Once a company has been presented with a winding up petition, any disposition of that company’s assets (including land and cash) will be void unless the court orders otherwise. Additionally, the company’s bank accounts are likely to be frozen pending the outcome of the petition. However, a validation order from the court will enable a company to make dispositions of its assets or unfreeze its bank accounts.
Once a company has been presented with a winding up petition, any disposition of that company’s assets (including land and cash) will be void unless the court orders otherwise. Additionally, the company’s bank accounts are likely to be frozen pending the outcome of the petition. However, a validation order from the court will enable a company to make dispositions of its assets or unfreeze its bank accounts.
When might I need a validation order?
A validation order is required after the presentation of a winding up petition for any dispositions of company assets between the period starting from the presentation of the petition to the granting of the winding up order or dismissal of the petition entirely.
A validation order does not just cover transactions whereby the company disposes of cash or land, if the company’s accounts are frozen, then this will prevent the company from making payments to suppliers and employees, as well as, prevent payments being received into the account. This is likely to cause significant disruption to the company’s day to day trading.
Any payments in and out of a company bank account (in the event the account is not frozen by the bank) or dispositions of property/assets, without a validation order from the court granting permission, may be at risk of being void and the transaction will be at risk of being reversed. Additionally the directors of the company may be required to compensate the company for any losses.
How do I apply for a validation order?
An application for a validation order should be made to an Insolvency and Companies Court Judge in the Companies Court which is a branch of the High Court, and notice of the application should be given to:
- The petitioning creditor;
- Any person entitled to receive a copy of the petition;
- Any creditors supporting the petition; and
- Any creditor who has been substituted as petitioner.
The application should contain witness evidence setting out why the disposition is being made and what implication the disposition would have on unsecured creditors. Usually, the witness evidence is presented in the form of a witness statement by a company director accompanied with witness evidence (and accounting information) from the company’s accountant.
What are the grounds for applying for a validation order?
This can vary depending on why the order is sought and the financial circumstances of the company.
The court will consider the following factors when considering whether or not to make a validation order:
- Whether the transaction or transactions to be validated will be beneficial to, or will not prejudice, the interests of all the unsecured creditors as a class.
- The court must be satisfied that the disposals will be at a proper value.
- The court will look at the extent of the company’s solvency (or insolvency) with reference to the balance sheet and cash flow.
If a disposition has already been made by the company after the winding up petition has been issued and it has not applied for a validation order, a retrospective validation order application may be considered either by the company or the recipient of the asset/funds.
When making an application of this nature, the court will consider the above factors and will try and balance the interests of the recipient of the asset/funds with the interests of the company’s creditors.
You should consider what dispositions the company needs to make to enable it to continue trading. It would assist us to have the following details:
- Details of the regular payments in and out of the account in question;
- When these payments are due to be paid out or received, who to/from and how much;
- Details of the anticipated transaction (if relevant);
- Details of any one-off transactions which will also need to be considered; and
- A recent set of company accounts including a profit and loss account and a balance sheet.
Our legal experts will provide you with an estimate of costs based on the type of work required and its urgency from the outset.
The team at Bankruptcy Solicitors have extensive experience in advising clients who wish to apply for validation orders. For more information, please contact our team of experts by emailing insolvency@bankruptcy-solicitors.com or call 020 8308 3610 today.