The Insolvency Act 1986: A Plain-English Guide

The Insolvency Act 1986 is the single most important piece of UK insolvency legislation. Almost every term you'll read on this site — liquidation, administration, CVA, wrongful trading, preferences — traces back to it. This guide explains what the Act does in plain English.

Why the Act exists

Before 1986, UK insolvency law was scattered and outdated. Following the influential Cork Report of 1982, Parliament consolidated and modernised the rules into one framework covering both companies and individuals. The aims were to rescue viable businesses where possible, treat creditors fairly, and hold delinquent directors to account.

The Act applies in England, Wales and Scotland; Northern Ireland has its own near-identical order. It is supported by detailed procedural rules — most recently the Insolvency Rules 2016 (which replaced the 1986 Rules).

Corporate insolvency: the main procedures

The Act sets out the company procedures you see in the live feed:

• Liquidation (winding up). Selling off a company's assets and distributing them to creditors before dissolution. It can be voluntary — a Creditors' Voluntary Liquidation or Members' Voluntary Liquidation — or compulsory, ordered by a court on a winding-up petition.
• Administration. A rescue procedure (now governed by Schedule B1, inserted by the Enterprise Act 2002) aimed at saving the company or getting a better result for creditors than winding up. See what happens in administration.
• Company Voluntary Arrangement (CVA). A binding deal (Part 1 of the Act) between a company and its creditors to repay debts over time while continuing to trade — see CVA vs CVL.
• Receivership. An older procedure where a secured lender appoints a receiver over charged assets, now largely replaced by administration for most modern charges.

Director accountability: the parts that bite

Some of the best-known provisions target director misconduct:

• Wrongful trading (section 214). If directors carry on trading when they knew, or ought to have known, there was no reasonable prospect of avoiding insolvent liquidation, a court can order them to contribute personally to the company's assets.
• Fraudulent trading (section 213). Carrying on business with intent to defraud creditors — a more serious, harder-to-prove claim with civil and criminal consequences.
• Preferences (section 239). Payments or security given to favour one creditor over others before insolvency can be reversed.
• Transactions at undervalue (section 238). Assets sold or given away for less than they're worth before insolvency can be unwound.

Alongside the Act, the Company Directors Disqualification Act 1986 lets the courts ban unfit directors for up to 15 years.

Personal insolvency too

The Act also governs individuals: bankruptcy, and Individual Voluntary Arrangements (IVAs) — the personal cousin of a CVA. That's why a search for "insolvency register" can return both company and individual results from different registers.

How the Act has been updated

The 1986 framework has been repeatedly modernised rather than replaced:

• Enterprise Act 2002 — streamlined administration and curtailed old-style receivership.
• Insolvency Rules 2016 — replaced the procedural rules, enabling "decision procedures" and deemed consent instead of physical creditor meetings.
• Corporate Insolvency and Governance Act 2020 (CIGA) — the biggest reform in a generation, adding a standalone moratorium, a new restructuring plan, and restrictions on suppliers terminating contracts (ipso facto clauses).

Why it matters to you

Whether you're a director, a creditor or just researching a supplier, the procedures and protections you rely on all flow from this Act. Understanding the vocabulary makes the public record far easier to read.

See the Act in action

Every notice on Insolvency List is a real-world application of the Insolvency Act 1986. Browse by procedure, industry or region to see how UK insolvency law plays out day to day.

*This article is general information, not legal advice. For questions about how the Insolvency Act applies to a specific situation, consult a qualified professional.*