Can a Winding Up Petition Freeze my Company’s Bank Account?
The very simple answer to that question is yes, and this can potentially have dire consequences for the company in question. However, there is a time delay between the issuing of a winding up petition and the accounts being frozen. That means, if you intend to pay or dispute the debt the petition relates to, you must act immediately.
Why does a Winding up Petition get the company accounts frozen?
Company accounts are usually frozen as soon as a bank finds out that a winding up petition has been issued against one of its account holders. The winding up petition must be advertised by the petitioner in The Gazette seven days (or more) after the petition has been served. This makes it available for public view and alerts the banks, which regularly check The Gazette, to the existence of the petition.
To prevent money being withdrawn from the account, which could lead to potential claims being made against the bank in any subsequent liquidation, the bank will usually take the approach of freezing all the accounts the company holds. This may include preventing any money from being paid into the account.
What are the consequences of a frozen bank account?
Well-informed creditors will know just how serious and damaging it is for a company to have its bank accounts frozen, which is why, in many cases, they choose to present the winding up petition. If the debt is not repaid within seven days or some other action is taken, the accounts will be frozen, and it will become impossible to continue to trade.
This is a particularly dire situation for directors who believe their companies are viable and could be profitable once again if they were allowed to trade. However, by this stage, it is often too late to act to save the business. With the company accounts frozen it becomes impossible to pay the debt or secure additional funds that could help to prevent the closure of the company.
Is there anything you can do?
Once a winding up petition has been advertised, and your bank accounts have been frozen, you have three options available to you. You can:
- Apply for a Validation Order to allow certain transactions into your account;
- Appoint an insolvency practitioner to negotiate a Company Voluntary Arrangement with your creditors on your behalf;
- Place the company into voluntary liquidation.
What is a Validation Order?
A Validation Order permits a bank to make payments into and out of your bank account without fear of any reprisals in the event of liquidation. This can allow you to continue to trade and make the necessary payment to the petitioning creditor.
To apply for a Validation Order, an insolvency practitioner will have to write a report on your behalf that explains to the court and the petitioning creditor how allowing certain transactions will resolve the situation. It’s important to note that a Validation Order will not allow all transactions through. Instead, you may need to apply for further Validation Orders, which can make the process expensive at a time when you do not have access to company funds.
Could a Company Voluntary Arrangement (CVA) be a better option?
Potentially, yes, but the fact that you have failed to reach an agreement with the petitioning creditor thus far is a clear sign that it will not be easy to agree on a CVA. However, if your insolvency practitioner believes the company is viable, they may be able to persuade the creditor that you will be able to make the repayments.
What about a Creditors’ Voluntary Liquidation (CVL)?
Alternatively, you may decide to try and liquidate the company voluntarily through a Creditors’ Voluntary Liquidation. A CVL can reduce the complexities and cost of the liquidation when compared to being wound up by the court. If this is a route you intend to pursue, it’s important to note that a company cannot nominate a liquidator when a winding up petition has been issued, and the court hearing has been granted. Instead, the petitioning creditor must consent to withdraw the petition. Creditors are not compelled to withdraw a winding up petition, but they may choose to do so if the money they receive following the liquidation is likely to increase.
Need Advice with frozen bank accounts as a result of a Winding up Petition?
Issuing a winding up petition is a serious step to take, and you should receive professional advice before doing so. Simply call Alan Bradstock on 0208 444 2000 for a free, no-obligation discussion.