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femi@loftusstowe.com|Companies in England and Wales
The company applies to the court, after the petition is presented, with a witness statement, financial evidence and a draft order. The petitioner is given notice, and the judge decides on the evidence whether the payments can be made without prejudicing creditors as a whole. I am Femi Ogunshakin, an insolvency solicitor. I prepare the application and instruct counsel for the hearing. Your first 30-minute consultation is free.
The applicant is the company against which the petition has been presented, not the director personally. The application can be made at any time after the petition is presented, so you do not need to wait for the Gazette notice. Applying before the advert means the order can be in place before the bank reacts to the notice.
The petition is in the High Court or the county court. The High Court can wind up any company registered in England and Wales. The county court shares that jurisdiction where the company's paid-up share capital is £120,000 or less. A company whose registered office is in the London insolvency district is normally petitioned in the High Court. The hearing venue is endorsed on the petition itself, so I check the petition first.
More on the order itself: what is a validation order.
The application goes to the judge in a bundle filed before the hearing. Counsel, instructed by me, argues the case on the strength of it.
If you have been served today, get in touch today. The window is measured in business days.
Five steps, in the order they happen. The application succeeds or fails on its evidence at step four.
The application is supported by a witness statement from a director or officer who is intimately acquainted with the company's affairs and financial circumstances. Where appropriate, the company's accountant gives a statement as well.
In most cases the evidence covers, as a minimum:
Where the application involves selling property, the court needs details of the property and an independent valuation showing the sale is at a proper value.
Applications to the court under the Insolvency Act, other than petitions, are made on the court's application notice, Form IAA. There is no separate validation order form. A draft of the order sought is attached to the application, written for the company's own payments.
The judge needs to see that the company is viable and can find a way to settle the debt. This information is essential once you instruct me:
If payroll is days away, say so when you call. I will tell you straight away whether the timing works.
The court is protecting the creditors as a group. An application is likely to succeed when it shows that the payments keep a viable business running and leave creditors no worse off. Routine trading payments, such as wages, rent and suppliers, are regularly allowed. Payments that move value to directors or connected companies are rarely allowed, and only where there is an exceptional case for them.
The Practice Direction sets the test. The court needs credible evidence that the company is solvent and able to pay its debts as they fall due. Failing that, it needs evidence that the payments will benefit, or will not prejudice, the unsecured creditors as a class.
The court will not normally validate a payment that pays one pre-petition creditor in full at the expense of the others. A payment made in good faith in the ordinary course of business is not enough on its own. Read more on the section 127 test.
The petitioning creditor is given notice of the application, along with any creditor who has given notice of intention to appear at the petition hearing. Failing to give notice is likely to lead to an adjournment or dismissal.
Where HMRC is the petitioner, it rarely objects. It usually remains neutral and leaves the judge to decide the application on its merits. HMRC has no say over the evidence. What the court requires is set by statute and the Insolvency Rules.
Notice does not give the petitioner a veto. The judge decides the application on the evidence, whoever presented the petition. If HMRC presented it, see HMRC winding up petitions.
In the High Court the application is listed before an Insolvency and Companies Court Judge, or a District Judge in a District Registry. Counsel, instructed by me, argues the case on the evidence in the bundle. The judge is not deciding the petition at this hearing, only the payments.
Even for limited, urgent relief there must be enough evidence to show creditors are unlikely to be prejudiced. The Practice Direction gives wages as its example of a payment essential to continued trading.
The section 127 risk remains. Payments made after the petition stay void if a winding up order follows, unless the court orders otherwise. A decision of an ICC Judge or a Circuit Judge can be appealed to a High Court Judge.
Where the case is urgent, the court may hear the application immediately, with or without notice to the other parties. Otherwise the application is served on the respondent at least 14 days before the hearing, unless the court directs otherwise. In the Royal Courts of Justice, urgent and time-critical applications are heard as soon as reasonably practicable.
How quickly a hearing can be listed depends on the court and the state of the evidence, so I do not promise a date. If payroll is the problem, that is the first thing to tell me.
If the account is already frozen, read company bank account frozen for what to do while the application is prepared.
The order names the payments or transactions the company may make. They are not void if a winding up order is made at the hearing of the petition. It can cover payments out of the company's bank account whether the account is in credit or overdrawn.
If the petition debt is left unpaid, the court can still make a winding up order. A validation order buys the company room to trade and to find a resolution. It is not a defence to the petition.
That depends on how quickly the evidence can be assembled and when the court can list the hearing. In the Royal Courts of Justice, urgent applications are heard as soon as reasonably practicable. Where the case is urgent, the court may hear the application immediately. If payroll is days away, say so when you call. I will tell you straight away whether the timing works.
Yes. The Practice Direction allows for urgent cases where payments essential to continued trading, such as wages, cannot wait. If not all the evidence can be gathered in time, the court may grant limited relief for a short period. There must still be enough evidence to show creditors are unlikely to be prejudiced.
Yes, save in exceptional circumstances. Notice goes to the petitioning creditor, anyone entitled to a copy of the petition, and any creditor who has given notice to appear. Failing to give notice is likely to lead to an adjournment or dismissal.
There is no form specific to validation orders. The application is made on Form IAA, the application notice for insolvency applications other than petitions. The order itself is drafted for the company's own payments and attached to the application.
A witness statement from a director who knows the company's finances, and where appropriate one from its accountant. It should cover the petition, the company's assets and liabilities, a cash flow forecast and the payments to be validated. The full list is set out above.
Payments made after the petition remain void if a winding up order follows, unless the court orders otherwise. The judge may instead grant limited relief for a short period while the rest of the evidence is gathered. An appeal from an ICC Judge or a Circuit Judge goes to a High Court Judge.
A free 30-minute consultation with me to explore your options and protect your business.
The fixed fee for a validation order application is £10,000 to £15,000 plus VAT, depending on the size of the petition debt. See the full fee breakdown.
Who you will deal with
Femi O. Ogunshakin
Solicitor, Tax Adviser and Former HMRC Inspector
Validation order applications are a large part of my practice. Most of the petitions I deal with are brought by HMRC, and my time as an HMRC inspector means I know how the petitioning side builds and runs these cases.
You will deal with me directly rather than with an introducer or a case handler. The work is carried out through Nexa Law, where I practise. The first 30 minutes are free.
If your company has received a winding up petition, it is important to act quickly. Call or email me to discuss how to apply for a validation order from the insolvency courts. I offer a free 30-minute consultation to help you explore your options and protect your business.
07867 795 439
Email femi@loftusstowe.com
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