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Frozen Accounts or assets – Validation order

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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. Furthermore, the company’s bank accounts are likely to be frozen pending the outcome of the petition. In order to obtain permission of the court for a company to make further dispositions of its assets or to unfreeze a company’s bank account, an application for a validation order will need to be made.

What is a validation order?

Once a company has been presented with a winding up petition, any disposition made by it of any of the company’s assets (including land and cash) will be void unless the court orders otherwise. In order to obtain permission of the court for a company to make further dispositions of the company’s assets or to unfreeze a company’s bank account, an application for a validation order will need to be made.

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 added significant disruption.

Any payments in and out of a company bank account (if the account is not frozen) or dispositions of property/assets without such an order from the court granting permission, may be at risk of being void and the transaction will be at risk of being reversed, or 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 who was entitled to receive a copy of the petition;
  • Any creditors who are 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?

The grounds for applying for a validation order can vary depending on why the order is sought and the financial circumstances of the company. However, broadly, 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. As a general rule, a validation order will only be made where there is no serious risk to creditors.
  • The court must be satisfied that the disposals will be at a proper value (i.e ensure that no third party is being treated preferentially over any other creditor, thereby ensuring compliance of the “sharing principle”).

 

  • The court will look at whether a company is solvent or insolvent. If a company is insolvent using the “cash flow test” but solvent using the “balance sheet test”, then the court will focus on trying to avoid paralysing a company from trading. 

What if we have already made the disposition?

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, then 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.

It is important to note that there should be no presumption that the disposition will be validated just because it was made in good faith. Therefore, it is important to get legal advice prior to making any dispositions rather than face the anguish of potentially having a disposition made void.

What should you do before calling?

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.

Is it expensive? What are the likely costs?

We will provide you with an estimate of costs at the outset based on the type of work required and its urgency.

Our lawyers have extensive experience in advising clients who wish to apply for validation orders. We will be able to provide you with bespoke and cost effective advice tailored to your circumstances.

Meet the Frozen Accounts or assets – Validation order team
Ray Crudgington
Managing Partner
greenwich
02083054224
ray.crudgington@grantsaw.co.uk
Maria Lati
Partner
Head of Residential Property
blackheath
02083054229
maria.lati@grantsaw.co.uk
Mike Clary
Partner
Head of Family
greenwich
02083054237
mike.clary@grantsaw.co.uk
Kalpa Prajapati
Partner
Head of Private Client
blackheath
02083053536
kalpa.prajapati@grantsaw.co.uk
Mario Savvides
Partner
Head of Commercial Property
greenwich
02083053531
mario.savvides@grantsaw.co.uk
Sarah-Kate Jackson
Partner
Head of Litigation
greenwich
02083054236
sarah-kate.jackson@grantsaw.co.uk
Adina-Leigh Collins
Litigation
Solicitor
greenwich
02083053556
adina-leigh.collins@grantsaw.co.uk
Aimal Gram
Commercial Property
Solicitor
greenwich
02083053524
aimal.gram@grantsaw.co.uk
Aisha Mohammed
Residential Property
Solicitor
greenwich
02083054228
aisha.mohammed@grantsaw.co.uk
Aishat Balogun
Aishat Balogun
Family
Solicitor
greenwich
02083054214
aishat.balogun@grantsaw.co.uk
An Le Tran
Commercial Property
Professional Support Solicitor
greenwich
02083054226
anle.tran@grantsaw.co.uk
Angus Young
Litigation
Solicitor
greenwich
02083054225
angus.young@grantsaw.co.uk
Atifha Aftab
Atifha Aftab
Family
Solicitor
greenwich
02083054238
atifha.aftab@grantsaw.co.uk
Bimal Kotecha
Litigation
Solicitor
greenwich
02083053523
bimal.kotecha@grantsaw.co.uk
Charlotte Mandy
Charlotte Warren
Private Client
Solicitor
blackheath
02083054231
charlotte.warren@grantsaw.co.uk
Claire Mac Mahon
Litigation
Solicitor
greenwich
02083053537
claire.macmahon@grantsaw.co.uk
Deborah Taite
Residential Property
Solicitor
blackheath
02083053542
deborah.taite@grantsaw.co.uk
Emily Pearce
Residential Property
Solicitor
greenwich
02083053526
emily.pearce@grantsaw.co.uk
Georgia Beales
Litigation
Paralegal
greenwich
02083054206
georgia.beales@grantsaw.co.uk
James McKimm
James McKimm
Corporate and Commercial
Solicitor
greenwich
02083054217
james.mckimm@grantsaw.co.uk
Jeremy Brooks
Jeremy Brooks
Private Client
Solicitor
blackheath
02083053534
jeremy.brooks@grantsaw.co.uk
Joanna Godden
Notary Public
Notary
greenwich
02083083535
joanna.godden@grantsaw.co.uk
Kim Whitaker
Kim Whitaker
Corporate and Commercial
Head of Corporate and Commercial
greenwich
02083053539
kim.whitaker@grantsaw.co.uk
Laura Danquah
Compliance Manager
greenwich
02083054222
laura.danquah@grantsaw.co.uk
Lauren Smith
Employment and Family
Paralegal
greenwich
02083053543
lauren.smith@grantsaw.co.uk
Mandeep Clair
Family
Solicitor
greenwich
02083054235
mandeep.clair@grantsaw.co.uk
Michael Pope
Employment
Consultant Solicitor
greenwich
02083053540
michael.pope@grantsaw.co.uk
Michelle Pinnington
Michelle Pinnington
Residential Property
Solicitor
greenwich
02083054216
michelle.pinnington@grantsaw.co.uk
Noella Gooden
Employment
Solicitor (Australian qualified)
greenwich
02083053543
noella.gooden@grantsaw.co.uk
Raj Waghela
Raj Waghela
Residential Property
Solicitor
greenwich
02083053529
raj.waghela@grantsaw.co.uk
Randeep Thethy
Randeep Thethy
Residential Property
Solicitor
greenwich
02083054209
randeep.thethy@grantsaw.co.uk
Ruggero Pesciatini
Ruggero Pesciatini
Corporate and Commercial
Paralegal
greenwich
02083054220
ruggero.pesciatini@grantsaw.co.uk
Sarah Conner
Sarah Conner
Private Client
Solicitor
blackheath
02083054234
sarah.conner@grantsaw.co.uk
Simran Lalli
Simran Lalli
Employment
Solicitor
greenwich
02083054208
simran.lalli@grantsaw.co.uk
Susan Collins
Commercial Property
Solicitor
greenwich
02083054200
susan.collins@grantsaw.co.uk
Tatiana Zenina
Tatiana Zenina
Private Client
Solicitor
blackheath
02083054239
tatiana.zenina@grantsaw.co.uk
Trisha Djemal
Trisha Djemal
Residential Property
Consultant Solicitor
blackheath
02083053546
trisha.djemal@grantsaw.co.uk
Tyrone Grant
Residential Property
Head of Leasehold Enfranchisement
blackheath
02083053522
tyrone.grant@grantsaw.co.uk
Denise
Accounts Staff
greenwich
02088586971
enquiries@grantsaw.co.uk
Jayne Lye
Support Staff
Office Manager
greenwich
02083054204
jayne.lye@grantsaw.co.uk
Jamie
Support Staff
Head of IT
greenwich
02088586971
enquiries@grantsaw.co.uk
Kasia
Accounts Staff
greenwich
02088586971
enquiries@grantsaw.co.uk
Michael Tobin
Michael Tobin
Support Staff
Marketing and Business Development Manager
greenwich
02083053550
michael.tobin@grantsaw.co.uk
Sue Holness
Support Staff
Customer Services
greenwich
02083054221
sue.holness@grantsaw.co.uk