Where a winding up petition has been presented against a company, the consequences can escalate quickly. One of the most immediate risks is that the company’s bank account may be frozen, preventing payment of staff, suppliers, rent or essential overheads. In many cases, the only practical way to stabilise the position is to apply for a validation order.
A validation hearing is the stage at which the court considers whether to grant that order.
This page explains what a validation hearing is, how it fits into the validation order process, and what companies and directors should expect.
What is a validation hearing?
A validation hearing is the court hearing at which a judge considers an application for a validation order under section 127 of the Insolvency Act 1986.
At the hearing, the court decides whether to authorise and validate transactions entered into by the company after the presentation of a winding up petition. This may include payments from the company’s bank account, continued trading in the ordinary course of business, or specific transactions that are said to benefit creditors.
The purpose of the hearing is not to resolve the winding up petition itself, but to determine whether allowing the proposed transactions is appropriate while the petition remains on foot.
When is a validation hearing required?
Not all validation order applications require an oral hearing, but many do.
Where the application is urgent, straightforward and supported by clear evidence, the court may deal with it on paper. However, where the application is contested, raises questions about creditor prejudice, or involves ongoing trading over a period of time, the court will usually list the matter for a validation hearing.
In practice, many applications involving frozen bank accounts, ongoing trading or significant payments will proceed to a short hearing before a judge.
What happens at a validation hearing?
At the validation hearing, the court will consider the application, the supporting evidence and any objections raised by creditors.
- The judge’s focus will be on whether granting the validation order is in the interests of creditors as a whole, or at least does not prejudice them.
- The court will also consider the conduct of the directors since the presentation of the winding up petition and whether the application has been made promptly and transparently.
Legal submissions are usually made on behalf of the company, often by counsel, explaining why the order is necessary and how the proposed transactions meet the legal test. Creditors who oppose the application may also be heard.
The court may grant the validation order as sought, grant a more limited form of relief, adjourn the hearing for further evidence, or refuse the application altogether.
Is a validation hearing always necessary?
A validation order will not be granted without the court formally considering the application. That consideration may take place on paper or at a hearing, depending on the circumstances.
Where the court considers that oral argument is required, a validation hearing will be listed. Companies and directors should therefore always proceed on the basis that a hearing may be required and ensure that the application and evidence are prepared accordingly.
The importance of preparation
Validation hearings are evidence driven.
- Poorly prepared applications often result in limited orders, adjournments or refusal.
- Clear financial information, credible cashflow forecasts and a coherent explanation of why continued trading benefits creditors are essential.
The court will not validate transactions simply because the company wishes to continue trading. The burden is on the applicant to demonstrate that the order is justified.
How Francis Wilks & Jones can help
Francis Wilks & Jones regularly advises companies and directors on validation order applications and validation hearings.
We focus on preparing clear, credible evidence and presenting applications in a way that reflects how the winding up court approaches these cases in practice. Where a hearing is required, we work closely with experienced insolvency counsel to ensure that the application is presented effectively and proportionately.
If your company is facing a frozen bank account or uncertainty following the presentation of a winding up petition, early advice is essential.
Francis Wilks & Jones is the county’s leading firm of validation order and company rescue solicitors. We are experts in all matters relating to validation orders and making these types of section 127 validation order applications. We can help a company continue to trade and help unfreeze a bank account. Our knowledge of the validation order process is second to none and our results excellent. Call today.
The company handled our matter with utmost professionalism and care. They were also very empathetic while handling our matter.
A client we obtained a Validation Order for
The fee was affordable and did not leave us out of pocket. Bradley was amazing. I strongly recommend them.
