The word ‘Validation’ means different things depending on its usage. The dictionary lists: ‘acceptance’, ‘affirmation’, ‘authorisation’, ‘corroboration’, endorsement, proof, ‘recognition’, ‘verification’.
In the context of insolvency (both bankruptcy and company), a validation order is a special court order that allows a company to continue using its bank account or carry out specific transactions after a winding up petition has been issued against it.
A winding up petition is a legal step taken by creditors who believe that a company is unable to pay its debts. If granted by the court, the petition can lead to the company’s closure (also known as liquidation), and its assets sold to repay creditors.
Once a winding up petition is filed, the company’s bank accounts are usually frozen to protect the creditors’ interests. However, this can severely disrupt the company’s ability to operate, even if it plans to challenge the petition. This is where a validation order becomes essential.
A validation order allows the company to continue certain financial activities—like paying employees or making crucial payments—while the petition is being dealt with.
Consequences of Advertising a Winding Up Petition in the London Gazette
When a winding up petition is advertised in the London Gazette, it becomes public knowledge. This can have serious consequences for the company:
- Frozen Bank Accounts: Once the petition is advertised, banks often freeze the company’s accounts to prevent money from being moved around.
- Damaged Reputation: The advertisement can harm the company’s reputation, scaring away customers, suppliers, and investors.
- Increased Pressure from Creditors: Other creditors may join in to demand payment, increasing the financial strain on the company.
To prevent these issues, a company can apply for a validation order, which could unfreeze accounts and keep essential parts of the business running.
Need Help with a Winding Up Petition?
If your company has received a winding up petition, it’s important to act quickly. Contact Femi Ogunshakin to discuss how to apply for a validation order from the insolvency courts. Femi offers a free 30-minute consultation to help you explore your options and protect your business. Reach out on 07867 795 439 or email femi@femiogunshakin.com or femi.ogunshakin@nexa.law
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