Accessing Company Funds using a Validation Order

If a winding up petition has been advertised, then it may be possible for the company to apply for a Validation Order to unfreeze its bank accounts or allow assets to be sold. If a validation order is granted, any transactions from the bank account then become valid. A validation order can also be used if the company wishes to sell any assets or property.

Why apply for a validation order?

A company may decide to apply for a validation order if it believes that making certain payments or selling certain assets would be to the benefit of the petitioning creditor. For example, paying employees so that a contract is completed may generate enough cash to pay the creditor what they are owed.

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How to apply for a validation order

An application for a validation order should generally be made to the registrar or district judge. In order to achieve this, the directors of the company will have to appoint legal counsel. As the company's assets are frozen, the directors will have to pay for this counsel themselves.

Notice of the making of the application must also be given to the creditor who originally petitioned for the winding up order. In the case of where the debt has been paid or an arrangement made, the details of this will be required to be included in the application for the validation order.

The information required in the application will vary according to the circumstances and the nature of the relief sought, but in the majority of cases it should include, as a minimum, the following information:

• The company's registered office;
• The company's nominal and paid up capital;
• Brief details of the circumstances leading to presentation of the petition;
• How the company became aware of presentation of the petition;
• Whether the petition debt is admitted or disputed and, if the latter, brief details of the basis on which the debt is disputed;
• Full details of the company's financial position including details of its assets (including details of any security and the amount(s) secured) and liabilities, which should be supported, as far as possible, by documentary evidence e.g. the latest filed accounts, any draft audited accounts, management accounts or estimated statement of affairs;
• A cash flow forecast and profit and loss projection for the period for which the order is sought;
• Details of the dispositions or payments in respect of which an order is sought;
• The reasons relied on in support of the need for such dispositions or payments to be made;
• Any other information relevant to the exercise of the court's discretions;
• Details of any consents obtained from the petitioning creditor (supported by documentary evidence where appropriate).

Where an application is made urgently to enable payments to be made which are essential to continued trading (e.g. wages) and it is not possible to assemble all the evidence listed above, the court may consider granting limited relief for a short period, but there should be sufficient evidence to satisfy the court that the interests of creditors are unlikely to be prejudiced.

Where the application involves a sale of property the court will need details of the property (including its title number if the property is land) and to be satisfied that any proposed disposal will be at a proper value. Accordingly an independent valuation should be obtained and exhibited to the evidence.

The court will need to be satisfied by credible evidence that the company is solvent and able to pay its debts as they fall due or that a particular transaction or series of transactions in respect of which the order is sought will be beneficial to or will not prejudice the interests of all the unsecured creditors.

Why not call Cooper Matthews today for an informal discussion ?

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