Scottish Statutory Debt Solutions Statistics: April to June 2021 (2021-22 Quarter 1)


Released: 28 July 2021
Next update: 27 October 2021

Official Statistics Label: Official Statistics

Authors: Catherine McAuley and Ken O’Neill
Responsible statistician: Ken O’Neill ()

Data used in this release: Scottish Statutory Debt Solutions Statistics: 2021-22 Quarter 1

Provisional figures: All figures for April 2021 onwards remain provisional until final validation in July 2022.

Note: These statistics are for the period April to June 2021 and earlier financial quarters, therefore these quarters follow COVID-19 related policies implemented in Scotland from the end of March 2020.

Media enquiries: AiB Communications team ()

Twitter: AiB_updates; ScotStat

We want your feedback: We welcome any feedback on any aspect of these statistics either by completing a short online feedback form or by email.


 

Main points for April to June 2021

There were 1,884 personal insolvencies (bankruptcies and protected trust deeds (PTDs)) in 2021-22 Q1, 9.6% less than in 2020-21 Q1.

In 2021-22 Q1, 569 debtor applications for bankruptcy benefitted from the revised fee structure. Of these, 434 cases (76.3%) paid no fee at all.

For another type of statutory debt solution, the Debt Arrangement Scheme (DAS), there were 1,210 Debt Payment Programmes (DPPs) under the DAS approved in 2021-22 Q1 compared with 841 for the same quarter from 2020-21, an increase of 43.9%.

Chart 1 below shows that since April to June 2009, the number of personal insolvencies remain larger than the number of DPPs under the DAS.

 

About this release

This quarterly release contains the latest statistics on statutory debt solutions, statutory moratoriums on diligence, and corporate insolvencies in Scotland.

The statistics are compiled by Accountant in Bankruptcy (AiB), an executive agency of the Scottish Government.

The majority of the statistics presented are derived from AiB administrative records. Estimates for 2021-22 are provisional until final figures are published in July 2022.

Non-statutory debt solutions, where debtors make their own arrangements with creditors or enter informal debt management plans with a debt management firm, are not included in these statistics.

These statistics are for the period April to June 2021 and earlier financial quarters, therefore these quarters follow COVID-19 related policies implemented in Scotland from the end of March 2020.

 

There were 756 applications for moratoria granted in 2021-22 Q1. This is almost four times more than the figure (190) granted in the same quarter in 2020-21.

Corporate insolvencies increased from 99 in 2020-21 Q1 to 163 in 2021-22 Q1.

Further comparisons on the main Scottish Statutory Debt Solutions can be found in Table 1 below.

 

Table 1. Summary of the latest Scottish Statutory Debt Solutions Statistics

Financial quarter

2020-21 Q1

2020-21 Q2

2020-21 Q3

2020-21 Q4

2021-22
Q1 [p]

Q1 vs Q1 change

Bankruptcies

363

771

634

563

586

61.4%

Protected trust deeds

1,721

999

1,429

1,114

1,298

-24.6%

Total personal insolvencies

2,084

1,770

2,063

1,677

1,884

-9.6%

Approved DPP under DAS

841

756

1,036

1,044

1,210

43.9%

Amount repaid under DAS
(£ million)

8.6

9.4

10.0

10.1

10.7

24.0%

Moratoria on diligence granted

190

429

582

777

756

297.9%

Total corporate insolvencies

99

117

135

91

163

64.6%

Source: Accountant in Bankruptcy

Note

[p] Provisional. Figures for the financial year 2021-22 remain provisional until validation in July 2022.

 

Chart 2 shows the quarterly path of personal insolvencies within the year by presenting both quarterly and cumulative personal insolvencies in the current financial year and compares these with the previous financial year.

 

Key terms

Debtor: any person who owes money to another.

Creditor: any person, business or organisation that is owed money by another.

Bankruptcy: (also known as sequestration in Scotland) is a legal declaration that someone cannot pay their debts. If a person is declared bankrupt, control of things that they own is passed to a trustee who may sell them to pay money owed to creditors. A regular payment from a person’s income may also have to be made.

Protected Trust Deed (PTD): a form of insolvency that transfers a debtor’s estate to a trustee to be realised for the benefit of creditors.

Debt Arrangement Scheme (DAS): a Scottish Government debt management tool. Allows a debtor to repay their debts through a Debt Payment Programme by giving more time for repayments, free from the threat of enforcement (diligence) or bankruptcy.

Moratorium on diligence: a protection from creditor debt enforcement. This protection is available to individuals as well as certain entities.

 

No seasonal adjustment

The data used in this release are not seasonally adjusted. We recommend you use year-on-year comparisons (for example 2021-22 Q1 compared with 2020-21 Q1) rather than making quarter-on-quarter comparisons.

 

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Awards of bankruptcy

Bankruptcies in 2021-22 Q1 increased when compared with the same quarter in the previous year. There were 586 bankruptcies awarded in 2021-22 Q1, a 61.4% increase when compared with 2020-21 Q1.

Of the 586 awards of bankruptcy, 97.1% came from debtor applications. The remaining bankruptcies came from creditor petitions (2.9%). There were no trust deed petitions in 2021-22 Q1.

Creditor petitions increased from 8 in 2020-21 Q1 to 17 in 2021-22 Q1. Note petitions are approved by courts with AiB only recording when a petition has been awarded. Therefore, the number of creditor petitions recorded could be influenced by the late reporting of creditor petitions court orders. Under the current revisions policy, quarterly creditor petitions figures are revised quarterly to account for late reporting or missing cases.

Emergency and permanent measures

The emergency legislation known as the Coronavirus (Scotland) Act 2020 and the Coronavirus (Scotland) (No.2) Act 2020 have been introduced to aid in the response to the emergency situation caused by the ongoing pandemic. Both acts included temporary measures which impact on statutory debt solutions legislation. Some provisions were introduced on a permanent footing under the Bankruptcy (Miscellaneous Amendments) (Scotland) Regulations 2021. Further information can be found in the Legislation section.

On emergency measures that are relevant to this section, certain measures are included to secure extra debtor protection by modifying the eligibility criteria for a creditor to petition for sequestration. This is achieved by raising the amount of money a creditor or a group of creditors must be owed in order to be “qualified” to raise proceedings from £3,000 to £10,000. These measures are still in place under the emergency legislation.

Other emergency measures were included to improve access to Minimal Asset Process (MAP) bankruptcy. The debt threshold for eligibility was increased from £17,000 to £25,000 and student loan debt was removed from contributing to this eligibility calculation. This increases access to a more efficient, quicker and easier form of bankruptcy. Lastly, the regulations also provided lower cost access to both the Full Administration and MAP routes to bankruptcy, with complete removal of fees for those in receipt of certain prescribed benefits. Debtor application costs for Full Administration were reduced from £200 to £150 and MAP application fees were reduced from £90 to £50. These provisions were introduced on a permanent footing under the Bankruptcy (Miscellaneous Amendments) (Scotland) Regulations 2021 on 29 March 2021.

Debtor applications

Debtor applications for bankruptcy increased by 60.3% from 355 in 2020-21 Q1 to 569 in 2021-22 Q1. There are two types of debtor applications for bankruptcy: MAP or Full Administration. Full Administration bankruptcies increased by 16.3% from 147 to 171 and MAP bankruptcies increased by 91.3% from 208 to 398. The majority of bankruptcies awarded through debtor applications are MAP cases.

Chart 3 shows the recent trend in bankruptcies awarded through debtor applications since April to June 2009. The number of Low Income Low Asset (LILA) bankruptcy awards followed the declining trend in overall bankruptcies since 2008-09. There was a spike in activity in April to June 2012 likely as a result of the scheduled increase in fees to access bankruptcy being introduced on 1 June 2012. Legislative and operational changes introduced through the Bankruptcy and Debt Advice (Scotland) Act 2014 (BADA(S)) on 1 April 2015 was the most likely cause for the sharp decline in the number of bankruptcies awarded in April to June 2015. Note that the MAP bankruptcy replaced the LILA bankruptcy in April 2015.

The total awards of debtor applications have decreased by 16.4% in 2020-21 when compared with 2015-16. This 2020-21 level remains below levels between 2009-10 and 2019-20.

 

 

Case administration

In Scotland, a trustee is appointed to administer each bankruptcy. The Accountant in Bankruptcy (The Accountant) will be the trustee unless an insolvency practitioner is nominated to act. In all cases awarded under MAP, The Accountant must act as trustee.

In the first quarter of 2021-22, The Accountant was appointed trustee in 531 cases awarded, 90.6% of bankruptcies for the quarter. This is particularly due to the fact that around 69.9% of bankruptcies awarded through debtor applications in this quarter are MAP cases.

 

Application fee structure

The current bankruptcy application fee structure provides lower cost access to both the Full Administration and MAP routes to bankruptcy, with complete removal of fees for those in receipt of certain prescribed benefits. Debtor application costs for Full Administration have been reduced from £200 to £150 and MAP application fees have been reduced from £90 to £50.

In the first quarter of 2021-22, a total of 569 bankruptcy awards were made following applications submitted to AiB, all through the revised fee structure. Of this total, 434 (76.3%) applicants were not required to pay any fee at all. By type of debtor applications, around 84.9% of MAP cases and 56.1% of Full Administration bankruptcies paid no fee in 2021-22 Q1.

 

Bankruptcies discharged

A debtor in a full administration bankruptcy will normally be bankrupt for one year. After this period they may be discharged. Similarly, a debtor in a MAP bankruptcy will normally be discharged after six months as long as they continue to meet the MAP criteria.

Although the debtor is discharged, the administration of the bankruptcy continues until the trustee has dealt with all of the estate and accounted for their work so that they can seek their own discharge. A debtor must continue to cooperate with the trustee until the trustee’s discharge.

In 2021-22 Q1, there were 721 debtors discharged and 1,081 trustees discharged, a 32.4% decrease and 2.4% increase respectively when compared with 2020-21 Q1.

Figures on the number of trustee discharges contain some bankruptcy cases where the trustee has been discharged on more than one occasion following formal re-appointment to conclude the administration of the bankruptcy. The figures also include the number of trustees who formerly acted in bankruptcies on which recall has been granted. In 2020-21 and 2021-22, there were 34 and 13 bankruptcy recalls respectively.

Types of bankruptcy: debtor application

A person can apply to AiB to make themselves bankrupt through a debtor application. To apply for bankruptcy a person must have received money advice from a qualified money adviser (for example from a local authority money advice unit or Citizens Advice Bureau). The two types of debtor application for bankruptcy in Scotland are:

Minimal Asset Process (MAP): for people on a low income who do not own property and have very little in savings or other assets. Conditions for a MAP are if a person’s debts are at least £1,500 and not more than £25,000, or own assets not exceeding £2,000. A debtor will be discharged after six months, if they continue to meet the MAP criteria, (cases will be converted to Full Administration where it is found that debtors do not meet MAP criteria). MAP replaced the LILA bankruptcy in April 2015.

Changes to the debt thresholds for MAP bankruptcy came into force temporarily under the Coronavirus Act (No. 2) (Scotland) 2020 and were made permanent on 29 March 2021 under the Bankruptcy (Miscellaneous Amendments) (Scotland) Regulations 2021. See the Legislation section for more information.

Full Administration: when conditions set out in MAP are not met. Conditions for Full Administration are if a person’s debts are over £3,000, or own assets valuing £2,000 or above.

 

Types of bankruptcy: creditor and trust deed petitions

Creditor and trust deed petitions can be granted by a sheriff court. Creditors can ask a sheriff to award bankruptcy against a debtor if:

  • they are owed at least £3,000 or they apply for a joint petition with other creditors provided that the combined debts are at least £3,000; and

  • they have sent the Scottish Government’s Debt Advice and Information Package to the debtor before making the petition; and

  • they can show that the debtor is apparently insolvent (i.e. when they appear not to be able to pay their debts). Sheriffs require evidence to support this.

If a debtor has not cooperated with a trustee in a trust deed, the trustee has the right to apply to a sheriff to make the debtor bankrupt if they believe this is in the creditors’ best interest. The trustee does not have to demonstrate the previous conditions.

 

Debtor applications for bankruptcy

Not all debtor applications for bankruptcy result in an award being made and applications can be rejected (criteria for bankruptcy not met), returned (application errors) or withdrawn.

In 2021-22 Q1, 589 debtor applications for bankruptcy were received by AiB compared with 396 received in 2020-21 Q1.

 

List of benefits granting a fee waiver

Debtors in receipt of any of the following benefits are exempted from paying an application fee:

  • Universal Credit
  • Income-related benefit
  • Jobseeker’s allowance
  • State Pension Credit
  • Child Tax Credit
  • Working Tax Credit (with a disability element)
  • Employment and Support Allowance.

Further information is available here:

Fees for debtor applications.

 

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Protected Trust Deeds

There were 1,298 PTDs registered in 2021-22 Q1, a 24.6% decrease on the same quarter in 2020-21. Chart 4 shows that the number of PTDs have followed a similar trend to bankruptcies and had been generally increasing between 2014-15 Q4 and 2019-20 Q1, before gradually declining in 2019-20 Q2.

 

 

As with awards of bankruptcies, the trend in PTDs registered is likely to be affected by legislative and operational changes. For example, the BADA(S) reforms, introduced from 1 April 2015, aligned the payment period in bankruptcy and PTDs to 48 months. Prior to this, those agreeing to a PTD were typically paying contributions for an additional year compared with those in bankruptcy. These changes have likely led to an increase in PTD activity levels.

In 2021-22 Q1, more PTDs were registered than bankruptcy awards, as has been the case since 2015-16 Q1.

 

PTDs discharged

A debtor in a PTD is normally discharged after 48 months. If the debtor makes the agreed payments, and cooperates with the trustee then the trustee will apply to AiB for the debtor to be discharged.

After the debtor has been discharged, the trustee may remain in office as long as necessary to conclude the administration of the trust deed.

In the first quarter of 2021-22, there were 1,093 debtors discharged and 1,343 trustees discharged, a 45.0% and 194.5% increase respectively when compared with 2020-21 Q1.

 

What is a Protected Trust Deed (PTD)?

A PTD is a formal debt solution where an agreement is made between a debtor and creditors to repay part or all of their debt.

The debtor conveys their estate to an insolvency practitioner (the trustee) to administer for the benefit of creditors and the arrangement normally includes a contribution from income for a set period.

Provided the debtor complies with the terms of their deed, the creditors can take no further action to pursue the debt or to make the debtor bankrupt. This is similar to Individual Voluntary Agreements in England and Wales, although there are important differences in the way they are set up and administered.

 

Key terms

Insolvency Practitioner: a person (usually, but not necessarily, a chartered accountant) licensed and authorised to act as a trustee in sequestrations or trust deeds.

Trustee: person who administers a bankruptcy or trust deed. In sequestrations, a trustee can be either the AiB or a private insolvency practitioner. In trust deeds, trustees must be an insolvency practitioner.

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Debt Arrangement Scheme

The Debt Arrangement Scheme (DAS) is a statutory debt management solution administered by AiB. Under the DAS, a debtor commits to a Debt Payment Programme (DPP) which allows them to repay their debts based on their disposable income while they are protected from creditors taking any action against them to recover their debt. If the DPP is approved, all interest, fees and charges on the debt will be frozen and waived if the programme is completed in full.

 

Approved DAS applications

In 2021-22 Q1, there were 1,210 approved DPPs under the DAS compared with the 841 approved in 2020-21 Q1, an increase of 43.9%. Chart 5 shows that the number of approved DPPs are higher than those approved prior to the pandemic.

 

 

The number of approved DPPs under the DAS increased year-on-year between 2006-07 and 2012-13 were likely due to changes in legislation and improvements to the DAS Administrator’s IT system (see the background section for more information on legislative changes).

The sharp decrease in the DAS approvals in 2015-16 (from 4,156 to 2,043) was likely due a number of reasons including legislative changes and the availability of DAS from insolvency practitioners. The attractiveness of the DAS relative to other statutory debt solutions could have also been affected by changes to regulatory procedures, operated by the Financial Conduct Authority, in relation to money advisers and insolvency practitioners.

 

Completed and Revoked DAS cases

A DPP reaches completion when the debt in the DPP has been paid in full, minus the fees paid to the DAS Administrator and the payments distributor. There were 447 DPPs under the DAS completed in 2021-22 Q1, a 9.8% increase when compared with 2020-21 Q1.

The volume of DAS completions will depend on activity levels several years earlier with the average expected length of a DPP under DAS being around six years. We can expect a lower but steady volume of completions in line with current applications approved compared with previous completion levels.

A DPP is automatically revoked if either the debtor is made bankrupt, enters a trust deed which becomes protected, or other grounds. There were 261 DPPs under the DAS revoked in 2021-22 Q1, a 89.1% increase when compared with 2020-21 Q1.

 

Amount repaid under the DAS

In 2021-22 Q1, around £10.7 million was repaid from debtors under the DAS compared with the £8.6 million repaid in 2020-21 Q1. Since the DAS (Scotland) Amendment Regulations 2019 came into force on 4 November 2019, through DAS, creditors receive a minimum of 78% of the debt owed to them from debtors (after DAS Administrator and payments distributor fees). Prior to this, the minimum was set at 90%. After the DAS Administrator and payments distributor fees have been deducted around £9.4 million was paid to creditors in 2021-22 Q1.

 

Short term financial crisis payment break

The Debt Arrangement Scheme (Scotland) Amendment Regulations 2019 came into force on 04 November 2019. These Regulations introduced improvements to the DAS to increase the accessibility and sustainability of DPPs and to offer greater flexibility. These included short term financial crisis payment break. Money advisers can automatically process a variation to excuse a missed payment if their client has suffered a short term crisis and cannot make their payment. As there is no requirement for the full variation application, it is an instantaneous process. Money advisers have discretion as to the “crisis” definition and must annotate the application with the reason for approving the variation. Client may have up to 2 months’ worth of crisis break variation approved in any rolling year.

In 2021-22 Q1, a total of 1,718 applications were made to vary a DPP. Of these, 493 for crisis payment break were approved under the new regulations, which accounts for around 28.7% of the overall number of applications to vary a DPP. There were 1,190 approved standard applications to vary a DPP which accounts for 69.3% of the overall number, while just over 2.0% accounts for the number of rejected applications.

 

DAS applications and rejections

In the first quarter of 2021-22, 1,258 applications for a DAS DPP were received by AiB. In the same quarter, 4 applications were rejected.

 

Variations to a DPP

If a debtor’s circumstances change and they can no longer afford the agreed payments, or if they want to increase the level of payment, they can apply for a variation to their DAS DPP. Variations can also include a change to the length of the DPP or attaching a new condition.

The following type of variations are included in this publication:

  • Contribution change

  • Debt change

  • Discretionary condition

  • Essential credit

  • Frequency change

  • Partial settlement

  • Payment break.

A special type of variation called short term financial crisis payment break is also considered in this publication. A money adviser can approve a crisis payment break to excuse a missed payment if their client suffers a short term crisis and cannot make their payment.

In the first quarter of 2021-22, 1,683 applications to vary a DPP under DAS were approved while 35 were rejected. The number of approved variations was 11.5% of live DAS cases.

 

Revocations to a DAS DPP

A DPP is automatically revoked if the debtor is made bankrupt or enters a trust deed which becomes protected. There are also a number of grounds where the debtor, a money adviser acting on behalf of the debtor or a creditor in the DPP can apply to revoke a DPP, for example:

  • Debtors failed to satisify a standard or discretionary condition

  • Debtors made a false statement in their application

  • The debtors failed to make the agreed instalment under the DPP and they are currently in arrears of an amount equal to two instalments

  • The conditions for a joint DPP as specified in regulation 22(1) or 22(2) no longer apply.

If the DPP is revoked, the debtor may be liable for all interest, fees, penalties and other charges that would have been payable had the DPP not been approved.

A total of 260 applications to revoke a DAS DPP were approved in the first quarter of 2021-22 and 162 were rejected. Overall, 261 or 1.8% of live DAS cases were revoked during 2021-22 Q1.

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Statutory Moratorium on Diligence

A moratorium provides protection from creditor debt enforcement. This protection is available to individuals as well as certain entities. Individuals can request a moratorium if they need a period of breathing space to consider whether to apply for bankruptcy, a trust deed or the DAS.

Due to the current COVID-19 pandemic, emergency legislation has been enacted to extend the duration of the moratorium from six weeks to six months temporarily. In addition to this, under normal circumstances a moratorium cannot be granted more than once in any 12-month period. This rule has been set aside temporarily as a result of the pandemic.

Overall, there were 756 (debtor and entity) applications for moratoria granted in 2021-22 Q1. This is almost four times more than the figure (190) granted in the same quarter in 2020-21.

 

Moratorium on diligence

A protection from creditor debt enforcement. This protection is available to individuals as well as the following entities:

  • a trust in respect of debts incurred by it

  • a partnership (including a dissolved partnership)

  • a body corporate

  • an unincorporated body

  • a limited partnership (including a dissolved limited partnership) within the meaning of the Limited Partnerships Act 1907, or jointly by, as the case may be, the trustees, partners or members of any of those persons.

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Corporate insolvency

AiB is responsible for devolved elements of corporate insolvency. The Scottish Government’s competence is limited to the process of company liquidation and receivership, and the management and maintenance of the Register of Insolvencies (RoI) regarding insolvency of individuals and businesses in Scotland.

The RoI contains details of liquidation and receivership of Scottish businesses which are wound up by either a Sheriff Court or the Court of Session. AiB is required to be notified of all company liquidations and receiverships in Scotland.

The statistics presented below are based on the date the insolvency was registered on AiB’s administrative system. There is a time lag between the dates when a corporate insolvency is awarded or a members’ voluntary liquidation (MVL) is registered and when AiB receives notice. The figures, therefore, reported by AiB may not exactly reflect the number of corporate insolvencies awarded or members’ voluntary liquidations registered in a quarter.

Table 2 shows corporate insolvencies by type between 2020-21 Q1 and 2021-22 Q1. Corporate insolvencies include receiverships appointments, compulsory liquidations and creditors’ voluntary liquidations. In the past, the majority of corporate insolvencies used to be compulsory liquidation. However, since 2020-21 Q1, the majority are creditors’ voluntary liquidations. Creditors’ voluntary liquidations increased by 131.6% between 2020-21 Q1 and 2021-22 Q1. Compulsory liquidations decreased by 26.2% over the same period.

 

Table 2. Summary of the latest corporate insolvencies and members' voluntary liquidations

Financial quarter

2020-21 Q1

2020-21 Q2

2020-21 Q3

2020-21 Q4

2021-22
Q1 [p]

Q1 vs Q1 change

Receiverships

0

0

0

0

0

[z]

Compulsory liquidations

42

48

47

35

31

-26.2%

Creditors' voluntary liquidations

57

69

88

56

132

131.6%

Corporate insolvencies

99

117

135

91

163

64.6%

Members' voluntary liquidations

124

199

216

340

170

37.1%

Source: Accountant in Bankruptcy

Note

[p] Provisional. Figures for the financial year 2021-22 remain provisional until validation in July 2022.

[z] Not applicable as percentages have not been calculated where numbers are small or a data point is simply not applicable

 

Chart 7 shows that, overall there were 163 corporate insolvencies in 2021-22 Q1 compared with 99 in 2020-21 Q1, an increase of 64.6%.

Chart 7 also shows the number of MVLs. Retirement of company member(s), restructuring of a company, deregistering an inactive company or changes in the profitability of a market are some of the reasons why member(s) of a company may decide to adopt a voluntary winding up resolution and appoint a liquidator to realise the assets of the business and distribute the proceeds among the company members. It is important to note that MVL is not an insolvency process.

There were 170 MVLs in 2021-22 Q1 compared with 124 in 2020-21 Q1, an increase of 37.1%.

 

 

The statistics on corporate insolvency statistics presented here differ from equivalent statistics from The Insolvency Service, who source their data from Companies House. Differences are mainly due to AiB using its own administrative system’s data rather than the start date of the insolvency. Corporate insolvency statistics produced by The Insolvency Service are available here: Company Insolvency Statistics Releases - GOV.UK

 

Devolved and reserved elements

AiB is responsible for devolved elements of corporate insolvency, including: development of policy on liquidation and receivership, and the management and maintenance of the RoI.

Reserved elements remain the responsibility of the UK Government and are dealt with by The Insolvency Service, an executive agency sponsored by the Department for Business, Energy & Industrial Strategy. Reserved elements include: company voluntary arrangements, administration, legal effects of liquidation and regulation of insolvency practitioners. Statistics on these reserved elements are available from The Insolvency Service.

 

Key terms

Receivership appointments: a receiver is appointed by a lender holding a charge over some or all of the company’s assets. The main responsibilities of a receiver are to ensure the appointing lender is paid.

Compulsory liquidation: or winding up by the court is a procedure by which the assets of a company are sold, and the net free proceeds are distributed to the company’s creditors. A court order is required to put a company into compulsory liquidation.

Creditors’ voluntary liquidation: a director can propose a creditors’ voluntary liquidation if the company can’t pay its debts (it’s ‘insolvent’) or enough shareholders agree. This means the company will stop trading and be liquidated (‘wound up’). The assets of the company are sold and the net free proceeds are distributed to the company’s creditors.

Members’ voluntary liquidation: the shareholders of a solvent company pass a voluntary winding up resolution and appoint a liquidator to realise the assets of the business in order to distribute the proceeds to company members. A company is considered legally solvent when it is able to meet its financial obligations and the value of its assets. The company must be in a position to pay its debts in full.

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