How do I get a Validation Order?
You can get a Validation Order by making an application to the Court. The validation order application can often be made in a court local to you, but not always, however don’t let the location bother you as geography is no longer the barrier it used to be in applying for a validation order or choosing which professional advisers should assist you.
To apply for a Validation Order you will need:
- Good professional and qualified advisers – this can be one or more of a Licensed Insolvency Practitioner and/or Solicitor;
- Information on the company’s current financial position – up to date financial information is essential. Whilst the last annual accounts will be useful, they do not represent the current position;
- Projections or cash flow forecast for the immediate future. The complexity of the forecasts/projections will be depend on the size of the business – e.g. detailed monthly projections are the norm in a large business, whereas something much simpler and more general is the norm in a small business;
- In the case of unfreezing a bank account (which is the most common reason for applying for a Validation Order) you will need details of monies you expect to be going into the bank account and monies you would like to come out of the bank account showing the identity of the recipient/payor, amount and nature of receipt or purpose of payment;
- Where any assets are to be sold an independent valuation will be needed to demonstrate they are not being sold at an undervalue;
- An explanation why the company has been subject to the winding up petition and how it is proposed it will be paid;
- Statements by the directors and a Licensed Insolvency Practitioner or Accountant will be needed, these will be drafted by your appointed advisers.
You will need to ensure the petitioning creditor has no objections to your application. This will be done by your professional adviser(s) by serving the application on the petitioning creditor and seeking their comments before the hearing.
It usually takes a minimum of 1 week to get a Validation Order, which is why instructing someone without delay is paramount. When a bank account is frozen your business will quickly grind to a halt as suppliers and employees can’t be paid, whilst customers are left puzzled as payments are being returned. The speed of the destruction of your goodwill should not be underestimated.
Validation Orders are not granted as a matter of course. The court will need to be shown that the transactions it is being asked to validate will benefit the overall position of creditors. Where this cannot be demonstrated the order will not be granted.
This is where it is essential to have a Licensed Insolvency Practitioner to support your application. The Insolvency Practitioner understands the complex Insolvency Law and can demonstrate to the court that the principles of the Insolvency Act are being considered and protected.
If you need a Validation Order, or simply clear advice and a rapid solution to your position contact Kevin Lucas of Lucas Johnson without delay. As a Licensed Insolvency Practitioner and Chartered Accountant he will be able to quickly get a solution in place.
A Validation Order is an order of the court made in response to an application to demonstrate that the effects of Section 127 of the Insolvency Act will be disapplied to the transactions within the order. This is necessary because should a winding up order be made any transactions taking place after the presentation of the winding up petition will be void. Any payments or dispositions of assets may therefore be recovered from the recipient by the liquidator. The recipient can include the bank, hence the reason why a bank will automatically freeze an account when a winding up petition is advertised.
Obtaining a Validation Order is essential if any transactions entered into following the presentation of a winding up petition are not to be overturned, and even more importantly to ensure directors are not guilty of breaching their duties because this could lead to personal liability claims being made (misfeasance) by a subsequently appointed liquidator.