My business bank account has been frozen – what can I do?

Understanding how a validation order could unfreeze your company’s bank account

If you’ve found your limited company bank account frozen, it’s likely due to a Winding Up Petition (WUP) issued against your business. With no active bank account, your business operations will likely come to a sudden stop.

If you don’t respond to the WUP, your company will be forcibly closed and enter compulsory liquidation.

 

What do we mean by Winding Up Petition (WUP)?

A Winding Up Petition is a legal action by creditors to recover money owed by a company that’s failing to repay. 

It’s a formal notice indicating the creditor’s intent to push the company into compulsory liquidation if payment isn’t made. Usually, it’s the last step in a long collection process.

If your company receives a WUP, you have seven days to stop the petition by paying what you owe or initiating voluntary insolvency proceedings. Failing this, the petition turns into a Winding Up Order, triggering compulsory liquidation.

Once this occurs, it becomes exceedingly challenging to take any action to rescue the business from closure and removal from the Companies House register.

 

Why might a WUP result in freezing my bank account?

Following the service of a WUP, notification of it will be published in the Gazette. At this point, banks usually freeze any accounts linked to the company immediately. 

They do this to protect against potential further losses the company might incur if access to its bank accounts remains unrestricted.

Once a WUP is issued, any asset disposal, including fund withdrawal from company bank accounts, is typically considered void unless the court rules otherwise. Essentially, if a company subject to a WUP withdraws funds from its bank account, the transaction might be voided later, and the bank could be held liable for the money.

To prevent such occurrences, bank accounts are frozen, preventing directors from accessing any remaining funds or authorising further transactions.

 

How does a frozen bank account impact my trading capability?

Without a functional bank account to pay staff, and suppliers, or conduct financial transactions, it’s nearly impossible for a company to continue operating. This leaves no choice but for the company to cease trading immediately.

While it’s crucial for an insolvent company to cease trading to safeguard creditors’ interests, there are instances where a WUP may be issued against a company with a viable future but facing temporary financial constraints.

In such cases, the company has a valid reason to contest the petition to avoid forced closure of the business.

However, a frozen bank account makes it highly challenging to contest a WUP as company funds are inaccessible. 

While it might be feasible to unfreeze your business bank account through a validation order, this process is expensive and requires court intervention.

 

Validation order: What is it and how this would help unfreeze my bank account?

As the name implies, a validation order essentially validates any transaction made after the WUP has been advertised, relieving the bank of responsibility for financial losses incurred. 

It’s important to note that a validation order is granted only in exceptional circumstances.

A validation order is often pursued if a Company Voluntary Arrangement (CVA) is being drawn up or if evidence demonstrates the company’s solvency. Obtaining one requires legal representation to address the court and present the case, incurring significant costs, which many companies may find difficult to justify.

 

What can I do if my company is insolvent?

If your company is undergoing acute distress, and the WUP stems directly from escalating financial issues, it’s crucial to address the root causes of your current situation.

While having your company’s bank account frozen may appear disastrous, it could actually turn out to be a blessing in disguise, especially from a personal liability standpoint.

If your company is insolvent, as its director, you’re obligated to cease trading and safeguard the interests of your creditors. Continuing to trade poses the risk of accumulating more debt or disposing of company funds or assets, thereby worsening the position of existing creditors.

This is termed wrongful trading and constitutes a civil offence under the Insolvency Act 1986. If found guilty, you could be personally liable for any debts incurred by the company while knowingly insolvent. 

In severe cases, you could also face disqualification from acting as a company director in the future.

However, if your business’s bank account is frozen, it prevents you from making further transactions that could later be considered wrongful. This helps protect your personal position in case the company undergoes liquidation in the future.

 

Read More: 

• Understanding a Creditor’s Petition and the process that follows
• Statutory Demands  Advice for Company Directors
• What is the difference between a Statutory Demand and a Winding Up Petition
• How to Wind up a Limited Company
• What is a Validation Order for a frozen business bank account

 

Need Professional Help? Vanguard Insolvency is with you! 

When your company’s problems have escalated to the point of bank account freezing or a WUP issuance, it’s crucial to prioritise contacting a licensed insolvency practitioner to address your situation. 

Time is of the essence in these scenarios; once a WUP is advertised, the countdown begins.

An insolvency practitioner can guide you through your current situation and explain the available options for you and your company. They’ll evaluate the feasibility of obtaining a validation order to regain access to your bank accounts and assess the prospects of successfully turning around your business.

Alternatively, closure options will be discussed, providing you with the opportunity to voluntarily liquidate your company instead of facing forced liquidation by creditors. Contact our expert team today for immediate assistance or to schedule a free, no-obligation consultation.