Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Insolvency definition

What does Insolvency mean? In practice, insolvency describes a financial state where a debtor cannot meet liabilities when due, triggering remedies such as administration, liquidation or bankruptcy and informing directors’ duties and avoidance claims. For companies in England & Wales, Scotland and Northern Ireland, the Insolvency Act 1986, s 123 sets two alternative tests: - Cash‑flow insolvency: an inability to pay debts as they fall due. The inquiry is practical and forward‑looking, not confined to today’s bills (Re Patrick & Lyon Ltd [1933] Ch 786; BNY Corporate Trustee Services Ltd v Eurosail [2013] UKSC 28). - Balance‑sheet insolvency: liabilities (including contingent and prospective liabilities) exceed assets on...

Corporate insolvency processes and their effect on court proceedings: comparison for dispute resolution lawyers (England, Wales and Scotland)

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes

Practice Note and ia 1986

This Practice Note uses the insolvency Act 1986, abbreviated as IA 1986. The table outlines the main corporate insolvency procedures from a dispute resolution perspective.

administration

A short-term measure for a company facing financial distress. The purpose is to give the administrator time to attempt a rescue, pursue a restructuring, or deliver a better return for creditors than an immediate winding up.

Appointment: effected out of court by a qualifying floating charge holder, the company’s directors or the company itself, or by court order (an administration order).
Combination: administration can operate alongside a company voluntary arrangement (CVA) or a scheme of arrangement.
Effect on proceedings: entry into administration imposes a broad moratorium on court proceedings and legal processes, covering proceedings, execution and distress. It applies to both existing and new proceedings, which may only continue or be started with the court’s permission or the administrator’s consent...

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Web page updated on 22/05/2026

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