An insolvent frozen bank account due to a winding up petition is about as serious as it gets.
At this point, your company could still be viable, but without a company account, you will find it extremely difficult to trade.
You won’t be able to access the money you need to pay suppliers and employees or run the business day-to-day. The only option in the short term is to use your personal finances to make essential payments.
This is amongst the most serious situations a limited company can find itself in, so we suggest you get in touch immediately for a free, confidential discussion about your situation.
We will discuss further options below.
Winding up Petitions Will Automatically Freeze Bank Accounts
One tool at a creditor’s disposal if they are unable to recover a debt worth more than £750 is to issue a winding up petition against your company.
The more creditors that remain unpaid, the greater the likelihood of a winding up petition being issued against you. When the winding up petition is published by the Gazette, the banks will immediately freeze your accounts.
It may be possible to enter into negotiations with creditors to settle the debts, but these negotiations will need to take place through an insolvency practitioner. That raises the question, how will you pay the insolvency practitioner’s fees?
Of course, if the business is unable to repay the debts, it should have already ceased trading. Continuing to trade with no reasonable prospect of paying creditors can leave you open to accusations of wrongful trading. You can be made personally liable for a proportion of the company’s debts as a result.
Is it Legal for Banks or Creditors to Freeze a Company Bank Account?
It is entirely legal for a creditor to petition the court for a ‘freezing injunction‘, which is a court order preventing someone from disposing of assets.
In the case of a Winding up Petition, the bank will automatically freeze bank accounts to minimise their own risk. Where a director continues trading whilst insolvent, banks can become liable for the debt themselves if they don’t act promptly.
What Are your Options When Your Bank Account is Frozen or Blocked?
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:
(1) Apply for a Validation Order to Ask the Court to Unfreeze the 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.
(2) Propose a Company Voluntary Arrangement (CVA)
Negotiating a company voluntary arrangement (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.
(3) 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.
How can we Help?
We have extensive experience advising and assisting companies that are being aggressively pursued by their creditors. To discuss your situation confidentially with our team of company rescue experts, please get in touch today.