Confused about validation orders? Discover expert company liquidation advice from McAlister & Co.
Facing a winding up petition is one of the most serious challenges a company can encounter. It can feel like the beginning of the end - but that’s not always the case. With the right legal steps, there are ways to protect your business, continue trading, and potentially recover. One such legal mechanism is a validation order.
In this blog, we’ll explain what a winding up petition is, what a validation order involves, and how it could be the tool you need to keep your business trading. If you're seeking company liquidation advice, read on to gain clarity and direction in a difficult time.
What Is a Winding Up Petition?
A winding up petition is a legal action taken by a creditor who is owed £750 or more and believes your company is insolvent. It’s the first step in compulsory liquidation and can result in your business being forcibly shut down.
When a creditor files a winding up petition in court, it signals to other creditors, banks, and clients that your business is in serious financial distress. If the petition is successful, the court will issue a winding up order, and your business will cease to exist. Control of the company’s affairs passes to the Official Receiver or a liquidator, who will sell assets to repay creditors.
Even before the petition is heard in court, serious consequences can unfold. Your bank accounts may be frozen, suppliers may pull back on credit terms, and customers might lose confidence and take their business elsewhere - which is why it’s crucial to act fast.
What Is a Validation Order?
So, what is a validation order and how can it help your business to carry on trading? A validation order is a court order that allows a company to continue trading despite a winding up petition being presented. Without it, any disposition of company property (like paying bills or selling stock) after a winding up petition has been filed is potentially void if the company is later wound up.
In simple terms, a validation order gives you legal permission to keep running essential parts of your business. It prevents transactions from being reversed later if the court decides to liquidate the company.
Why Are Validation Orders Important?
Once a winding up petition is filed, any financial or asset-related activity the company undertakes becomes risky. The law is designed to stop companies from disposing of assets to avoid repaying creditors.
A validation order is important because it:
- Ensures your bank accounts can remain open and operational.
- Allows you to pay staff and suppliers without fear of clawback.
- Protects you and other directors from personal liability in case transactions are later challenged.
- Demonstrates to the court that your company is acting responsibly and trying to trade out of difficulty.
For many companies, this court order can be the difference between a successful turnaround and compulsory liquidation.
How Does a Validation Order Work?
A validation order is granted by the court after assessing whether the proposed transaction (or trading activity) is in the best interest of all creditors.
To apply, you must submit:
- A formal court application
- Detailed financial evidence, including cash flow forecasts, balance sheets, and a statement of affairs
- A clear explanation of the transactions you want validated (e.g., specific payments or general trading activities)
- Evidence that your business has a realistic prospect of recovery
The court will then consider whether granting the order could help prevent greater loss to creditors. If successful, the court may allow a one-off transaction, such as selling an asset or paying wages, or general ongoing trading, to keep your business running until the petition is resolved.
Without a validation order, any transactions made after the petition was filed could be reversed - making life even more difficult for directors, stakeholders, and creditors alike.
Can a Validation Order Stop Liquidation?
A validation order itself doesn’t stop a winding up petition. However, it buys time and allows you to keep the business operational while seeking other solutions - such as settling the debt, disputing the petition, or proposing a company voluntary arrangement (CVA).
In many cases, validation orders are used as part of a broader rescue strategy. They give you room to breathe, protect the value of your business, and avoid a scenario where everything grinds to a halt.
Is It Hard to Get a Validation Order?
Validation orders aren’t granted automatically - they require a strong case. Courts want to ensure that any trading or transactions won’t worsen the position for creditors.
That’s why it’s vital to seek expert company liquidation advice as early as possible. A licensed insolvency practitioner can work with your legal team to prepare the necessary documentation, ensure your business plans are credible, and present the strongest possible case to the court.
Your chances of success are much higher when the court sees evidence of a genuine business rescue plan, transparent and accurate financial information, and good faith efforts to resolve the petition or pay off creditors.
Real-World Scenarios Where Validation Orders Help
Here are a few common examples where validation orders make a critical difference:
- Paying staff wages to maintain operations while negotiating with creditors.
- Selling stock or machinery to raise cash for a debt settlement.
- Receiving payments into the company bank account without triggering legal complications.
- Making rent or utility payments to avoid eviction or disruption.
Without court approval, even ordinary business activities could later be deemed invalid. That’s why acting quickly and obtaining a validation order is crucial.
Next Steps: Company Liquidation Advice from McAlister & Co
If your business is facing a winding up petition, you need clear, practical guidance - fast. At McAlister & Co, we specialise in helping directors take control during financial distress. Our team of licensed insolvency practitioners will assess your situation, advise on whether a validation order is suitable, and guide you through the application process.
More importantly, we’ll help you understand all your options - from defending the petition to exploring formal insolvency procedures like CVAs, pre-pack administration, or liquidation if needed.
A winding up petition is not the end of the road - but failing to act could make it so. With the right support and timely legal steps, including a validation order, you can keep trading, protect your company, and take the first step towards financial recovery.
If you’re looking for expert company liquidation advice, we’re here to help. Contact McAlister & Co today to discuss your next move with complete confidentiality and compassion.