Last amended by Corporate Insolvency and Governance Act 2020 in 2020. Introduced a standalone moratorium for companies in financial difficulty, a new restructuring plan procedure, and restrictions on termination (ipso facto) clauses in supply contracts.
Independent editorial summary — not the official statute text. Read the official version on legislation.gov.uk.
Summary
The Insolvency Act 1986 is the principal statute governing corporate and personal insolvency in England & Wales. For companies, it provides for voluntary arrangements, administration, receivership, and winding up (liquidation). For individuals, it covers individual voluntary arrangements (IVAs), bankruptcy, and discharge. It also contains provisions on transactions at an undervalue, preferences, and directors' liability for wrongful and fraudulent trading.
Key Points
- Company voluntary arrangements (CVAs) — proposal to creditors for composition or scheme (Part I)
- Administration — company placed under management of administrator to rescue as going concern (Part II, Schedule B1)
- Liquidation — compulsory winding up by court or voluntary winding up (Parts IV–V)
- Preferences and transactions at an undervalue can be set aside (ss.238–241)
- Wrongful trading — directors liable for trading while knowing no reasonable prospect of avoiding insolvent liquidation (s.214)
- Fraudulent trading — carrying on business with intent to defraud creditors (s.213)
- Bankruptcy — individual insolvency: petition, adjudication, trustee in bankruptcy (Part IX)
- Automatic discharge from bankruptcy after 1 year (s.279, as amended)
- Administration — Schedule B1 provides for administration orders to rescue companies or achieve better results for creditors
- Liquidation — Parts IV and V govern compulsory and voluntary winding up of companies
- Company Voluntary Arrangements (CVAs) — Part I allows companies to propose binding arrangements with creditors
- Wrongful trading — s.214 imposes personal liability on directors who continue trading when they knew or ought to have known there was no reasonable prospect of avoiding insolvent liquidation
- Fraudulent trading — s.213 targets those knowingly party to carrying on business with intent to defraud creditors
- Transactions at an undervalue (s.238) and preferences (s.239) may be set aside by a liquidator or administrator
- Bankruptcy — Part IX governs personal insolvency, including the making of bankruptcy orders and the role of the trustee in bankruptcy
- Individual Voluntary Arrangements (IVAs) — Part VIII allows individuals to propose formal arrangements with creditors
- Corporate insolvency: administration, liquidation, CVAs
- Personal insolvency: bankruptcy, IVAs, DROs
- Wrongful and fraudulent trading provisions
- Transaction avoidance (preferences, undervalue transactions)
Parts & Sections
Amendments History
2002 — Enterprise Act 2002
Reformed administration procedure (Schedule B1), abolished Crown preference, and reduced the automatic bankruptcy discharge period to 12 months (1 year).
2020 — Corporate Insolvency and Governance Act 2020
Introduced a standalone moratorium for companies in financial difficulty, a new restructuring plan procedure, and restrictions on termination (ipso facto) clauses in supply contracts.
Frequently asked questions
- What is the Insolvency Act 1986 and what does it cover?
- The Insolvency Act 1986 is the principal statute governing corporate and personal insolvency in England and Wales. For companies, it covers voluntary arrangements, administration, receivership, and liquidation. For individuals, it addresses individual voluntary arrangements, bankruptcy, and discharge. It also includes provisions regarding transactions at an undervalue, preferences, and director liability for wrongful or fraudulent trading.
- What is a Company Voluntary Arrangement?
- A Company Voluntary Arrangement (CVA) is a proposal made by directors to the company's creditors. It can take the form of a composition in satisfaction of debts or a scheme of arrangement. This process is governed by Part I of the Act and allows for a binding arrangement between the company and its creditors to manage insolvency.
- How long do liquidators have to challenge transactions at an undervalue or preferences?
- A transaction at an undervalue can be set aside if it occurred within two years of the onset of insolvency. A preference can be set aside if given within six months of insolvency, or within two years if the creditor is a connected person. In both cases, a liquidator or administrator may apply to the court to restore the position.
- What are the options for personal insolvency under the Act?
- Individuals can propose an Individual Voluntary Arrangement (IVA) under Part VIII of the Act. This allows for a formal arrangement with creditors. Alternatively, an individual may face bankruptcy under Part IX, which involves a petition, adjudication, and the appointment of a trustee in bankruptcy. Automatic discharge from bankruptcy occurs after one year.