Jurisdiction(s):
United Kingdom

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...

R3 Q&A Guides on Unsecured Creditors’ Rights in Administration, Liquidation, Receivership, CVAs, IVAs, Bankruptcy, Moratoria and Restructuring Plans

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes

Who are R3?

R3 is the trade association for the UK’s insolvency, restructuring, advisory and turnaround community. It represents insolvency practitioners, lawyers, turnaround and restructuring specialists, students, and others across the profession. This profession is crucial to the UK economy: it rescues companies and jobs, rebuilds confidence to trade and lend by returning funds fairly to creditors after insolvency, investigates and disrupts fraud, and supports indebted individuals to regain stability.

Creditor guides

R3 has developed a series of guides for unsecured creditors that set out creditors’ rights during an insolvency process. These are available below. To understand the role of a committee formed mainly of creditors during insolvency proceedings, see Creditors’ Committees: A Guide for Creditors (E&W) (March 2023).

Insolvency process

Administration

In what situations might a company enter administration?
How can a company be put into administration?
What is the aim of administration?
What powers does an administrator hold?
Will the administrator pay unsecured creditors the sums owed?
How does administration conclude?

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Web page updated on 21/05/2026

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