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...

Challenging Employee Benefit Trust schemes in insolvency: office-holder recovery routes, unlawful distributions, directors’ duties and time limits after Rangers, Sequana, Idessa, Burnden and Purkiss

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes

What is an employee benefit trust scheme?

An employee benefit trust (EBT) is frequently adopted by employers as a form of tax avoidance arrangement, whereby pay is routed to staff through particular kinds of employees’ Remuneration trusts. Although such trusts may appear in many guises, with various models available, the EBT is the most widespread example of an employees’ remuneration trust. EBTs can also be used for purposes beyond tax avoidance. For further reading on EBTs, see: the following resources, with some examples set out below:

Disguised remuneration and EBTs—overview
Practice Note: What is an employee benefit trust?

One principal aim of channelling remuneration via an EBT is to maximise the amount received by the employee, by permitting both employer and employee to avoid liability to income tax and Class 1 National Insurance contributions (NICs). Put another way, inserting the trust between employer and worker seeks to eliminate charges to income tax and Class 1 NICs on the sums concerned. It should nevertheless be recognised that listed companies commonly operate EBTs alongside fully taxable share incentive Plans, either as a warehouse to hold Shares required for awards or for the EBT to act as an internal market for a private...

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Web page updated on 21/05/2026

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