“I can’t pay because our bank account is frozen”

Dealing with a Frozen Bank Account

A bank can be held liable for releasing any company funds in its possession following the advertisement of a Winding Up Petition in the London Gazette. Therefore banks will normally freeze company bank accounts as soon as they become aware of a Petition.

Clearly trading a company with a frozen bank account is a problem when it is necessary to pay for ongoing supplies and wages. It may also be necessary to use the frozen funds to pay the Petitioning Creditor before the Petition can be dismissed.

The only way to make payments from a frozen account is with a Validation Order that in effect authorises the bank to release funds.

Validation Order
A Validation Order may be granted following an application to Court to authorise release of available funds. It is not an order to the bank to make a payment so their consent may be necessary if the bank has the right to withhold funds due to any outstanding loans or cross guarantees.

Essentially the application is in the form of an affidavit with supporting documents to provide sufficient information for the Court to be satisfied that payments from frozen funds will be in the best interests of all the company’s creditors, not just the Petitioning Creditor. The application should include a statement of affairs to demonstrate solvency and details of payments to be made. It may also be necessary to include a cash flow forecast with other relevant documents such as a report by an accountant, turnaround practitioner or insolvency practitioner as an independent third party.

Applications for a Validation Order are fairly rare so care should be taken when appointing a lawyer or professional adviser to assist prepare one.

Call us if you want to apply for a Validation Order and speak to one of our turnaround practitioners

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