If your company bank account has been frozen because of a winding up petition – we can help. A validation order application is normally the best way to proceed, allowing you to continue trading and avoiding the risk of personal liability as well. We have been helping businesses since 2002. Let our team of experts help you too.
If a company’s bank account has been frozen following the presentation of a winding up petition, the consequences can be immediate and severe. A validation order is often the most effective legal mechanism for stabilising the situation, allowing the company to continue trading lawfully while steps are taken to resolve the petition. Where used correctly, it can also significantly reduce the risk of personal liability for directors.
A validation order is a court order which authorises and validates transactions entered into by a company after a winding up petition has been presented.
Without such an order, payments made or assets disposed of after that point may be treated as void if the company is later wound up, regardless of whether they were made in good faith or in the ordinary course of business.
In practical terms, a validation order provides court approval for continued trading and removes the uncertainty that arises once a winding up petition is on foot.
What does a validation order do?
A validation order confirms that specified transactions are lawful and cannot later be challenged as invalid if the company is wound up. Depending on its scope, it may validate payments made to and from the company’s bank account in the ordinary course of business, dispositions of company property, or specific isolated transactions that are demonstrably beneficial.
- In many cases, validation orders are used to authorise routine trading payments such as wages, rent, utilities, essential supplier payments, and tax liabilities.
- In others, they are used to permit a particular transaction, such as the sale of an asset or the completion of a contract, where that transaction is likely to preserve or enhance value for creditors.
The court will not validate transactions that reduce the assets available to creditors without proper justification. The overriding consideration is whether the order benefits creditors as a whole or, at the very least, does not prejudice them.
Why the court approaches validation orders cautiously
The court’s role is to protect the collective interests of unsecured creditors. For that reason, validation orders are discretionary and will only be granted where the court is satisfied that allowing the proposed transactions is appropriate.
The court will require credible, detailed evidence showing either that the company is solvent and able to pay its debts as they fall due, or that the transactions for which validation is sought will be beneficial to creditors or will not worsen their position. Where the evidence is unclear, incomplete or inconsistent, the court is unlikely to grant relief.
This cautious approach reflects the fact that validation orders sit at the intersection of ongoing trading and insolvency protection. They are not granted as a matter of routine.
Who can apply for a validation order?
An application for a validation order may be made by the company against which the winding up petition has been presented. In addition, any person with a legitimate interest in a transaction entered into with the company after the petition was presented may also apply.
In practice, applications are most commonly made by the company itself, acting through its directors, once it becomes apparent that continued trading or specific payments are necessary and that bank accounts have been frozen or are at risk of being frozen.
How does a validation order application work?
A validation order application is made to the same court that is dealing with the winding up petition. In High Court cases, the application is normally made to a Registrar of the Companies Court. In County Court cases, it is made to a District Judge.
The application must be supported by detailed witness evidence, usually from a director or senior officer who is closely familiar with the company’s financial position and trading activities. Where appropriate, supporting evidence from the company’s accountant may also be required.
The evidence must explain the background to the winding up petition, the company’s current financial position, the transactions for which validation is sought, and why those transactions are justified. The court will expect clear, coherent financial information rather than broad assertions or general reassurance.
A draft validation order setting out the relief sought should be included with the application.
What evidence is required?
The precise scope of the evidence will depend on the nature of the application, but the court will usually expect to see comprehensive information covering the company’s financial position and the circumstances of the petition.
This typically includes
- details of the company’s assets and liabilities, supported where possible by accounts or management information,
- an explanation of whether the petition debt is admitted or disputed, and
- a cashflow forecast and profit and loss projection for the period during which validation is sought.
The court will also require details of the specific payments or transactions to be validated and a clear explanation of why they are necessary and how they benefit creditors.
Where the application relates to a disposition of property, such as land or other significant assets, the court will usually require an independent valuation to demonstrate that the transaction is being carried out at proper value.
In urgent cases, where it is not possible to assemble every piece of evidence immediately, the court may grant limited relief for a short period. However, there must still be sufficient material to satisfy the court that creditors are unlikely to be prejudiced.
Service of the application
Once issued, the application and supporting evidence must be served on the petitioning creditor and other relevant parties as soon as practicable. This will usually include any liquidator, administrator or supervisor already appointed, and any creditor who has given notice of an intention to appear at the petition hearing.
In cases of genuine urgency, the court has the power to hear an application immediately, with or without notice, where that is justified by the circumstances.
When should a validation order be applied for?
An application for a validation order can be made either before or after a winding up order is made. Where the application is made before any relevant transactions take place, it is known as an antecedent validation order. In those cases, the court will only grant relief if it is satisfied that the company is solvent or that the transactions will benefit or not prejudice unsecured creditors as a class.
Where transactions have already taken place, a retrospective validation order is required. In these cases, the court will balance the interests of the recipient of the transaction against the interests of creditors generally. Even where transactions were entered into in good faith and before the parties were aware of the petition, there is no guarantee that retrospective validation will be granted. Specialist advice is particularly important in these circumstances.
What are the effects of a validation order?
The effect of a validation order depends on its terms. Some orders are general in nature, validating all transactions in the ordinary course of business for a defined period. Others are narrowly drafted, permitting only specific payments or authorising trading only until a particular date or hearing.
Once granted, a validation order provides legal certainty. It allows the company to trade or dispose of assets in accordance with the order and gives reassurance to banks and counterparties that authorised transactions are lawful.
Who pays the costs of a validation order application?
As part of the application, it is possible to seek validation of payments to professional advisers to cover the costs of the validation order application itself. Where the court orders that costs are “in the petition”, those costs will usually be borne by the petitioning creditor if the winding up petition is later dismissed.
However, the court retains discretion and may order that the applicant bears the costs of the application, particularly where the application is unsuccessful or poorly prepared.
How Francis Wilks & Jones can help
Francis Wilks & Jones has extensive experience over 25 years advising companies and directors on validation order applications and the wider issues that arise following the presentation of a winding up petition. We act quickly, prepare detailed and credible evidence, and provide practical advice that reflects how the court and banks approach these cases in reality.
If your company is facing a frozen bank account or needs court approval to continue trading, early advice is critical. Contact our team for confidential guidance and immediate assistance.
Our expert team can help you get a validation order at court. They can help you to continue trading and avoid possible liability for the directors. Contact us today and we will be happy to speak to you.
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.One of the most astute appointments I have ever made.
A Company Director
