Company Bank Account Frozen

Company Bank Account FrozenA frozen bank account is as serious as it gets for any company. The company could still be viable, but without a bank account it will be very difficult to trade.

As the bank will not realise any funds within the frozen account meaning that you will be unable to access the money you need to pay suppliers and employees.

The only short term option open to you is to use your personal finances to make essential payments.

Time is of the essence so you’ll need to move fast, and take professional advice.

Why is our Company Bank Account Frozen?

There are a number of reasons why a company bank account is frozen. This article will cover the reasons why your company bank account may be frozen, and what to do.

Bank accounts can be frozen for a number of reasons, as follows:

  • There are insufficient funds in your account.
  • A freezing order has been made against you by a UK court to protect assets in dispute in legal proceedings (even if you are innocently caught up in another’s wrongdoings).
  • If your company is the subject of a winding up order, even if the business is viable, the bank will freeze your account on notice of the petition to avoid any potential responsibility for debts accrued during the insolvency.
  • A third party has obtained a court order against you for a sum of money. The court may order the account be frozen until the debt (which can include a commercial debt, a tax liability or unpaid child maintenance) is satisfied.
  • Immigration checks show a problem. The Home Office has the power to freeze accounts.
  • The bank (or a law enforcement agency) has detected a potentially suspicious transaction (such as money laundering or terrorist financing) and has reported it to the National Crime Agency who have 31 days (and much longer if they apply to court to extend) to investigate. The bank may not tell you they have done this, as they would be committing the criminal offence of tipping you off that the bank thought suspicious activity was taking place.
  • The bank is conducting its own internal ‘de-risking’ account scrutiny, often euphemistically called a ‘case review’ or ‘safeguarding procedures’. It may withdraw banking facilities from categories of customers whom they consider at high risk of involvement with money laundering or terrorism financing, either as a result of the type of business they engage in (diamonds, arms dealers, money bureaus, etc.) or because of links by the business or its directors to high-risk countries.

Reasons for a Frozen Bank Account

The question “Why would a business bank account be frozen?” must be asked before we can talk about frozen bank accounts.

1. A winding up petition has been issued

The company may have been the subject of a winding up petition or order due to a debt recovery demand, which is the first explanation.

A creditor or an HMRC winding up order may do this.

  • If this occurs, the company’s bank will quickly become aware of it and will immediately take the action of freezing the bank account;
  • this is due to the bank’s desire to avoid liability for any withdrawals taken from the account after they learned about the winding up petition. 

There are procedures that can be taken to unfreeze your company bank account if this does occur and it becomes frozen. These often include requesting a validation order from the court in accordance with paragraph 9.11 of the practise direction for insolvency proceedings.

The answer to the question, “How long does it take to unfreeze a bank account?” depends on a variety of variables, therefore we naturally advise chatting with us so we can help you through the procedure.

2. A freezing order or freezing injunction has been issued

Due to how infrequently courts issue freezing orders, these cases are significantly more problematic.

Only in cases where the corporation has been accused of misconduct or dishonesty does the court issue freezing orders. a conviction that the business is about to sell up its assets or indemnify itself against judgement.

The judge may issue a freezing order in those instances. If one is granted, it often happens without giving the company any advance notice.

However, one of the service requirements for the freezing order requires the applicant to serve it on the company’s bank.

  • Once a bank receives the freezing order, it usually to immediately freeze the whole bank account;
  • In certain situations, we can assist you in unfreezing the account so you can carry on trading;
  • There are tight rules pertaining to this, however a freezing order should never be utilised to prohibit a corporation from operating.

Payments into and out of the business are authorised in the normal course of business, but the bank usually freezes the account after adopting a “one size fits all” philosophy.

If you find yourself in this challenging situation, we can assist you not only with the freezing order aspect of things but also with seeking a prompt unfreezing of the bank account. We can communicate with the legal department of any bank to request that the account be unfrozen.

3. The banks suspects Money Laundering or other offences have been committed

This is more infrequent and unrelated to a petition for the winding up of creditors. The bank is required to freeze the account and file a Suspicious Activity Report (SAR) with the National Crime Agency (NCA) if it believes money laundering offences have been committed.

  • Following notification, the account is temporarily suspended since the bank does not want to be held accountable for “tipping off” violations. It won’t inform you that it has requested a Suspicious Activity Report as a result.
  • Unfortunately, it sometimes takes the National Crime Agency a while to reply to the bank. However, the bank is able to unfreeze the account without any repercussions if they don’t reply to the bank within 7 days.

The National Crime Agency can only conduct an inquiry for a total of 42 days (until a new police warrant is obtained) if it notifies the bank within 7 days that it wishes to look into the matter further. The account will stay frozen throughout this time, but you won’t be informed of the reason.

Even if this area of the law is complex, steps can still be made to fix the issue.

4. Account Freezing Orders

To facilitate an investigation, bank and building society bank accounts may be frozen for up to two years under the rules of the Proceeds of Crime Act 2002 (as amended by the Criminal Finance Act 2017). Investigative authorities frequently use account freezing orders to target cash in bank accounts they believe is being used for illegal activity. 

Can HMRC freeze a bank account?

Yes, HMRC can freeze a bank account. Although there is a very good reason why many believe that HMRC often freezes bank accounts, this is likely a mistake.

1. HMRC Freezing Orders and freezing injunctions

In the United Kingdom, HM Revenue and Customs (HMRC) is in charge of enforcing tax laws and collecting taxes. They are also in charge of monitoring compliance with anti-money laundering regulations, which includes monitoring Money Services Businesses (MSB).

HMRC may use a freezing order for several reasons including:

  • In rare circumstances, HMRC must take action to freeze bank accounts in order to protect the interests of taxpayers. An individual or company is not allowed to sell their belongings or transfer them outside of the UK under this court order. Such an injunction serves to safeguard the assets before HMRC has an opportunity to pursue any potential tax liabilities.
  • When HMRC believes that illegal or legal MSBs are being used to process the proceeds of crime, freezing orders may also be sought. They may be requested with or without giving the subject of the order notice, and they may be granted against anyone who use such institutions.

Orders can be issued in one of two ways:

  • a domestic order that only applies to UK assets
  • a worldwide order that applies to assets located anywhere in the world.

An individual or corporation may be significantly impacted by a freezing order since, once issued, neither can sell any assets that are subject to the order, including cash held in bank accounts or real estate. In some circumstances, the person who is the subject of the order could not even be allowed to access their assets to cover living expenses or other necessary charges.

Please get in touch with us if you’ve received an HMRC Freezing Order.

Although these orders are a potent tool for HMRC, it’s crucial that they are applied correctly. The court will only make an order if it is convinced that there are solid grounds for it and that it is required to safeguard HMRC’s interests. However, the court must also consider how the order would affect the person or entity in question.

If HMRC has issued a freezing order against you, you have the option of contesting it by filing an application with the court that issued the order. However, this is frequently not necessary because HMRC will usually withdraw the order if you can convince them that they were mistaken or hurried when they filed for it. It is imperative that you get specialised legal counsel right once to make sure you have access to enough money to support yourself and to assist you in convincing HMRC to unfreeze your accounts. Although these are more exceptional remedies, HMRC has access to them and will employ them as necessary.

You can get assistance with any HMRC concerns from our knowledgeable HMRC disputes team, which consists of specialised lawyers, licensed accountants, and a former HMRC investigator. Call us now.

2. HMRC Winding up petition bank account freeze

When a business doesn’t pay its taxes, HMRC files winding-up petitions or orders rather frequently. Winding up petitions or orders for unpaid HMRC VAT, PAYE, or NIC can be related to this. The company is served with the winding-up petition after it has been filed.

However, the fact of the winding up petition will immediately come to the attention of outside parties, and as soon as the bank of the firm learns of this, it will put a freeze on the company’s bank account.

  • The bank freezes the account because, after receiving notice of a winding-up petition, there is a risk that it may be held responsible for any payments made from the account to third parties, suppliers, or other creditors.
  • To safeguard the interests of a company’s creditors, especially unsecured creditors, the bank account must be frozen. It is doubtful that a bank would be accountable for such payments if it had frozen the account because banks effectively function as the company’s agent.
  • The bank will implement a bank account freeze unless it secures a court order allowing payments to be made because it is anxious to avoid any risk.
  • Therefore, even though it’s possible that HMRC didn’t have this in mind at first, the winding up petition will unintentionally result in a bank account freeze.

Through a court application for a validation order, this issue can be resolved. It permits some payments to be paid without the risk of additional punishment. Additionally, a request to have the winding up order reversed may be added with this.

Consequences of a frozen bank account

A frozen bank account has a variety of repercussions, and none of them are advantageous for a corporation or business. These comprise:

  • inability to pay essential contractors, employees, or other parties necessary to the firm, such HMRC or other financiers
  • negative publicity. If a winding up petition is published in the London Gazette, a frozen bank account frequently becomes public knowledge. If no immediate action is taken to have the winding up petition dismissed and/or the corporate bank account unfrozen, this might swiftly mean disaster for a corporation.
  • failing to attract new business. An account that has been frozen might affect a company’s regular business operations and stop it from trading normally.
  • consuming a lot of management time. Any director or business owner who learns unexpectedly that the company bank account has been frozen may have severe headaches and be forced to divert attention away from day-to-day trading requirements. Our team can assist in cutting down on that wasted time, giving you more time to continue running your business.
  • increased danger of director personal culpability. If a frozen bank account scenario is not resolved, it won’t take long for the business to enter insolvency. This can subsequently result in a variety of personal claims being made against the former directors of a firm, including demands for restitution from liquidators, claims from HMRC, threats of director disqualification, and monetary demands for disqualification compensation orders. If payments are not paid, they may even cause a director to become bankrupt and lose their home and other assets.

What assets may be frozen by a freezing order?

Only assets that could potentially be used to enforce a court judgement are eligible for a full freezing order. A wide variety of assets have been covered by a freezing order’s provisions over time.

The order’s terms will always be strictly applied.

What types of assets are covered?

In theory, any kind of asset can be frozen, including, for instance

  • bank accounts;
  • shares;
  • motor vehicles;
  • land; and
  • intangible assets such as goodwill.

Perishable assets, such as food, are among those that are excluded.

The respondent must have an interest in the assets

It is important to demonstrate that the respondent/defendant has a beneficial or legal interest in the relevant asset. Assets may be held by a third party for the benefit of a responder or held jointly by two or more people.

In the event that shares are frozen, the court order must also guarantee that the company is prohibited from dealing with the shares, which could lower the share’s value. When requesting a freezing order, it is not always possible to determine whether the respondent is the owner of a specific asset or not. When there is a question, the freezing order’s wording should specify them, and if required, they should be changed later.

How long can a bank account be frozen?

How long can a bank account be frozen? is a question we get a lot.

  • Your bank will almost probably impose a freeze on the company bank account if it learns of a winding up order against the business, preventing you from paying significant suppliers, creditors, or your own employees.
  • The bank account may stay blocked for a long time without a formal application for a validation order to the court. The very life of a firm depends on how a limited company bank account problem is handled.

We handle numerous requests for validation orders and successfully obtain court approval for payments to be transferred from the frozen bank account to significant suppliers, employees, or creditors. In this sector, we have a very strong track record of accomplishment.

Additionally, we have the option to request the court dismiss the winding up order entirely and have it overturned. This is frequently another crucial element of any scenario involving a company’s frozen bank account, and our validation orders team can help you with this as well.

Ways to get a Bank Account un-Frozen?

It might be the case that you could pay the creditor if given more time, but in many cases this is additional time a creditor is not willing to give. But, if you believe the company is still viable, you do have some options:

Apply for a Validation Order

A validation order is a way to ask the court to unfreeze the bank account. To apply for a validation order you will need to complete Form 7.1A and write a witness statement that you must take to court with you.

You will also need to tell the creditor who issued the winding up petition that you’re applying for an order, and let them know what court you’re applying to. An insolvency practitioner can help you prepare this documentation.

To accept the order, the court will need to be satisfied that the company is solvent and able to pay its debts. Alternatively, the court may consider a validation order from an insolvent company if it will be beneficial to the company’s creditors.

If accepted by the court, the order will allow certain transactions to pass through your company’s bank account. This could include a transaction to sell a key asset to free up the money the company needs.

Propose a Company Voluntary Arrangement (CVA)

Negotiating the CVA process (CVA) with your creditors could represent a better option than a validation order. However, the fact that your company bank account has been frozen in the first place is likely to be a sign that your relationship with your creditors has broken down. That could make the negotiations process extremely difficult.

If an insolvency practitioner believes your company is viable, they can propose a CVA to your creditors.

This will need to be accepted by 75 percent of the creditors. If agreed, all legal action against your business will be ceased, the company account will be unfrozen and you will be able to continue to trade.

To maintain the CVA, you will have to make a single monthly payment for a period of up to five years. Failure to do so will lead to the reinstatement of the legal action.

Place the Company into Voluntary Liquidation

Ultimately, you might decide that enough is enough, the company is no longer viable and you do not want to leave yourself open to allegations of improper conduct as a company director. In this case, the best option would be to enter into voluntary liquidation.

The company will be closed and its assets will be sold for the benefit of the company’s creditors. Any money remaining from the liquidation will go to the shareholders.

This option also reduces the likelihood of serious allegations being made against you, thereby protecting your personal assets and allowing you to act a company director in the future.

There is still one last hurdle with this option and you have to get the petitioning credits to agree and stand down.

Can Companies House freeze a bank account?

Yes, Companies House can freeze a bank account, if you fail to file accounts or your confirmation statement, banks are now freezing bank accounts until this oversight in compliance has been corrected. 


Why would a business bank account be frozen

There are a number of reasons why a business bank account might be frozen. It could be due to a request from HMRC for instance, or if the business is being investigated for fraud. In some cases, a bank may freeze a account if it suspects that the account holder is engaging in money laundering. Whatever the reason, a frozen bank account can be a serious setback for a business, preventing it from being able to access its own funds. In some cases, a business may be able to negotiate with the bank in order to have the account unfrozen, but it is not always possible to reach an agreement. As such, it is important for businesses to be aware of the risks associated with having a bank account.

How Can we Help?

With your company bank account frozen, even just for a short time, your company can be suffering from serious problems trading forward. Regardless of the position, it is important to take advice as soon as possible to protect yourself from personal liability. This can be done quickly and confidentially by contacting one of our business rescue experts.

Steve Jones Profile
Insolvency & Restructuring Expert at Business Insolvency Helpline

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.