There are several reasons why your company bank account might be frozen, the most common being that you’ve been issued with a Winding Up Petition by a creditor. If you don't have a functioning bank account, it becomes almost impossible to trade. The good news is there are a few ways to resolve this very serious situation, but you need to act fast.
The most common reason for a bank to freeze your company account is that a Winding Up Petition has been issued against your business, usually by HMRC. A Winding Up Petition is a formal demand for payment that can force the company into liquidation if you ignore it.
After seven days, the petition will be advertised in The Gazette and become public knowledge. Banks regularly check The Gazette and will usually react by freezing your company’s bank account if they see a petition has been issued against you.
Banks take this approach to prevent you from withdrawing money from the account, as the bank could potentially become liable for this money if the company enters liquidation. Freezing your account can also prevent you from paying money in.
A Winding Up Petition is not the only reason a bank might freeze your account. Other less common reasons include:
A frozen bank account makes it all but impossible to trade. You won’t be able to access money to pay staff and suppliers or receive money from clients and customers. It can also cause the company to miss debt repayments, harming its credit rating and reducing your ability to access affordable credit in the future.
If the cause of the frozen bank account is a Winding Up Petition, the lack of access to company funds makes it difficult to challenge the petition or pay the money you owe. Even if the company is otherwise viable, a frozen bank account can be enough to tip the company into insolvency.
Without intervention, the court will make a Winding Up Order and your company will be forced into Compulsory Liquidation. The liquidator will sell the company’s assets for the benefit of its creditors and your business will be removed from the Companies House register.
Although you have limited options, there are still a few potential solutions available:
Pay the Winding Up Petition
You can use your personal funds to repay the creditor who issued the Winding Up Petition. In this case, as long as no other supporting creditors have joined the petition, it will be dismissed. However, this is unlikely to be viable for larger amounts, for example, where you have substantial tax arrears.
Apply for a Validation Order
A Validation Order is a court order that allows certain transactions to go ahead so you can repay the petitioning creditor. It will only be granted in exceptional circumstances, such as where it can be proved that the company is solvent or where you are drawing up a Company Voluntary Arrangement (CVA). A Validation Order will only be granted if it is in the best interests of the company and its creditors.
The issue here is that a Validation Order is a costly process in itself, as a legal professional will have to present your case to the court. That makes it unsuitable for many companies that cannot access their accounts.
Negotiate a formal repayment agreement
If the company is viable, you can appoint an insolvency practitioner to negotiate a Company Voluntary Arrangement (CVA) on your behalf. If your creditors accept your proposal, the Winding Up Petition will be dismissed and your bank account will be unfrozen. You can then repay what you owe in monthly installments over a typical period of three to five years.
The risk is that when a creditor has had to resort to issuing a Winding Up Petition, they may not be confident in your ability to stick to the terms of the CVA.
Close the company voluntarily
If the company is no longer viable and there’s no realistic prospect of a recovery, you could choose to liquidate the company voluntarily using a Creditors’ Voluntary Liquidation.
It will bring an end to the business and reduce the risk of adverse consequences for you personally when compared to being liquidated by the court. The business’s assets will be sold for the benefit of your creditors and it will be struck off the Companies House register and will cease to exist as a legal entity.
Time is of the essence, so seek help immediately. At UK Liquidators, our insolvency practitioners will discuss your situation with you and help you understand the options available. Call our expert team for immediate advice or arrange a free, no-obligation consultation at one of our 100+ offices throughout the UK.
If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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