Obtaining a Validation Order
Being served with a Winding Up Petition
If your company is facing a winding up petition you ought to have been served with the petition by the petitioning creditor (or their agent) in the correct way.
The High Court will require the winding up petition to be advertised in the London Gazette by the petitioning creditor prior to the hearing date.
The effect of a Winding Up Petition
If a company is wound up following the presentation of a winding up petition all dispositions of company property including monies from its bank accounts are (unless the Court orders otherwise) void.
This means that any subsequent liquidator could hold the company’s bank liable for any payments out of the Company’s account after receiving notice of the petition.
Why the banks will freeze your account
The banks monitor insolvency advertisements in the London Gazette on a daily basis. The practical effect of the advertisement is that your company’s bankers will freeze outgoing payments from the account.
Following the advertisement of a winding up petition the bank can be held liable for the disposition of monies. Understandably, they will want to see that the Court has agreed for monies to be paid out of the account that they control.
The only way in which to unfreeze the company’s bank account is to apply to the High Court for a Validation Order.
Once your bank receive a copy of the Validation Order they will allow outgoing payments from your account and your business can continue, at least until the winding up petition is heard.
The evidence needed to launch a Validation Order application
We will talk with you about the documents we need from you in order to put your application together.
Generally, this will include a cash flow analysis, a statement about the balance sheet solvency of the Company and a profit and loss statement.
The High Court publishes a list of criteria that a Judge will require in order to grant a Validation Order. We will discuss with you who within your organisation (and perhaps even external advisors that you retain) is best suited to file evidence in support of the Validation Order application.
After a discussion with you about the Company’s situation it ought to be possible to deal with your Validation Order application on the basis of a fixed fee.
This means that you know precisely how much it will cost for you to unfreeze your Company’s bank account and dispose of property in a lawful manner.
Contact our expert Validation Order solicitors to discuss those costs.
What else you might be doing at this stage
Following the presentation and service of the winding up petition the date of the Hearing may be some time off. The rules require the advertisement of the petition to be made at least 7 days before the Hearing. Therefore, there may be some time before the petition is advertised in the London Gazette.
This may provide you with the time to prevent the advertisement of the petition by seeking an emergency injunction. Injunction to Prevent the Advertisement of a Winding Up Petition.
Where a winding up petition has been served at the company’s registered office, the petitioning creditor can advertise the Petition in the London Gazette 7 days later.
If the petition is advertised, it is likely the company’s bank and other creditors will become aware of it, and this can lead to the company bank accounts being frozen and the Petition being supported by other creditors of the company. Even if the company successfully ends up defending the petition at court, the advertisement of the petition itself can destroy the company’s reputation.
Therefore, where (1) there is an abuse of process and the petitioning creditor has presented the petition where there is a substantial dispute or (2) the petition is bound to fail; it is important to make an urgent application to restrain the advertisement of the petition.
Contact our specialist insolvency team today to discuss this.
What else you might be doing at this stage
The broader consideration at this stage is how the Company will defend the winding up petition. If the petition is to defeated the Court will require a certain evidential threshold to be met. In short the Court will want to see that there is a substantial dispute between the parties.