A validation order is an application which can be made to the courts when a winding-up petition is issued against a limited company. Once the advertisement of a winding-up petition appears in the London Gazette, then a company’s bank account is usually frozen as a matter of course. Should the company have a need to release funds from the account or make payments to the creditors, then a validation order will need to be applied for. Included with it should be a cash-flow forecast, a statement of affairs, a proposed list of payments and why the payments are necessary.
Validation order explained
If a bankruptcy or winding-up petition is issued to a debtor, in practical terms, it prevents the individual or company from disposing of any assets pending the court hearing. It effectively freezes all bank accounts. Permission to reactivate the bank account or dispose of an asset must be sought from the courts and backed up with reasons and confirmation, that it would not be detrimental to creditors. If agreed the court will issue a validation order.
The court needs to be convinced that the payments being made will be favourable to the creditors and the company. Reassurance is required to ensure that the company’s assets are not going to be diluted. If, for instance, receipts are expected that will cover the debt owed, then, of course, this benefits both the company and the creditors.
When will a validation order be approved?
- There is a likelihood of the petition being dismissed.
- The company is solvent and is able to pay the amount owed on the petition, through money held at the bank, or through money owed into the company account
- Paying suppliers, staff or rent to carry out unfinished work
In instances where the company has not got the funds to pay a valid debt, a validation order can still be approved, if it can be shown that a CVA is in the best interest of creditors and likely to get approval.
A validation order is a process issued by the courts, allowing a business to temporarily access their frozen bank accounts, during the process of a winding-up petition. Once a business is advertised in the London Gazette, the banks will freeze all of their company accounts. It’s incredibly difficult to gain a validation order and access is only likely to be given if money is being used for specific purposes, such as paying workers or creditors.
How we can help
If your company has had its bank accounts frozen after an advertisement in the London Gazette and you need a validation order to help you gain access, acting quickly is vital. After advertisement in the Gazette, the process of a winding-up petition is well on its way, so there is no access to accounts. A validation order is very hard to gain and going through the courts can be an extremely difficult process. We can help guide you on the process and give you the correct advice on what it takes for a validation order to be accepted for.