When a company applies for a validation order, the court decides who should pay the costs of the application.
There is no automatic rule. The court has a broad discretion and will look at the overall circumstances of the case.
Can the company pay its own validation order costs?
Yes, but only with court approval.
A validation order application is made because section 127 of the Insolvency Act 1986 renders dispositions of company property void after the presentation of a winding up petition unless validated by the court.
As part of the application, the company can ask the court to approve payment of its professional advisers’ fees for preparing and presenting the application. If satisfied that the application is properly made and benefits creditors as a whole, the court may permit those payments.
In some cases, the court may order that the costs of the validation application be treated as “costs in the petition”.
What does “costs in the petition” mean?
If costs are ordered to be “in the petition”, they usually follow the outcome of the winding up petition itself.
If the petition is later dismissed and no winding up order is made, the petitioning creditor will typically be responsible for those costs.
However, this is not automatic. The court retains discretion and may depart from the usual approach where the circumstances justify it.
When might the company have to pay the costs itself?
If the validation order application is unsuccessful, or if the court considers that the application was unnecessary, poorly evidenced or disproportionate, it may order that the applicant company bears the costs.
The court may consider factors such as:
• Whether the company acted promptly after the presentation of the petition
• Whether full and accurate financial evidence was provided
• Whether the proposed payments genuinely benefited creditors
• Whether the application was reasonably necessary
A poorly prepared or speculative application increases the risk of an adverse costs order.
Why costs need to be considered carefully
A validation order is often urgent. Bank accounts may be frozen and trading may need to continue.
However, because costs are discretionary, the financial implications of making the application must be assessed carefully. A properly structured application, supported by clear evidence of creditor benefit, significantly improves the prospects of both success and a favourable costs outcome.
Early advice can reduce both legal and financial risk.
