Validation Order

The presentation and subsequent advertisement a Winding Up Petition can have devastating consequences on your company, no least because your assets including your bank accounts will immediately frozen and thereby hampering your ability to continue trading.

What Options are Available to You When Your Assets are Frozen?

A viable company whose assets and bank accounts have been frozen can seek a validation order from the court.

These are orders made by the court which allow the disposition of company property, even after the presentation of a winding-up order, something of which is usually prohibited in the standard event of a Winding Up Petition being presented.

In the usual course of events of presenting a winding-up petition, a creditor may choose to advertise the Petition publicly and so cause the freezing of the company’s bank accounts. This is done in attempt to force the freezing of the company accounts as these may be what is required to make good the original debt or to avoid the dissipation of funds and to preserve the assets of the Company for the creditors. This can be counter-intuitive however as freezing a company’s assets will stop a company from being able to trade, and so stop them being able to realise profits of which could be used to settle the debt.

A validation order then will allow your company to continue to trade, or even just dispose of a particular asset, so long as it is determined that such a transaction will be for the benefit of the debtor in settling its debt with the creditor.

A validation order will usually be specific in order to only allow the certain trading functions, or it may be general in order to allow a company’s normal trading activities to resume until the petition is resolved.

Requirements for a Validation Order

Validation Orders can be made following an application to the court and a hearing of said application. It should be noted that applications will not be considered during the hearing stated on your Winding Up Petition, but must be heard before a judge at a separate hearing. The most important thing is that you are able to satisfy the court that either your company is solvent and able to pay debts as they fall due, or that to continue trading in an agreed and restricted manner will be beneficial (or at least not prejudice) for the interests of the petitioning creditor.

What Information will you be Required to Present in your Application?

The High Court has issued a Practice Note on the Validation Orders, which details the information required in applications to the court. Although this will vary depending on the nature of the case, some of the typical information that the court will require is:

• Your company details, including name, registered address etc.;
• A background of the dispute leading to the Winding Up Petition;
• Full details of the company’ financial position, including balance sheets, cash flow forecasts etc.;
• An explanation of the dispositions or trading activities for which an order is sought;
• A cash flow forecast and profit and loss projection for the period for which the order is sought;
• Details of the dispositions or payments in respect of which an order is sought, and reasons relied on in support of such dispositions.

As with most applications to the Insolvency Courts, these need to supported by firm evidence and well formulated legal argument. The law surrounding insolvency is the relevant procedure rules are a technical minefield.  Our Firm can help you navigate the process safely and ensure that you do not suffer further detriment to your cash flow as a result of frozen assets.