Businesses filing for insolvency need to be careful about the entire process. The winding up petition is of utmost importance, and it is also essential to file for a validation order, for which an experienced solicitor with experience in insolvency is required. In this post, we will talk about validation order and voidable transactions in detail.
What’s a validation order?
A Validation Order is a court order, which comforts a bank that all transactions done by the concerned party (such as the directors), will not further challenged by the appointed liquidator in the future. Right after an advertisement for winding up petition is available; the bank will freeze all the accounts of the company and cease banking operations. This is important for the bank to protect its own interests, if the company eventually ends up being placed for liquidation.
How to get a validation order?
Solicitors usually help directors and owners in obtaining the validation order and alternative insolvency procedures, and the process requires experience and expertise. Solicitor will convince the court to grant the order, and for this, certain documents must be prepared. Firstly, the version of events that lead to the winding up petition must be prepared, and whether the concerned party wants to oppose the winding up petition must be mentioned. Statement of assets, liabilities, last filed accounts, profit & loss predictions and other relevant management account details must be attached too.
What are voidable transactions?
Once the winding up petition is presented, any disposal of property is void, according to insolvency legislation. In simpler words, it means that any void dispositions or payments made after the presentation of winding-up petition can be reversed, when the bankruptcy or winding up order is made by the official receiver. This legislation is important for the company, because it prevents directors of the company to sell off company assets on receiving a winding up petition. However, such transactions made after the receipt winding-up petition are not void, if the company isn’t wound up eventually. Void dispositions cover all kinds of assets in the name of the company, including machinery, office equipment, cash at bank, and even intellectual property. In order to avoid liability, directors must abide by these restrictions.
If you are a director who has received a winding-up petition, you must consult a solicitor at the earliest. You must also inform the solicitor of transactions, which can be deemed void in the current situation, and must also offer evidence to proof of how creditors might benefit from such voidable transactions, if allowed.