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femi@loftusstowe.com|Companies in England and Wales
A validation order is a court order that lets a company facing a winding up petition make specific payments, or keep using its bank account. Without one, payments made after the petition is presented are void if the company is later wound up. I am Femi Ogunshakin, an insolvency solicitor. I prepare and file the application for companies in England and Wales. Your first 30-minute consultation is free.
Section 127 of the Insolvency Act 1986 makes any disposition of the company's property after the winding up starts void, "unless the court otherwise orders". In a court winding up, the start date is normally the day the petition was presented, not the day the company hears about it. Payments out of the company bank account are dispositions.
A validation order is the court "otherwise ordering". The Practice Direction describes it as an order that named dispositions "shall not be void in the event of a winding up order being made". For the law in depth, including the court's test, read section 127 explained.
If you were looking for the FCA's consumer credit validation orders, that is a different procedure under financial services law.
The order names the payments, or the account, it covers. It can cover payments out of the bank account whether the account is in credit or overdrawn. Banks usually freeze the account once the petition is advertised in the Gazette, on the day of the notice or within about 48 hours. The order gives the bank the cover it needs to release the account.
The company can apply as soon as the petition has been presented. It does not have to wait for the advert or the freeze. Routine trading payments such as wages, rent and suppliers are regularly allowed.
Five steps. The order is decided at a hearing, on the evidence. For the detail, including what to send me, read how to apply for a validation order.
I would rather you knew this before you instruct me than after.
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.
If the company must pay anyone between the petition being presented and the hearing, those payments are at risk without an order. That is true whether the account is still open or already frozen. Where you are in the process decides how urgent the application is.
The account still works, but the section 127 risk started on the day the petition was presented. The notice cannot appear until 7 clear business days after service, not counting the day of service. An application made now can be in place before the bank acts.
Most of the petitions I deal with are brought by HMRC. HMRC rarely objects to a validation application and usually remains neutral, leaving the judge to decide on the merits. HMRC has no say over the evidence. What the court requires is set by statute and the Insolvency Rules.
If you have been served today, get in touch today. The window is measured in business days.
Banks usually freeze the account on the day of the Gazette notice or within about 48 hours. Where wages are due and the full evidence cannot be gathered in time, the court may grant limited relief for a short period. There must still be enough evidence that creditors are unlikely to be prejudiced.
The full application then follows for the rest of the period the company needs. A cash flow forecast and profit and loss projection cover that period.
If payroll is days away, say so when you call. I will tell you straight away whether the timing works.
The Practice Direction says the applicant is the company against which the petition has been presented. The application is made after the petition is presented, and it can cover payments out of the company's bank account. A creditor who has been paid can end up before the court over that payment. In Express Electrical a supplier was refused a validation order and had to repay £30,000 to the liquidators.
The court needs credible evidence that the company is solvent, or that the payments will benefit, or not prejudice, the unsecured creditors as a class. Routine trading payments such as wages, rent and suppliers are regularly allowed. Paying an old debt in full while other creditors would only get a dividend is not validated without special circumstances.
Rarely, and only where there is an exceptional case for them. A payment that puts a connected person in a better position than in a liquidation can also be challenged as a preference. Talk to me before the company pays a director or a connected company after a petition.
Yes. The court's test expressly includes a company that is solvent and able to pay its debts as they fall due. Section 127 runs from the day the petition is presented, whatever the company's true position. A solvent company still needs the order if it wants the bank to release the account.
Yes. The evidence should include a cash flow forecast and a profit and loss projection for the period the order is sought for. The order can cover payments out of the bank account rather than a single named transaction.
Yes. The court can validate a payment after it has been made, and the Court of Appeal applies the same principles as to an advance application. It can even be asked after a winding up order has been made. Applying first is the safer course, because nobody knows the answer until the court decides.
No. A validation order deals with the payments. It does not decide the petition, dispute the debt or stop the hearing. At the hearing the court can still dismiss the petition, adjourn it or make a winding up order. Opposing the petition, or disputing the debt, is a separate step.
The section 127 position stands: payments made after the petition are void if a winding up order follows. A void payment can be claimed back from whoever received it. Depending on the position, the company may still dispute the debt, agree terms with the petitioner, or seek an adjournment. If I think an application is unlikely to help, I say so at the consultation stage.
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 and what the consultation covers.
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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