Validation Order
Validation Order
What is a Validation Order?
A Validation Order is an order of the court providing comfort to a bank that any transactions it is party to (by virtue of payments going into and out of the account) will not be challenged by a subsequently appointed Liquidator.
Why is a Validation Order necessary?
When a company receives a winding up petition (the first step in placing a company into compulsory liquidation), there is a risk a winding up order will follow and if that were to happen any transactions entered into between the presentation of the petition (this is when it is issued) and the court hearing where the winding up order is made are potentially voidable.
As a result of this a bank will freeze a company’s banking facilities when it discovers the winding up petition, which most commonly happens when the winding up petition is advertised in the London Gazette, to ensure the bank is not liable or suffers any loss if the company is subsequently placed into liquidation.
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Can a bank just freeze my account like this, even if the account is in credit?
Sadly, for company directors, yes it can. The only way to stand any chance of accessing those funds is with a validation order.
A validation order is obtained by making an application to the court. This is normally done with the help of a firm of Insolvency Practitioners and a firm of solicitors. The application demonstrates the financial position of the company, what the money will be utilised for and needs to demonstrate why it is essential or beneficial for the funds movements to be certified as not being capable of being challenged by a subsequently appointed Liquidator.
Without a Validation Order a company will die almost instantly as every business needs to have cashflow. Speed is of the utmost importance in situations like this if a company director is to save his/her business.
To find out more about validation orders and how to access funds in your bank account, contact us at Lucas Ross for a free, confidential and no obligation chat
Do you Have to Serve a Statutory Demand Before a Winding-up Petition?
Although not obligatory, a court will usually require a formal proof that demand for payment has either been ignored or remained unpaid.
A winding up petition is a serious threat which can quickly lead to the forced closure of your business. Speak to your accountant for tailored advice as each situation is unique or contact help@lucasross.co.uk.