of a liquidation or bankruptcy, applies to unprofitable contracts and to property that is unsaleable or not easily saleable or which might give rise to a liability to pay money or perform any other onerous act. A liquidator or a trustee can disclaim such property.

Oral examination

See Order to obtain information

Order

Formal written direction by a judge. Once a final order is made, it may only be amended if there has been an accidental slip in the judgment.

Order to obtain information (Formerly oral examination)

An order seeking the personal attendance of either the debtor or the debtor’s representative in the case of a company to appear before an Officer of the County Court and to provide evidence of their financial means. Failure to comply with the order can lead to imprisonment.

Partnership

Two or more persons carrying on a business together. Partners are each fully liable for all the debts of the enterprise but they also share the profits exclusively. Their rights are regulated by their partnership agreement.

Payee

Person to whom a bill of exchange is made payable. On an ordinary cheque, the name preceded by the words ‘pay to the order of’ identifies the payee.

Payor

Person who makes a payment on a cheque or bill of exchange.

Petition

A formal application made to a court.

Pleadings

Precedent

Court judgment which is cited as an authority in a later case involving similar facts. Precedent cannot bind a higher court.

Preference

A payment or other transaction in the period preceding a liquidation, administration or bankruptcy, which places a creditor or a person connected with the insolvent, respectively, in a better position than they would have been otherwise. A liquidator, administrator or trustee in bankruptcy may recover any sums that are found to be preferences.

Preferential creditor

Defined in Schedule 6 of The Insolvency Act 1986. Has priority when a liquidator, administrative receiver, administrator or trustee distributes funds.

Proof of debt

Document submitted by a creditor to the Insolvency Practitioner giving evidence of the amount of the debt.

Provisional liquidator

An Insolvency Practitioner appointed to safeguard a company’s assets after presentation of a winding-up petition but before a winding-up order is made.

Proxy

Document whereby a creditor authorises another person to represent them at a meeting of creditors. The proxy may be a general proxy, giving the proxy holder a discretion as to how they vote, or a special proxy requiring him to vote as directed by the creditor. A company can only be represented by a proxy holder.

Public examination

When a company is being wound up or in bankruptcy proceedings, the Official Receiver may at any time apply to the court to question the company's director(s) or any other person who has taken part in the promotion, formation or management of the company or the bankrupt.

Quantum

Latin: amount or extent.

Receiver

Is often used to describe an administrative receiver, who may be appointed by a secured creditor holding a floating charge over a company’s assets. The term can also mean a person appointed by the court or with the power to receive the rent and profits of property.

Receivership

A company in administrative receivership is often said to be "in receivership".

Recognised Professional Body (RPB)

An organisation approved by the secretary of state as being able to authorise its members to act as insolvency practitioners.

Release

The process by which the Official Receiver or an Insolvency Practitioner is discharged from the liabilities of office as trustee/liquidator or administrator.

Rescission

A procedure that cancels a winding-up order.

Reservation of title

A provision under a contract for the supply of goods that purports to reserve ownership of the goods with the supplier until payment has been received for the goods. A complex and continually evolving area of law.

Respondent

Person against whom a summons is issued, or a petition or appeal brought.

Security

A charge or mortgage over assets taken to secure payment of a debt. If the debt is not paid, the lender has a right to sell the charged assets. Security documents can be very complex. The commonest example is a mortgage over a property.

Shadow director

A person who is not formally appointed as a director, but in accordance with whose directions or instructions the directors of a company are accustomed to act. However, a person is not a shadow director merely because the directors act on advice given by him in a professional capacity.

Special manager

A person appointed by the court in a compulsory liquidation or bankruptcy to assist the liquidator, official receiver or trustee in managing the insolvent business.

Specific bond

See Fidelity Bond.

Statement of affairs

A document, completed by a bankrupt, company officer or director(s), signed as Statement of Truth, stating the assets and giving details of assets and liabilities.

Statutory demand

A formal notice requiring payment of a debt exceeding £750 within 18 days (individual) or 21 days (business) in default of which bankruptcy or liquidation proceedings may be commenced without further notice.

Summons

Written command to a person to appear in court.

Supervisor

An insolvency Practitioner appointed to supervise the carrying out of a company voluntary arrangement or individual voluntary arrangements.

Third party debt order (Formerly Garnishee)

Person who owes a third party a debt, such as a bank, which is attached by court order for the benefit of a judgment creditor. The bank account is frozen whilst the court hears why the bank should not pay out the value of the County Court Judgment to the Creditor from the funds in that account held by the Debtor. The application will fail if the account is overdrawn.

Tort

Non-contractual breach of duty which allows the injured person to claim compensation (or damages) from the tortfeasor. Torts include wrongs such as negligence, nuisance, defamation, false imprisonment and trespass.

Transaction at an undervalue

A transaction at an undervalue can describe either a gift or a transaction in which the consideration received is significantly less than that it is worth. In certain circumstances an administrator, a liquidator or a trustee can challenge such a transaction.

Undertaking

Enforceable promise given to court.

Undue influence

Unfair pressure which may invalidate a contract.

Undue influence

Unfair pressure which may invalidate a contract.

Unsecured creditor

Commonly used to refer to any ordinary creditor, who has no secured preferential or status rights.

Variation

Alteration of term of court order.

VAT bad debt relief

The relief obtained in respect of the VAT element of an unpaid debt.

Void

Without legal effect. A document that is void is worthless. An anti-competitive agreement or contract in restraint of trade may be void.

Voidable

The law distinguishes between void and voidable contracts. Some contracts have such a fundamental defect that they are said to be void. Others have more minor defects and are voidable at the option of the innocent party.

Voluntary liquidation

A method of liquidation not involving the courts or the Official Receiver. There are 2 types of voluntary liquidation - members' voluntary liquidation for solvent companies and creditors' voluntary liquidation for insolvent companies.

Waiver

Renunciation of a right or benefit. Waivers are not always in writing. Sometimes actions can be interpreted as a waiver.

Warrant of execution

An instruction passed to the bailiff of the County Court to attend at the Defendant’s address to seize and remove goods of sufficient value for sale at public auction to discharge the debt owing to the Claimant.

Winding up order

Order made by the court, usually based on a creditor's petition, for a company to be placed in compulsory liquidation.

Winding up petition

A winding-up petition is a petition presented to the court seeking an order that a company is placed into compulsory liquidation.

Without prejudice

The basic meaning is 'without loss of any rights'. It is a term used when two parties are in dispute, and one makes a settlement offer to the other. It puts 'without prejudice' on its offer to make it clear that the settlement offer should not be construed as a waiver of rights. Importantly, communication marked 'without prejudice' cannot be used in evidence in court proceedings if the attempts at settlement fail and the dispute comes to court.

Wrongful trading

Applies to companies in liquidation where a director allowed the company to continue trading in circumstances  where the director knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation and they did not take every step with a view to minimising the potential loss to the company's creditors.  The directors may be liable to make such contribution to the company's assets as the court thinks proper.