The insolvency framework
The insolvency framework in the UK is a structured system designed to manage the financial affairs of insolvent companies and individuals, aiming to repay creditors as much as possible and, where feasible, rescue businesses and jobs.
The framework covers both corporate and personal insolvency procedures. Corporate procedures include liquidation, administration, company voluntary arrangements (CVAs), and receivership, while personal procedures include bankruptcy and individual voluntary arrangements (IVAs).
The insolvency procedures are each unique, but there are some common phrases or processes, the details of which are covered on these pages.
What is an insolvency practitioner?
An insolvency practitioner, or IP for short, is someone appointed to take responsibility for the financial affairs of an insolvent company or individual. A key part of an insolvency practitioner’s role is to make sure that an insolvent company or individual pays back as much of their debts as possible to their creditors.
What is the Official Receiver?
The Official Receiver is the government’s version of an insolvency practitioner and will oversee some insolvency procedures. The Official Receiver office is part of the Insolvency Service.
Help outside the statutory insolvency framework
Insolvency procedures are just one part of a spectrum of ways to support a company or individual in financial distress. Frequently, the insolvency and restructuring profession will look to work with an individual or company long before they become insolvent. The earlier action is taken to resolve financial problems, the more options a company or individual will have.
Insolvency fees
Insolvency practitioners work hard to manage insolvency procedures in an orderly way. They ensure creditors are treated fairly, they repay as much as possible to creditors, they help rescue businesses and jobs, they help individuals find relief from problem debt, and they help investigate fraud.
Creditor order of priority
The ultimate aim of an insolvency procedure is to return as much money as possible to an insolvent company or individual’s creditors. Unfortunately, because of the nature of insolvency, there is usually not enough money available to repay everyone what they are owed. To help manage competing creditors’ claims, creditors are repaid in a strict hierarchy set out by legislation. Each tier of creditors must be paid in full before repayments can be made to the next tier.