# Insolvency basics: corporate distress overview

> **Key takeaway:** IA 1986: liquidation, administration (Sch B1), CVA; avoidance ss.238–239; wrongful trading s.214. Part 26A plans. Creditor duty near insolvency (Sequana). Priority: security + insolvency waterfall. Get specialist IP input for appointments.

- **Jurisdiction:** England & Wales
- **Practice area:** Commercial
- **Last reviewed:** 2026-08-04
- **Interactive page:** https://kttclegal.info/library/notes/Commercial/insolvency-basics-overview
- **Keywords:** insolvency, administration, liquidation, wrongful trading, Sequana, CVA, restructuring plan, floating charge

## What is this about?

English corporate insolvency offers liquidation, administration, company voluntary arrangements, and (for some) restructuring plan tools, alongside director duties as insolvency approaches. This overview orients commercial practitioners; formal appointments are specialist.

## What is the core rule?

A company may enter creditors' voluntary or compulsory liquidation, or administration aimed at rescue or better creditor outcomes (Insolvency Act 1986 Sch B1). CVAs compromise debts with creditor approval. Part 26A restructuring plans can bind classes with cross-class cram-down under court sanction. On insolvency or its approach, directors must consider creditors' interests (Sequana) and risk wrongful trading (IA 1986 s.214) and transaction avoidance (preferences, transactions at undervalue). The insolvency hierarchy distributes assets subject to fixed/floating charges and prescribed part rules.

## What are the elements or test?

1. Is the company cash-flow or balance-sheet insolvent?
2. Which process fits: administration, CVA, restructuring plan, liquidation?
3. Security: fixed vs floating charge; moratorium effects?
4. Director exposure: wrongful trading, misfeasance, preferences?
5. Employee and pension creditor issues?

## Which authorities matter?

- **Insolvency Act 1986 (including Schedule B1 administration; ss.238–239 avoidance; s.214 wrongful trading)** — Core statutory insolvency code.
- **Companies Act 2006, Part 26A (restructuring plans)** — Court-sanctioned restructuring plan procedure.
- **BTI 2014 LLC v Sequana SA [2022] UKSC 25** — Directors' creditor-interest duty trigger when insolvency is imminent or probable.
- **Re Spectrum Plus Ltd [2005] UKHL 41, [2005] 2 AC 680** — House of Lords on characterising floating charges — critical to priority.

## How does this apply in practice?

Moratorium (Part A1 IA 1986) and pandemic-era temporary rules may not reflect current defaults — check live law. Personal bankruptcy is a separate regime. Always involve licensed insolvency practitioners for formal appointments.

## What are common pitfalls?

- Delaying advice until rescue options are spent
- Preferring connected creditors near insolvency
- Mischaracterising charge fixed/floating status
- Directors taking new credit when wrongful trading risk is acute

## When would a practitioner use this?

Early distress strategy; lender enforcement interface; director risk briefings.

## Quick reference

IA 1986: liquidation, administration (Sch B1), CVA; avoidance ss.238–239; wrongful trading s.214. Part 26A plans. Creditor duty near insolvency (Sequana). Priority: security + insolvency waterfall. Get specialist IP input for appointments.

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*Reference material from [KTTC Legal](https://kttclegal.info/), not legal advice. Work product supports instructing solicitors and barristers under their supervision. England & Wales.*