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...

Effects of personal and corporate insolvency on ongoing litigation and arbitration: standing, statutory stays, moratoria and cross-border issues (England and Wales)

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes

This Practice Note covers:

the impact of an insolvency process on ongoing litigation where the debtor, bankrupt or insolvent company is a claimant or defendant
how an insolvency process interacts with an arbitration agreement binding the debtor, bankrupt or insolvent company
additional considerations in a cross-border setting

Personal insolvency

What happens when the bankrupt is a claimant in ongoing proceedings?

The presentation of a bankruptcy petition, whether by a creditor or by the debtor, has no legal consequence for proceedings already on foot where the debtor is the claimant. Once a bankruptcy order is made and a trustee in bankruptcy (the trustee) is appointed, most causes of action in which the bankrupt has an interest vest in the trustee under section 306 of the Insolvency Act 1986 (IA 1986). In such circumstances, it is the trustee, rather than the bankrupt, who has standing to carry on the claim. The trustee will proceed only if that course best serves the interests of the bankruptcy creditors. Certain causes of action are personal to the bankrupt: they do not form part of the bankruptcy estate (therefore do not...

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Web page updated on 21/05/2026

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