Abatement. Defence that the value of work done or goods supplied should be reduced because of defects.

Administration. Formal insolvency procedure with the primary aim of rescuing a company.

Administrative Receiver. Insolvency practitioner appointed by the holder of a floating charge.

Administrator. Insolvency practitioner appointed to take control over a company in administration.

Assignee. Person to whom an asset is assigned.

Assignor. Person who assigns.

Balance sheet test. Test of insolvency where the value of a company’s assets is compared with the amount of its liabilities, including contingent and prospective liabilities.

Bankruptcy. Formal insolvency procedure for individuals rather than companies or partnerships.

Benefit of Contract. Rights which one party to a contract has against the other.

Bond. Undertaking under seal to pay money.

Bondsman. Person who gives a bond.

Book debt. Debt arising in the course of a business which would normally be entered in the books of the type of business concerned.

Burden of Contract. Obligations which one party to a contract owes to the other.

Cash flow test. The ability to pay debts as they fall due.

Charge. Form of security whereby an asset of a debtor is identified and appropriated towards payment should the debtor fall to perform the obligation secured by the charge.

Charge-holder. Person to whom a charge is given.

Chose of Action. Property right enforceable only by proceedings, e.g. a debt or a claim for damages.

Completion contract. Construction contract entered into with a new contractor after the original contractor’s failure to complete, usually due to insolvency.

Compulsory liquidation. Formal court based insolvency procedure started by a winding-up petition.

Contingent liability. Liability under an existing obligation subject to a contingency which may or may not happen, e.g. a guarantee.

Contractor’s employment. The contractor’s right and duty to carry out the works under a construction contract.

Conversion. Tort of interfering with another’s goods.

Crown debts. Debts owed to the government, e.g. VAT, National Insurance contributions, PAYE.

Crystallisation. Conversion of a floating charge into a fixed charge.

Debt. Enforcement right to payment of money.

Direct payment. Payment made by an employer to a sub-contractor or a supplier by-passing the contractor.

Disqualification. Procedure resulting in a court order forbidding a director from acting in the management of a company for a specific period.

Dividend. Proportion of creditor’s debt receivable from an insolvency procedure where the assets are insufficient to pay the debt in full.

Equitable assignment. Transfer of personal property where formalities under Law of Property Act 1925, s.136 have not been complied with.

Equitable set-off. Set-off of a mutual, unliquidated cross-claim which is so closely connected with the claim as to make it inequitable to deny the set-off.

Equity of redemption. Right of a debtor to recover the charged property by performing the secured obligation in full.

Fixed Charge. Charge over a specific assets preventing its owner from dealing with it in the ordinary course of business.

Floating Charge. Charge over an asset permitting its owner to deal with it in the ordinary course of business.

Formal Insolvency. An insolvency procedure which affects the rights of a creditor.

Fraudulent trading. Knowingly being a party to the carrying on of business with intent to defraud creditors.

Garnishee. Person ordered to pay another’s judgment creditor rather than his own creditor.

General law. Common law.

Guarantee. Contract whereby a person agrees to answer for the debt or default of another.

Guarantor. Person who gives a guarantee.

Informal insolvency. Failure to pass either the going concern test or the balance sheet test.

Injunction. Court order compelling or preventing a person to act or from acting in a particular way.

Insolvency. Inability to pay debts.

Insolvency Practitioner. Person licensed to act as Administrative Receiver, Liquidator or Administrator.

Legal Assignment. Transfer of personal property which complies with formalities of the Law of Property Act 1925, s.136.

Legal set-off. Set-off of independent mutual debts which are both due or ascertainable.

Licence to the site. Right to temporary possession of a construction site for the purpose of carrying out the works.

Lien. Security interest entitling holder to retain property until payment.

Liquidation. Formal insolvency procedure leading to the dissolution of the company.

Liquidation set-off. Mandatory set-off of all mutual dealing where one party is in liquidation.

Liquidator. Insolvency practitioner (or the Official Receiver) appointed to conduct a liquidation.

Misfeasance. A claim against a director for breach of duty owed to the company brought by a liquidator.

Mitigation of loss. Minimising loss caused by breach of contract by acting reasonably.

Moratorium. Agreement for the suspension of creditors’ rights for an agreed period.

Mortgage. Form of security where property is transferred to a creditor on terms that it be transferred back after the secured obligation is performed.

Mutuality. The position where two persons have claims against each other in the same capacity.

Negative pledge. Contractual term where a person agrees not to grant security over his assets.

Non-assignment clause. A contractual term restricting the transfer of the benefit of the contract

Notice of Assignment. Notice given by an assignee to a debtor following an assignment removing the debtor’s right to obtain a good discharge by paying the assignor.

Novation. Three-way agreement where one party to a contract is released by the other in consideration of a third person agreeing to be bound as if it had been named as a party originally.

Pari passu rule. Rule that all unsecured creditors are paid the same proportion of their debts out of sums remaining after payment of secured and preferential creditors and the costs and expenses of the liquidation.

Pledge. Form of security where possession of property is given to a creditor as security for payment of a debt, entitling the creditor to sell the chattel if the debtor defaults.

Post petition disposal. Disposal of property by a company after the issue of a winding-up petition against it which is void unless validated by the court if a winding-up order is subsequently made.

Preference. Payment made to a creditor (or guarantor of a creditor) within a defined period before the start of administration, liquidation or bankruptcy which is influenced by the desire to improve the creditor’s position in that event.

Preferential debt. Class of debt given priority by the Insolvency Act 1986 over amounts due to the holder of a floating charge or to unsecured creditors.

Privity of contract. Rule of law that only a party to a contract can sue or be sued under it.

Proof of debt. Creditors claim to have a debt admitted by a liquidator or trustee in bankruptcy.

Proprietary right. A right or interest in property.

Provisional liquidator. Liquidator appointed by the court in urgent situations before a winding-up petition can be heard.

Receivable. Sum payable or to become payable.

Receiver. Person appointed by a secured creditor to enforce a security.

Receivership. Procedure for the enforcement of a security by the appointment of a receiver over the asset charge.

Repudiation. Conduct by one part to a contract showing an intention no longer to be bound by its terms entitling the other to claim damages or to compel the other’s performance.

Retention. Percentage of the contract sum withheld from each progress payment until the comletion of a construction contract.

Retention of title. Term in a sale of goods contract where the seller withholds ownership until the goods have been paid for.

Retention trust. Term contained in JCT building contracts that the employer holds the retention on trust for the contractor.

Right of re-entry. Right to enter on another’s property for the purpose of re-possession goods or land.

Ring-fencing. Protecting a company or an asset from the effects of insolvency.

Secured creditor. Creditor with a security interest in the debtor’s property.

Security. Asset held by a creditor against performance of an obligation owed to the creditor.

Security interest. An interest in another’s property enforceable in the even to default but which comes to an end if the obligation secured is performed.

Set-off. Procedure whereby a debtor pays a debt by using its own claim against its creditor.

Shadow director. A person in accordance with whose instructions and directions the directors are accustomed to acct.

Specific performance. Court action to compel the carrying out of a contract.

Statutory demand. Demand for payment of a debt which is due and payable and exceeds £750, non-compliance with which deems the debtors to be insolvency.

Statutory scheme. Order of priority of payment to creditors in a liquidation laid down by the Insolvency Act 1986.

Subrogation. Substitution of one person for another e.g. enabling a guarantor to exercise all the rights of the beneficiary under a guarantee as soon as it has performed the guaranteed obligation or paid damages in lieu.

Trustee. A person who holds property on behalf of another

Trustee in Bankruptcy. Insolvency practitioner (or the Official Receiver) appointed by the court to conduct the bankruptcy of an individual.

Vesting clause Contractual term giving the employer a security interest or proprietary right in the contractor’s plant or materials.

Voluntary liquidation. Form of liquidation initiated by the directors in which the creditors choose the liquidator.

Winding-Up petition. Document presented to the court seeking a compulsory winding-up order, placing a company in liquidation.

Wrongful trading. Civil claim brought by a liquidator against directors for compensation in respect of credit incurred by the company after the date when they knew or must have known there was no reasonable prospect of avoiding an insolvency liquidation.