Yes, it is possible that a winding up petition can lead to a freeze on the company’s bank account.
This means that you should be aware that the funds in your bank account may be inaccessible and unable to use as soon as a winding up petition has been advertised in the London Gazette.
The purpose of freezing the bank accounts is to ensure that the company’s assets are preserved and available to be distributed to creditors. It is important to note that a winding up petition can only be filed if the company is unable to pay its debts as they fall due.
If your company is facing a winding up petition, it is important to seek legal advice as soon as possible from a solicitor or insolvency practitioner to understand your options and to try to protect the company’s assets.
Why does a Winding up Petition get the company accounts frozen?
Freezing the company’s bank accounts is one of the measures that the court can take to ensure that the company’s assets are preserved and available to be distributed to creditors. By freezing the bank accounts, the court can prevent the company from using its own funds or disposing of its assets in a way that would not be in the best interests of creditors.
It is important to note that a winding up petition can only be filed if the company is unable to pay its debts as they fall due. This means that the company must be insolvent, which is a legal term that refers to a situation in which a company is unable to pay its debts when they are due. If the court grants the petition, it will typically order the freezing of the company’s bank accounts as a precautionary measure to ensure that the company’s assets are preserved and available to be distributed to creditors.
What are the consequences of a frozen bank account?
The main consequence of a frozen bank account is that the company will no longer be able to access its own funds until the freezing order is lifted. This can have serious consequences for the company, as it may not be able to pay its bills or meet its financial obligations.
Other potential consequences of a frozen bank account may include:
- Difficulty paying employees: If the company’s bank account is frozen, it may not have access to the funds it needs to pay its employees. This could lead to financial hardship for employees and may damage the company’s reputation.
- Difficulty paying suppliers: If the company is unable to pay its suppliers, it may struggle to obtain the goods and services it needs to run its business. This could lead to delays and disrupt the company’s operations.
- Damage to credit rating: If the company is unable to pay its debts, it may default on its loans or other financial obligations. This could result in a negative impact on the company’s credit rating, which may make it more difficult for the company to obtain financing in the future.
- Legal action: If the company is unable to pay its debts, creditors may take legal action to recover the money they are owed. This could include filing a winding up petition or suing the company for the amount owing.
It is important to note that these are just some of the potential consequences of a frozen bank account. The specific impact on a company will depend on its individual circumstances.
Read more: Winding Up Petition Procedure
Is there anything you can do?
Once a winding up petition has been advertised and your company’s bank accounts have been frozen, you have five options available to you:
- Negotiate a settlement with creditors: You may be able to reach an agreement with creditors to pay off the debts owed over time. This could involve negotiating a payment plan or restructuring the company’s debts.
- Sell the company: If the company is still viable but is facing financial difficulties, you may be able to sell it to another business or individual. This could allow you to pay off the company’s debts and avoid the winding up process.
- Apply for a Validation Order: You will need to make an application to the court that granted the freezing order. You will need to provide evidence to the court that the transactions you are seeking to make are necessary for the company’s business and that they are in the best interests of the company and its creditors.
- Negotiate a CVA on your behalf: You can appoint an insolvency practitioner, who is a professional with expertise in managing the financial affairs of insolvent companies. The insolvency practitioner will work with you to develop a proposal for the CVA, which will outline the terms of the agreement and how the company’s debts will be paid off.
- Appoint a voluntary liquidator: If the company is unable to pay its debts and cannot be saved, you may choose to appoint a voluntary liquidator to oversee the winding up process. This involves collecting the company’s assets, paying off its debts and distributing any remaining assets to shareholders.
It is important to note that these are just some of the options that may be available to you if your company is facing a winding up petition.
Validation order application
A validation order application is a legal procedure whereby a party requests that a court affirm the validity of a document, contract, or other legal instrument. The party requesting the validation order must provide the court with proof of the validity of the contested document or instrument.
Authenticity and legality of the document or instrument may be supported by witness testimony, genuine copies of the document or instrument, or other types of evidence. If a validation order should be issued, the court will take into account this evidence as well as any other pertinent facts.
If approved, a validation order serves to validate the legitimacy of the document or instrument and safeguard the interests of the parties.
Could a Company Voluntary Arrangement (CVA) be a more viable option?
Yes, if you are a company owner whose bank account has been frozen due to financial difficulties, you may be wondering whether a CVA could be a more viable option to unfreeze your account.
There are several factors to consider when deciding whether a CVA is the right choice for your company. For example, you will need to determine whether your company is eligible for a CVA, and whether a CVA would be acceptable to your creditors. You should also consider whether a CVA is a better option than other alternatives, such as liquidation or administration. It is important to carefully weigh the pros and cons of each option before making a decision.
What about a Creditors’ Voluntary Liquidation (CVL)?
A CVL generally used as a last resort when a company is no longer able to pay its debts and there are no other viable options for addressing its financial challenges.
If your company is in financial difficulty, review a winding up petition and your bank account has been frozen, a CVL could be one way to unfreeze your account. However, it is important to note that a CVL is a serious step that should not be undertaken lightly. It will result in the dissolution of your company and the sale of its assets, which may not be the best outcome for you or your creditors.
Read more: Reasons why my bank has closed my business account
Conclusion
In conclusion, it is possible for a winding up petition to freeze a company’s bank account. This can occur if the petition is advertised by the court, as the court may order the company’s assets, including its bank account, to be frozen in order to protect the interests of the company’s creditors. However, it is important to note that the freezing of a company’s bank account is not automatic and will depend on the specific circumstances of the case. Even if the business bank account is not frozen and directors use the account to withdraw money, they could be held personally liable for moneys removed from point of advertisement.
If a company is facing a winding up petition, it is advisable to seek legal advice to understand the potential implications and to determine the best course of action. Worried about your position complete the online enquiry form or call us today
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.