Validation Orders

The circumstances leading up to the insolvency of a Company can be fast moving: an insolvency often occurs following the presentation of a winding up petition.

The Company will fully consider its options immediately prior to or immediately following the presentation of a winding up petition including –

Whether it wants to seek an injunction to prohibit the presentation of the petition
Whether it will contest the petition
Whether it will seek a negotiated settlement to the dispute

If the directors of the Company intend to keep it trading they need to be mindful that all dispositions following the date of the Winding Up Petition are void unless the Court orders otherwise.

In order to ensure that regular payments being made by the Company are not to be treated as void (and potentially recoverable from the directors by a future Liquidator) a Validation Order ought to be obtained from the Court .

The following issues ought to be dealt with in the application for a Validation Order –

1. It must be supported by a witness statement from a person “intimately acquainted” with the company’s affairs i.e. a director.
2. A witness statement from the company’s accountant may also be required.
3. If disputed, the basis of any dispute in respect of the petition debt should be outlined.
4. Full details of the company’s financial position.
5. A copy of the company’s latest filed accounts, management accounts or an estimated statement of affairs.
6. A cash flow forecast for the period of validation sought.
7. Details of the disposition/payments to be made.
8. An independent valuation of any property or assets to be sold.

Time is of the essence in these circumstances to ensure that the application gets to court quickly.

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