Validation Orders in Compulsory Liquidation
A Validation Order allows a company to operate its bank account, dispose of assets, and make payments to creditors without the threat that any transactions will be subsequently overturned.
A Validation Order is obtained through a court application by a specialist Insolvency Solicitor with the aid of a Licensed Insolvency Practitioner, such as Kevin Lucas of Lucas Johnson.
A Validation Order is necessary when a winding up petition has been issued against a company, but why?
The Insolvency Act says that in a Compulsory Liquidation (or winding up through the courts) that any transactions entered into between the issue of the winding up petition and the winding up order are void unless the court orders otherwise. This legislation exists to stop the general body of creditors from suffering from the accidental or intentional dissipation of assets that can occur in the run up to a winding up order.
Thanks to a court case this can have a profound affect on many stakeholders, but especially banks, and is why a bank account is frozen as soon as the winding up petition is advertised in the London Gazette. In this case a bank will not unfreeze an account without a Validation Order, although even if a Validation Order is obtained, the bank do not have to unfreeze the account, but they rarely will not do so once a Validation Order is obtained.
Obtaining a Validation Order usually takes around 7 days from the moment we are instructed. It can be done sooner, but the timescale is often dictated by the quality of financial information available and the availability of the directors or financial team to provide information on future cashflow requirements.
Time is always of the essence when a Validation Order is needed. For more information and help on obtaining a Validation Order, contact Kevin Lucas of Lucas Johnson today.