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...

Insolvency Dividends and Distributions: Timing, Notices and Proofs in Liquidation, Bankruptcy and Administration (England and Wales)

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes

liquidation and bankruptcy

The overarching rule for both liquidation and bankruptcy is that, once expenses and preferential debts are settled, the company’s or bankrupt’s property is applied to meet their debts. Those debts are to be paid in full; if the estate is insufficient, they abate proportionately between themselves.

For further detail on the order of payments, see Practice Notes:

Waterfall of payments—a comparative guide
Waterfall of payments in liquidation
Waterfall of payments in bankruptcy

Whenever the liquidator or trustee in bankruptcy (the trustee) holds sufficient funds in the insolvent estate, and subject to retaining sums needed for the expenses of the liquidation or bankruptcy, they must declare and distribute dividends to creditors for the debts they have proved.

This reflects that, if the liquidator or trustee waited until all assets of the company or bankrupt were realised and all enforceable debts and liabilities proved, the process would be unduly prolonged. Instead, the statutory framework allows interim payments. The insolvency (England and Wales) rules 2016 (IR 2016), SI 2016/1024 contain detailed provisions describing the procedure that must...

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Jessica Powers

New Square Chambers

Jessica specialises in insolvency, commercial and company law. She appears as sole counsel regularly in the High Court, and was successful in the Court of Appeal in the important case of Bell v Ide. She is well accustomed to conducting cases from pre-action advice through to trial, whilst throughout maintaining a pragmatic and commercial approach. Jessica is currently ranked in Legal 500 UK Bar in Insolvency, Commercial Litiation and Company, and is noted as being an “excellent technical lawyer and advocate” and “very bright and hard-working”. She is also ranked in Chambers and Partners UK Bar in Insolvency, and has been described as “strong on her feet” and “a pleasure to work with”. During her appointment to the Attorney-General’s C Panel of Junior Counsel to the Crown (2017-2022), Jessica was frequently instructed by HMRC and the Official Receiver in insolvency matters, and by the...

Web page updated on 21/05/2026

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