Jurisdiction(s):
United Kingdom

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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 set-off in administration: creditor B's steps

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Published by a LexisNexis Restructuring & Insolvency expert

Q&As

In this Q&A, we assume that B’s claim is smaller than A’s.

Legal process against the company

Under paragraph 43(2) of Schedule B1 to the Insolvency Act 1986 (IA 1986), the moratorium prevents any legal process—covering legal proceedings, Execution, distress and Diligence—from being started or continued against the company or its property without the administrator’s consent or the court’s permission.

This wording is wide enough to encompass any remaining actions or steps that might otherwise be taken against the company or its property. Accordingly, B can only bring an action against A with the approval of the administrator or the leave of the court.

The purpose of the moratorium (and the interim moratorium) is to safeguard the company and its assets from creditor action during the company’s administration and the pre-appointment period. It bars any steps, actions or processes from being begun or carried on against the company and its property, save with the administrator’s consent (if one is appointed) or the court’s permission. See Practice Note: The moratorium in administration for further detail...

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Web page updated on 27/05/2026

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