How to apply for a Validation Order to unfreeze a business bank account?

Many business leaders know that receiving a winding-up petition (WUP) is serious. But what surprises some is finding their bank accounts frozen when they come to work. 

This freezing is a common part of the WUP process. Banks usually freeze accounts after the WUP is advertised in the Gazette to prevent more financial losses.

According to Section 284 of the Insolvency Act 1986, any transaction carried out by an insolvent company from the moment a WUP is issued until its liquidation is considered a voidable disposition. 

This implies that if a company facing a WUP keeps using its bank account and amassing liabilities, these transactions will later be assumed void. Consequently, the bank will be responsible for covering the resulting loss. Because of this, it is in the bank’s best interest to freeze these accounts as soon as possible.


Exploring the consequences of a frozen business bank account

Basically, a frozen bank account prevents further trading, at least temporarily. Without an active bank account, continuing business isn’t feasible. 

While trading should stop during insolvency, sometimes a creditor might issue a WUP, thinking your company is insolvent when it’s simply short of funds for the moment.

It’s a fact that, without access to company funds, it’s tough to mount a legal defence to appeal or dispute the WUP. However, there’s a way to unfreeze company bank accounts through what’s known as a Validation Order.


What do we mean by a Validation Order in business?

A Validation Order, issued by the court, allows future company transactions to stay valid despite the active WUP. This enables banks to unfreeze some or all of your funds, relieving them of financial responsibility for any losses.

Upon issuing a Validation Order, the court may impose restrictions on the funds held in the company bank accounts. A typical restriction specifies that the money can only be used for particular purposes, like paying workers or specific creditors (often the petitioning party or HMRC).

Alternatively, the order can lift the freeze entirely. There’s a specific process and procedure to follow when applying for a Validation Order.

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A Complete Guide To Process an Application for a Validation Order

Unfortunately, applying for a Validation Order isn’t always straightforward, as with many legal matters. The information required by the court can vary from one case to another. 

However, typically, the application will ask for:

1.The company’s name, trading, and registered address.

2.A brief yet detailed overview of the circumstances leading to the presentation of the WUP.

3.The state of the company’s paid-up and nominal capital.

4.When the directors were informed about the WUP.

5.Comprehensive details regarding the company’s financial status, including assets and liabilities (debts).

6.Whether the WUP is under dispute or agreement.

7. A financial forecast for the company’s future, including a cash flow prediction.

8. Any additional information requested by the court.

This list isn’t exhaustive, but it provides a general idea of what’s needed when applying for a Validation Order to unfreeze accounts. 

When HMRC is the creditor petitioning to wind up your company, the court may require even more from you. This not only complicates the process significantly but also makes it harder to contest.

It’s important to note that Validation Orders are only granted to companies that can present a compelling reason for why one should be issued. If your company is insolvent with little chance of a turnaround, it’s highly improbable that a Validation Order will be approved.

If this is the situation, you may need to contemplate the genuine possibility of your company being compelled into liquidation. Because of this, it is crucial to seek expert help and advice when a WUP is issued against your company.

Vanguard Insolvency possesses years of experience in navigating clients through the Validation Order application process. Reach out to us today for a free consultation if you encounter frozen bank accounts. We can provide guidance on your optimal steps going forward. An insolvency specialist is available to address any questions you may have.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.