Insolvency procedures: winding up part 14

Normally the validation should be sought before the transaction is entered into. If there is any delay in the application for a validation order it should be explained. The application should be made to a registrar or district judge. The only circumstances in which the application should be made to full Judge (i.e. in the Chancery Division a full High Court Judge or a Judge authorised to sit as a High Court Judge) is in one of the following circumstances: the time estimate is more than 30 minutes; the matter is complex or raises points of law which are either new or controversial; or the matter is urgent and no registrar or district judge is available to hear it. Notice has to be given to a variety of persons including the petitioning creditor, any person entitled to receive a copy of the petition under the insolvency rules, and creditors who have either given notice of intention to appear on the hearing of the petition or who have been substituted as petitioner.

Since the matters are of some importance and potentially prejudicial to creditors, the nature of the evidence in support is important. This should be written evidence in the form of an affidavit or a witness statement. In the former case it is the sworn document and therefore knowingly false evidence could lead to a conviction for perjury (and hence possible imprisonment). In the latter case it is subject to a statement of truth and deliberately false statements of truth are punishable as contempt of court (and so are also imprisonable). In consequence it is a serious matter for any witness not to take the evidence seriously and be cavalier about the facts put into it. Unless the circumstances were exceptional then a director or officer of the company who is intimately acquainted with the company's affairs and financial circumstances is the person who should provide the affidavit or witness statement. Sometimes, where the circumstances indicate it is appropriate, supporting evidence or the like form from the company's accountant should also be produced.

Various things are specified as the minimum which ought to be included. These include the circumstances leading to presentation of the petition, how the company became aware of the petition, and whether the debt is admitted or disputed and if disputed why. Full details of the company's financial position are to be provided. This will include assets, security (for example mortgages or other charges over its assets) and liabilities. As much documentary evidence as possible regarding these should be provided. This may include recent management accounts or draft audited accounts and the latest filed accounts.

A cash flow forecast and a profit and loss projection for the period for which the order is sought should also be produced. Then the details of the dispositions of payments to be validated should be given together with the reasons relied upon. Any other details which be relevant to the courtly to be provided, including any consent or responses from the persons required to be served with notice of the application (details which are also to be set out in a witness statement).

Ultimately whether the order is granted is a question of discretion. The principles on which it will be granted or refused are as aforesaid. The key issue is always the protection of creditors.