About this website
A step-by-step guide for businesses who have lost money in an insolvency
Insolvency can be a difficult and stressful situation for everyone involved – whether it’s the insolvent company or individual, the ‘debtor’, or the individuals and companies who face the possibility of having their debts go unpaid, the ‘creditors’.
This guide to insolvency is designed to help creditors negotiate what can often be a complicated process which can sometimes seem time-consuming or confusing. The guide has been written for the sole traders or small companies who are unlikely to be exposed to insolvent debtors on a regular basis, usually known in the insolvency process as ‘unsecured creditors’.
The guide explains the terms you might come across and the insolvency procedures you are likely to be involved in. Also included is advice on how to increase the chances of getting your money back, how to see misbehaving directors or debtors brought to justice, and how to agree a fair fee with an insolvency practitioner for the work they will be doing to help you.
Where we can, we’ve tried to avoid technical language, but sometimes this isn’t possible:
The nature of insolvency means it isn’t always possible to get all the money you are owed back – sometimes there is no money at all left in an insolvent business that can be used to repay creditors.
However, the more you get involved, the better the chances you have of seeing a positive outcome at the end of an insolvency procedure.
Are you an unsecured creditor?
Unsecured creditors are businesses or individuals who are owed money by insolvent companies or individuals but who do not hold a ‘security’ in respect of it e.g. a mortgage. In Scotland, unsecured creditors can be referred to as 'ordinary creditors'.
This can include trade suppliers, employees, and government (taxes are an unsecured debt). Unsecured creditors generally make up the bulk of creditors in an insolvency (in number rather than the size of debts).
The nature of insolvency means that creditors will not always receive back all that they are owed. The debts owed to unsecured creditors are also less likely to be repaid than those owed to secured creditors, like banks or other lenders such as invoice factoring companies or asset based lenders.
Despite this, it is important all creditors engage in the insolvency process: active participation by creditors can increase the chances of debts being repaid or ‘rogue’ directors or debtors being brought to justice.
A few facts about the UK insolvency regime
A formal insolvency procedure is something that companies and individuals can enter when they are no longer able to pay their debts when due or they owe more than they own.
Some insolvency proceedings are aimed at giving a debtor breathing space to rearrange their affairs, often through a compromise with creditors, and returning the debtor to financial health. Other insolvency procedures are designed to close down companies that simply cannot continue.
Formal insolvency procedures are an important part of the economic landscape: they help recycle business capital, talent, ideas, and equipment, and ensure indebted individuals can stand financially on their own two feet again. This is all done in a controlled process that balances the needs of both those that owe money and those that are owed.
In 2013 there were approximately 140,000 new insolvency cases across the UK – so if you are owed unpaid debts you’re not alone. The World Bank ranks our insolvency regime as one of the best in the world. It also returns more money to creditors, faster and more cheaply, than the US, France and Germany.
You may also be interested to know that our insolvency profession:
• Saved more than 750,000 jobs in 2012
• Rescued approximately 6,100 business in 2012
• Returns more than £4bn a year to creditors, according to the Office of Fair Trading
• Employs approximately 12,000 people
• Employs approximately 1,700 Insolvency Practitioners
But be aware that there are slightly different insolvency rules and procedures in the devolved administrations of Scotland and Northern Ireland. England and Wales share the same rules and procedures. Differences between procedures are made clear throughout the website. However, generally, the process for unsecured creditors is similar across the UK.
R3 (also known as the Association of Business Recovery Professionals) is the trade body for the UK insolvency profession. We represent insolvency practitioners and many other insolvency professionals and students who work in firms of all sizes and have extensive experience of helping businesses and individuals in financial distress. This website is part of our objective to promote best practice in the UK insolvency regime – making sure that the insolvency process is fair and transparent for all those involved.
R3, stands for “rescue, recovery and renewal”.
Each step of the insolvency process is summarised in a checklist to help you make sure you’ve done everything that you need to. For insolvency procedures in England and Wales please see here. For procedures in Scotland please see here.