Skip to main content

What is a Validation Order (And What Does It Have To Do With a Winding Up Petition)?

Written by admin on . Posted in Bankruptcy, Company Insolvency, Insolvency, Restructuring & Insolvency. No Comments on What is a Validation Order (And What Does It Have To Do With a Winding Up Petition)?

The word ‘Validation’ means different things depending on its usage. The dictionary lists: ‘acceptance’, ‘affirmation’, ‘authorisation’, ‘corroboration’, endorsement, proof, ‘recognition’, ‘verification’.

In the context of insolvency (both bankruptcy and company),  a validation order is a special court order that allows a company to continue using its bank account or carry out specific transactions after a winding up petition has been issued against it.

A winding up petition is a legal step taken by creditors who believe that a company is unable to pay its debts. If granted by the court, the petition can lead to the company’s closure (also known as liquidation), and its assets sold to repay creditors.

Once a winding up petition is filed, the company’s bank accounts are usually frozen to protect the creditors’ interests. However, this can severely disrupt the company’s ability to operate, even if it plans to challenge the petition. This is where a validation order becomes essential.

A validation order allows the company to continue certain financial activities—like paying employees or making crucial payments—while the petition is being dealt with.

Consequences of Advertising a Winding Up Petition in the London Gazette

When a winding up petition is advertised in the London Gazette, it becomes public knowledge. This can have serious consequences for the company:

  • Frozen Bank Accounts: Once the petition is advertised, banks often freeze the company’s accounts to prevent money from being moved around.
  • Damaged Reputation: The advertisement can harm the company’s reputation, scaring away customers, suppliers, and investors.
  • Increased Pressure from Creditors: Other creditors may join in to demand payment, increasing the financial strain on the company.

To prevent these issues, a company can apply for a validation order, which could unfreeze accounts and keep essential parts of the business running.

Need Help with a Winding Up Petition?

If your company has received a winding up petition, it’s important to act quickly. Contact Femi Ogunshakin to discuss how to apply for a validation order from the insolvency courts. Femi offers a free 30-minute consultation to help you explore your options and protect your business. Reach out on 07867 795 439 or email femi@femiogunshakin.com or femi.ogunshakin@nexa.law

Photo by Mathew Schwartz on Unsplash

What is a Winding Up Petition?

Written by admin on . Posted in Bankruptcy, Company Insolvency, Insolvency, Restructuring & Insolvency. No Comments on What is a Winding Up Petition?

A winding up petition is legal action taken by a creditor ie HM Revenue and Customs (HMRC) to force a company into closure because it cannot pay its debts.

Essentially, a winding up petition is a request to the court to wind up (or close) the company so its assets can be sold off to repay the money owed. If granted, the company may be placed in compulsory liquidation, meaning it will cease trading, and the creditors will receive payment from the sale of its assets.

How to Avoid a Winding Up Petition

Receiving a winding up petition can be very serious for any business, but there are steps you can take to avoid it:

  1. Pay your bills on time – Ensure that you manage your cash flow well and make regular payments to creditors. This shows that your company is financially healthy.
  2. Communicate with creditors – If you’re struggling to make payments, talk to your creditors. Many creditors are open to discussing repayment plans or negotiating terms rather than going to court. If you’re lucky, you might even get a time to pay arrangement agreed!
  3. Seek professional advice early – If your business is in financial difficulty, it’s important to get expert advice as soon as possible. They can help you restructure debts or explore other options to avoid legal action.
  4. Keep accurate financial records – Monitoring your company’s financial health is crucial. Regularly review your accounts and keep up-to-date records to spot any potential cash flow issues before they become serious.

Free Consultation

If your company is facing financial difficulties or you’re concerned about the possibility of a winding up petition, it’s important to seek advice quickly. Contact me for a free 30-minute consultation to discuss your situation and explore possible solutions. You can reach me on 07867 795 439 or email either femi@femiogunshakin.com or femi.ogunshakin@nexa.law

Photo by Towfiqu barbhuiya on Unsplash

HMRC and Time to Pay Arrangements: What You Need to Know

Written by admin on . Posted in Bankruptcy, Company Insolvency, Director Disqualification, Insolvency. No Comments on HMRC and Time to Pay Arrangements: What You Need to Know

HMRC and Time to Pay Arrangements: What You Need to Know

When facing financial difficulties, paying taxes on time can be a challenge for individuals, partnerships, and companies alike. On a discretionary basis, His Majesty’s Revenue and Customs (HMRC) may be willing to offer a  Time to Pay Arrangement (TTP); a flexible solution that allows taxpayers to spread the cost of their tax debts over an extended period. These arrangements are typically agreed upon if HMRC is satisfied that the taxpayer is genuinely unable to pay the full amount immediately but can settle the debt in instalments.

Why Time to Pay Arrangements Are Useful

A TTP agreement helps alleviate the immediate pressure of a tax bill and avoids severe enforcement actions like penalties or interest charges, which could further strain finances. Whether it’s personal income tax, VAT, PAYE, or Corporation Tax, these arrangements offer breathing space for managing cash flow while staying compliant with your tax obligations. HMRC generally expects businesses or individuals to proactively engage with them before defaulting, and they usually respond positively to reasonable requests for payment plans.

Pitfalls of Not Keeping to the Agreement

Failing to adhere to the terms of a TTP arrangement can have serious consequences. If payments are missed, or HMRC believes the business is no longer able to meet the terms, the arrangement can be terminated. HMRC will then escalate recovery measures, which may include legal proceedings.

HMRC’s Escalation Procedures

Once a taxpayer defaults, HMRC will typically send reminders, followed by more formal actions if the debt remains unpaid. This can include:

  • Issuing a statutory demand: A formal request for payment within 21 days.
  • Commencing legal proceedings: HMRC may seek a court judgment for the debt, which could lead to seizure of assets or garnishing of income.
  • Winding up petitions: For companies, failure to resolve tax debts may result in HMRC applying to the court to wind up the business, forcing it into liquidation.

Avoiding Legal Action

It’s crucial to negotiate with HMRC if you foresee any problems with adhering to your TTP agreement. Having professional assistance ensures you make a reasonable case to HMRC and avoid unnecessary legal complications.

Whether you’re an individual, partnership, or limited company, we can help with finding a resolution to your tax debt issues and assist with negotiating a Time to Pay Arrangement with HMRC. For expert advice and assistance, contact Femi Ogunshakin on 07867 795 439 or via email at either femi@femiogunshakin.com or femi.ogunshakin@nexa.law

Photo by Aron Visuals on Unsplash

The increasing cost of incorporating a company

Written by admin on . Posted in Company Director, Company Insolvency, Corporation Tax, Director Disqualification. No Comments on The increasing cost of incorporating a company

Perhaps not as widely known as the much publicised changes to company law is the fact that due to an increase in charges levied by Companies House, fees associated with incorporating and maintaining a company will rise from 1 May 2024.

Companies House has explained that fees are set on a cost recovery basis – meaning that the increases are intended to solely cover the cost of the services they deliver without making a profit.

Incorporation

Currently, the cost of registering a company with Companies House ranges from £10 to £40, depending on the channel used ie postal or online application. with fees increasing across-the-board from registration to exit, The increase in costs will include the following fees:

  • Online registration for a business or limited liability partnership: this is normally completed within 24 hours at the cost of £12. However, online registration fees will rise to £50, an uplift of 300%.
  • Same-day incorporation: the fee for this service is going up from £30 to £78.
  • Voluntary striking off: When a company is no longer required, voluntary striking off will now incur a fee of £33; it is currently £8.
  • Overseas entities: the largest increases apply to overseas entities who need to register with Companies House. The registration fee goes up from £100 to £234, with the removal fee increasing to £706 from £400.

Many people set up a new company through a company formation agent. Their most basic offerings only add a small margin to the Companies House charge. This means the fees charged by agents are going to see similar increases come 1 May.

Confirmation statements

Every company, including dormant companies, must file a confirmation statement at least once a year. The cost is currently £13 and rising to £34. This fee, at least, covers a 12-month period. It’s paid with the first filing during the period with no further charge for any subsequent filings during the same period.

For a full list of Companies House’s current fees visit the government website and for an update on price increases.

Photo by Mika Baumeister on Unsplash

Winding-up petitions on the rise in HMRC squeeze

Written by admin on . Posted in Bankruptcy, Company Insolvency, Litigation & Dispute Resolution, Winding Up Petitions. No Comments on Winding-up petitions on the rise in HMRC squeeze

With HMRC under pressure to collect more tax owed, it is moving away from the tolerance shown during the pandemic and back towards a normal level of debt enforcement activity. As a result, the number of company winding-up petitions being instigated by HMRC is rising rapidly.

HMRC’s use of winding-up petitions to actively chase the money it is owed comes at the worst possible time as many companies struggle to cope with inflationary pressures, higher interest costs and reduced consumer spending. HMRC’s aim is to recover tax owed from a company’s liquidated assets.

Although the tax gap (the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid) has declined in recent years, it is still 5.2% or £32bn.

Time-to-pay arrangements

For a company experiencing difficulty paying its tax liabilities, the best way forward is to agree to a time-to-pay arrangement with HMRC. This avoids the possibility of a winding-up petition, although early engagement with HMRC is essential.

  • An affordable, regular monthly payment will be agreed based on the specific financial circumstances of the company. A good approach is to not be overambitious with the monthly repayment value, so there is less chance of being unable to meet future payments.
  • HMRC will want to know about the company’s financial prospects (cashflow forecasts and budgets may be required), what efforts have made to raise funds, and what has been done to try and pay tax liabilities.
  • The arrangement is designed to be flexible, so the monthly payment can be adjusted over time.

Prior to agreeing to a time-to-pay arrangement, HMRC may want to see company assets released, with the funds raised used to repay tax. This might mean selling vehicles, increasing business borrowing or directors putting personal funds into the company.

HMRC’s guidance to paying a debt with a time-to-pay arrangement can be found here.

Photo by Melinda Gimpel on Unsplash