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.