Insolvency
Insolvency is a financial condition experienced by a indivudual or business entity when assets no longer exceed liabilities, commonly referred to as balance-sheet insolvency, or when the entity can not meet idebt obligations when they come due, commonly referred to as cash flow insolvency. The term is often incorrectly used as a synonym for bankruptcy, which is a distinct concept, apart from in Germany.
A state of insolvency normally leads to a legal bankruptcy. However, because putting a entity into bankruptcy requires the payment of court fees, an insolvent person or entity may be insolvent and not legally bankrupt.
IVAs
An IVA is not be confused with a Debt Management Programme which more informal and less conclusive approach offering creditors payment in full, over whatever length of time it takes to clear their debts.
A majority of IVA cases are based around an, affordable, repayment each month, over a period of 60 months. An IVA proposal has to be prepared by a licensed Insolvency Practitioner (IP) who then presents it to creditors at a creditors meeting.
The government has rejected a call from the high street banks for better regulation of firms selling the controversial debt solution.
Individual Voluntary Arrangements (IVAs) are often sold to people with debt problems as an alternative to bankruptcy. IVAs allow people to pay a percentage of their debt over a fixed period of time with the rest written off.
In most jurisdictions, it is an offence under bankruptcy laws for a corporation to continue in business once insolvent. It is usually grounds for a civil action, or even an offence, to continue to pay some creditors in preference to other creditors once a state of insolvency is reached. When determining whether a gift or a payment to a creditor is an unlawful preference, the date of the insolvency, rather than the date of the bankruptcy, will usually be the primary consideration. However in the UK, both are relevant. If a corporation pays a bonus to its management months before it files for bankruptcy protection, the court can not look at the date of the bankruptcy filing, but at the date where the corporations debts exceeded liabilities, and / or a date which it was unable to pay debt obligations when they became due, in determining whether directors can be sued for the return of the bonuses.
In the USA, under a Uniform Commercial Code, an individual is considered insolvent when the party is ceasing to pay debts in the ordinary course of business, or cannot pay its debts as they become due, or is insolvent within the meaning of the Bankruptcy Code. This is important as certain rights under the code may be invoked against an insolvent party which are otherwise unavailable.
Although the terms bankrupt and insolvent are often used in reference to governments or government obligations, a government cannot be insolvent in the real sense of the term. A government debt is not secured by the assets of the government, but by its ability in levy of taxes. By standard definition, all governments would be in state of insolvency unless they had assets equal to the debt they owed. If, for any reason, a government cannot meet its interest obligation, it is technically not insolvent but is default. As governments are sovereign entities, persons who hold debt of the government cannot seize the assets of the government to re-pay the debt. However, in most cases, debt in default is refinanced by further borrowing or monetized by issuing more currency.
In law, liquidation refers to the process by which the existence of a company is brought to an end, and the assets and property of the company are distributed. Liquidation can also be referred to as winding-up and/or dissolution, although dissolution technically refers to the last stage of the liquidation process.
Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay creditors. A declared state of bankruptcy can be requested by creditors in an effort to recoup a portion of what they are owed; however, in an overwhelming majority of cases, bankruptcy is initiated by a bankrupt individual or organization.
The Insolvency Service has operated under a statutory framework – mainly under the Insolvency Acts of 1986 and 2000, the Company Directors Disqualifications Act 1986 and the Employment Rights Act 1996. Our staff are based at our network of 38 Official Receiver offices throughout England and Wales; our Enforcement Directorate and Headquarters in London, Birmingham, Manchester and Edinburgh; our Banking Section in Birmingham; and our Redundancy Payments offices in Edinburgh, Birmingham and Watford. As of 1st April 2006 Companies Investigation Branch of DTI transferred to The Service and is based in offices in both London and Manchester.
administer and investigate the affairs of bankrupts, of companies and partnerships wound up by the court, and establish why they became insolvent;
act as trustee / liquidator where no private sector insolvency practitioner is appointed;
act as nominee and supervisor in fast track individual voluntary arrangements;
take forward reports of bankrupts and directors misconduct;
deal with the disqualification of unfit directors in all corporate failures;
deal with bankruptcy restrictions orders and undertakings;
authorise and regulate the insolvency profession;
assess and pay statutory entitlement to redundancy payments when an employer cannot or will not pay its employees;
provide banking and investment services for bankruptcy and liquidation estate funds;
advise DTI ministers and other government departments and agencies on insolvency, redundancy and related issues;
provide information to the public on insolvency and redundancy matters via our website, leaflets, Insolvency Enquiry Line and Redundancy Payments Helpline; and
conduct confidential fact-finding investigations into companies where it is in the public interest to do so. These enquiries are carried out by Companies Investigation Branch.
http://www.bankruptcy.org.uk/ Not for profit bankruptcy
http://www.uscourts.gov/bankruptcycourts.html United States Bankruptcy Courts
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In 2006 a record number of people in England and Wales went insolvent
between July and September. The government's Insolvency Service said 27,644 people
went bankrupt or entered into Individual Voluntary Arrangements (IVAs) to manage
debts. Overall, insolvencies are 55 per cent higher than during the same three-month
period in 2005 and are widely expected to top 100,000 for the entire year.
Significantly, the insolvency figures show the proportion of people taking out IVAs has risen relative to those going bankrupt. If the current trend continues, the number of IVAs will overtake the number of bankruptcy next yearIn total, 15,416 people went bankrupt between July and September. At the same time, 12,228 people entered into IVAs.A year ago, just over 12,000 went bankrupt and fewer than 6,000 entered into an IVA. The sharp rise in IVAs has been controversial. IVAs are heavily marketed by providers, who make money from acting as go-betweens for lenders and borrowers. Some debt charities have criticised IVA providers for marketing them to people who would be better off either going bankrupt or coming to an informal arrangement with creditors. Lenders, too, are concerned at the rise in IVAs.
It seems some people have been used IVAs to escape some of their bank debts, leading to the high street banks writing off more than £3bn in bad debts in the first half of this year alone. They have been lobbying the government to tighten up the regulation of the IVA industry. But so far the government has refused, telling them it is their own fault for lending too recklessly in the first place.
The Government made a commitment in its 2001 election manifesto to reform insolvency
laws to ensure second chances for people who go bankrupt through no fault of their
own. The White Paper on insolvency reform was launched in July 2001 and the proposals
were contained in part 10 of the Enterprise Bill published on 26 March 2002.
The Government's aim is to strike a balance between the need to protect the public and commercial community while not discouraging enterprise and entrepreneurship. They claim this can be done by distinguishing between those who have failed through no fault of their own and those whose situation has arisen though irresponsible behaviour. For bankrupts who failed through no fault of their own, recommendations include automatic discharge reduced to 12 months rather than a 3 years term and reduction of restrictions imposed.
In 2005 an investment of £1.3m by a debt management company will create 60 new jobs in Londonderry. Insolvency practice McCambridge Duffy is to set up a new financial service with support from Invest Northern Ireland. The new company, Insolvency Services (UK) Ltd, provides a service which offers an alternative to bankruptcy.
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