A frozen bank account can cause disaster for any company. This can be the result of a failure to deal with a winding up petition within 7 business days of its receipt. The winding up petition may have gone on to be advertised in the London Gazette, and banks have taken immediate action to protect themselves. If a company finds itself with a frozen bank account, the director may have to fund suppliers, employees and ongoing business costs out of their own pocket if the petition is to be challenged.
So how to unfreeze a bank account?
Firstly, try and act within 7 days of receipt of the winding up petition because once there is a frozen bank account, a court application will be required to get a validation order.
A validation order is a court order that the company can apply for to unfreeze the company’s bank account. It prevents the bank being held liable (Section 127 of the Insolvency Act 1986) for money withdrawn from the company account once a winding up petition is presented.
For the validation order to be granted, extensive credible evidence (including a witness statement) will be required as to why the court should grant it. The evidence must show that the company is solvent and able to pay its debts as they fall due OR that the validation order is beneficial to, or will not prejudice, unsecured creditor interests. If the company intends to continue trading, by proposing a CVA for example, this could help to evidence the latter.
A successful validation order could allow trade to continue by:
- Allowing the disposal of an asset
- Permitting general or certain payments in and out of the company account (e.g. to employees, suppliers)
- Trading for a specified period (e.g. to next winding up petition hearing)
If you need help with a validation order please do contact us, we have an extensive network of contacts including solicitors and barristers – call 0121 201 1720.
