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Civil Litigation Videos

Personal Insolvency

 

Script for the above Video

Personal Insolvency:

There are two main types of insolvency procedure applicable to individuals:

  1. Individual voluntary arrangements,
  2. bankruptcy

 

Individual insolvency is governed by Insolvency Act 1986 and Insolvency Rules 1986, SI 1986/1925 subject to the supervision of the High Court (Chancery Division) or designated county courts.

 

Individual voluntary arrangements: An IVA allows an insolvent debtor to obtain a moratorium on his debts and to repay his creditors in a structured way.

 

Bankruptcy: Bankruptcy discharges an individual from debt, and divides his assets amongst his creditors. .

 

Non-bankruptcy forms of personal insolvency used in smaller cases include: administration orders under the County Courts Act 1984, where a debtor cannot satisfy a judgment for £5000 or less, and asks the court to make such an order, and debt relief orders, confined to cases where the debtor's liabilities are not over £15000 and his assets not over £300

 

Corporate Insolvency

A company becomes insolvent if it does not have enough assets to cover its debts and/or it cannot pay its debts on the due dates.

Companies in financial difficulty may be subject to various insolvency procedures:

 

  1. company voluntary arrangements (CVAs)
  2. administration
  3. administrative receivership
  4. voluntary winding-up (by creditors or members)
  5. compulsory winding-up (by the court)

 

Company voluntary arrangement (CVA)

A company's directors may propose and negotiate a CVA with its creditors. Once agreed, a CVA binds and entitles creditors to repayments of less than the full debt value, over a period of up to 5 years. It requires consent from over 75% of creditors, and must have the consent of secured creditors.

 

Administration

An administrator may be appointed either by out of court, either by the directors or by the holder of a debenture created on or after 15 September 2003, or by the court, on application by the directors or by any creditor. Administration affords protection whilst a recovery scheme is implemented.

 

Administrative receivership

A secured creditor under a qualifying floating charge created before 15 September 2003 may, on default, appoint an administrative receiver to take possession of the assets to recover the debt. The effect is that the directors' powers are suspended and unlike administration, there is no statutory moratorium of proceedings against the company.

 

Winding up

Winding up (also known as liquidation) means the dissolution of a company. It may be voluntary (by the members), either by way of a members' voluntary liquidation where the company is solvent, or by creditors' voluntary liquidation where it is not.

 

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