What Is The Insolvency Act 1986?
October 10, 2023
We’ve mentioned it many times before on our blog, but what is the Insolvency Act 1986 exactly?
It’s legislation that provides the legal platform for personal and corporate insolvency matters in the UK. And the Insolvency Act 1986 ‘long title’ is very informative about its contents, consolidating:
- Enactments relating to company insolvency and winding up (including the winding up of companies that are not insolvent, and of unregistered companies);
- Enactments relating to the insolvency and bankruptcy of individuals;
- And other enactments bearing on those two subject matters
Other enactments include:
- The functions and qualification of insolvency practitioners
- The public administration of insolvency
- The penalisation and redress of malpractice and wrongdoing
- The avoidance of certain transactions at an undervalue
The legislation is a crucial document for insolvency practitioners and is very relevant reading for businesses or individuals that have become, or are close to becoming, insolvent.
Here are details on some of the key sections in the Insolvency Act 1986.
Company Voluntary Arrangements
In the first part, the legislation introduced the Company Voluntary Arrangement (CVA) which for insolvent businesses is an alternative to a Creditors’ Voluntary Liquidation (CVL). Here is our guide to the difference between a CVL and CVA.
As a formal procedure requiring oversight from a licensed insolvency practitioner, the CVA serves as a potential rescue process for a company in debt.
It can allow a company to continue trading, improve cash flow, ease creditor pressure and avoid liquidation.
Administration orders
In the second part, the Insolvency Act 1986 covers administration.
As the administrators, the insolvency practitioners help company directors decide whether a rescue is viable for the business.
If it’s not possible, they will work towards achieving a better result for a company’s creditors compared to if the business goes into liquidation.
Some of the key considerations around business administration include who gets paid first and what happens to company staff.
Receivership
The third part of the legislation covers receivership.
During receivership, a creditor – such as a bank or another financial institution – appoints a person to ‘receive’ the company’s assets, liquidate them and recoup the debt.
This only applies for a creditor with a qualifying floating charge created before 15 September 2003. Here is our full guide to receivership.
Winding up of companies
There are lots of enactments in the Insolvency Act 1986 around winding up procedures.
Creditors can issue a winding up petition that aims to force a business into closing down for good, if that company owes them money but cannot pay them back.
This area of the Act also covers malpractice before and during liquidation, including matters relating to wrongful trading as well as misfeasance.
Insolvency of individuals and bankruptcy
Moving away from business considerations, the legislation also covers the law on personal insolvency.
It introduced the individual voluntary arrangement (IVA) as a way of avoiding bankruptcy. For this, an insolvency practitioner presents a formal repayment proposal to creditors on the debtor’s behalf.
IVAs help prevent individuals from losing major assets such as their home or vehicle, but stay on credit reports for six years. A bankruptcy also appears on your credit report for six years, plus there are several other major restrictions.
And in The Gazette, we explain what happens following official discharge from a bankruptcy order.
Final thoughts: the Insolvency Act 1986
Those are just some of the matters included in the 19 different parts of the Insolvency Act 1986.
There are many more – for example, others we have explored previously include how a phoenix company with the same name as its previous incarnation can breach insolvency law.
There have been a few updates to the law, notably during the coronavirus pandemic via the Corporate Insolvency and Governance Act 2020. Related to this, here’s what to do if you can’t pay off a Bounce Back Loan.
Interestingly, in the year 1986, another significant piece of legislation came into effect.
This was the CDDA or Company Directors Disqualification Act 1986 – both Acts followed up on findings in a report published by Sir Kenneth Cork a few years earlier. Take a look at our blog on director disqualification for further details.
Our experienced directors are authorised by the ICAEW to act as insolvency practitioners under the Insolvency Act 1986. If there’s a company or personal debt matter you’d like to discuss, or if you have any other queries, please get in touch.
