Validation Order READ THIS FIRST!
If your Company is served with a Winding up Petition the Creditor could after 7 business days from the date of service advertise the Petition in the Gazette and must advertise it at the latest 7 business days prior to the hearing date.
Normally this threat of advertising is used to negotiate a settlement prior to the hearing and if all is agreed the Petition can be withdrawn and the hearing vacated by a Consent Order.
However if negotiations fail or you simply do not respond to the Petition in time and the Petition is advertised, then the Bank will freeze your company accounts and you would require a Validation Order.
A validation order is a court order that allows a company to continue trading or make transactions while a winding-up petition is in place.
The order “unfreezes” the company’s bank account, allowing it to make and receive payments.
A validation order can be applied for by a company with a winding-up petition, or by other parties with an interest in the transactions, such as liquidators or creditors.
A validation order is granted based on certain criteria, including:
- The company is solvent and able to pay its debts
- The transactions will benefit all creditors
- The order will not prejudice the interests of unsecured creditors
The effect of a validation order depends on the terms of the order, which can include:
- Specific payments: Allows certain payments to be made, such as to employees or suppliers
- General transactions: Validates transactions generally until the winding-up petition is dismissed
In urgent cases, the court may grant limited relief even without comprehensive evidence. However , the applicant must provide an assurance that the relief will not prejudice the interests of creditors.
The Process
An officer of your company makes a witness statement that includes the information specified in the Court Practice Direction which states
9.11.1 A company against which a winding up petition has been presented may apply to the Court after the presentation of a petition for relief from the effects of s.127(1) of the Act, by seeking an order that a certain disposition or dispositions of its property, including payments out of its bank account (whether such account is in credit or overdrawn), shall not be void in the event of a winding up order being made at the hearing of the petition (a validation order).
9.11.2 Save in exceptional circumstances, notice of the making of the application should be given to: (a) the petitioning creditor; (b) any person entitled to receive a copy of the petition pursuant to rule 7.9; (c) any creditor who has given notice to the petitioner of their intention to appear on the hearing of the petition pursuant to rule 7.14; and (d) any creditor who has been substituted as petitioner pursuant to rule 7.17. Failure to do so is likely to lead to an adjournment of the application or dismissal.
9.11.3 The application should be supported by a witness statement which should be made by a director or officer of the company who is intimately acquainted with the company’s affairs and financial circumstances. If appropriate, supporting evidence in the form of a witness statement from the company’s accountant should also be produced.
9.11.4 The extent and content of the evidence will vary according to the circumstances and the nature of the relief sought, but in the majority of cases it should include, as a minimum, the following information:
(1) when and to whom notice has been given in accordance with paragraph 9.11.2 above;
(2) the company’s registered office;
(3) the company’s capital;
(4) brief details of the circumstances leading to presentation of the petition;
(5) how the company became aware of presentation of the petition;
(6) whether the petition debt is admitted or disputed and, if the latter, brief details of the basis on which the debt is disputed;
(7) full details of the company’s financial position including details of its assets (and including details of any security and the amount(s) secured) and liabilities, which should be supported, as far as possible, by documentary evidence, e.g. the latest filed accounts, any draft audited accounts, management accounts or estimated statement of affairs;
(8) a cash flow forecast and profit and loss projection for the period for which the order is sought;
(9) details of the dispositions or payments in respect of which an order is sought;
(10) the reasons relied on in support of the need for such dispositions or payments to be made prior to the hearing of the petition;
(11) any other information relevant to the exercise of the Court’s discretion;
(12) details of any consents obtained from the persons mentioned in paragraph 9.11.2 above (supported by documentary evidence where appropriate);
(13) details of any relevant bank account, including its number and the address and sort code of the bank at which such account is held, and the amount of the credit or debit balance on such account at the time of making the application.
9.11.5 Where an application is made urgently to enable payments to be made which are essential to continued trading (e.g. wages) and it is not possible to assemble all the evidence listed above, the Court may consider granting limited relief for a short period, but there should be sufficient evidence to satisfy the Court that the interests of creditors are unlikely to be prejudiced by the grant of limited relief.
9.11.6 Where the application involves a disposition of property, the Court will need details of the property (including its title number if the property is land) and to be satisfied that any proposed disposal will be at a proper value. Accordingly, an independent valuation should be obtained and exhibited to the evidence.
9.11.7 The Court will need to be satisfied by credible evidence either that the company is solvent and able to pay its debts as they fall due or that a particular transaction or series of transactions in respect of which the order is sought will be beneficial to or will not prejudice the interests of all the unsecured creditors as a class.
