Validation Orders in Bankruptcy

The application should be supported by a witness statement which, save in exceptional circumstances, should be made by the debtor.  The witness statement should include as a minimum the following:

• When and to whom notice of the application has been given;
• Brief details of the circumstances leading up to the presentation of the bankruptcy petition;
• How the debtor became aware of the presentation of the bankruptcy petition;
• Whether the petition debt is admitted or disputed and, if the latter, brief details of the basis on which the debt is disputed;
• Full details of the debtor’s financial position including details of their assets and liabilities with documentary evidence of the same;
• Details of the dispositions or payments in respect of which an order is sought;
• The reasons why such dispositions or payments need to be made;
• Any other information relevant to the exercise of the court’s discretion;
• Details of any consents obtained from the persons given notice of the application; and
• Details of any relevant bank account.

Applications are often urgent. The court will hear applications for a validation order urgently as long as the urgency is explained.  We can work quickly to prepare the application, provide notice of the application to all relevant parties and get the application heard by the court. 

If the individual is later made bankrupt, dispositions within the scope of section 284 of the Insolvency Act 1986 which were made in the period between a bankruptcy application being made or a bankruptcy petition being presented and when the bankrupt’s estate vests in a trustee in bankruptcy (i.e. when a bankruptcy order is made) are void unless the court makes a validation order.  In such circumstances, the trustee in bankruptcy is likely to seek to recover the property disposed of.   

Yes.  Any third party with an interest in a transaction with the debtor and any creditor due to receive a payment from the debtor can apply for a validation order. 

The court has discretion to grant a validation order and whether such an order will be granted depends on the facts and the evidence provided in support of the application.  In general, the court will grant a validation order only where it is satisfied by credible evidence that:

• The debtor is solvent and able to pay their debts as they fall due; or
• A particular transaction or series of transactions in respect of which the validation order is sought will be beneficial to or will not prejudice the interests of all the unsecured creditors as a class.

Yes it is possible to apply to the court for a retrospective validation order to avoid having to return the property to the trustee in bankruptcy.  On an application for a retrospective validation order, the court will try to balance the interests of the recipient of the property with the interests of the debtor’s creditors.  In practice, the court is often prepared to validate retrospectively dispositions that were made both in good faith and before either the debtor or the recipient became aware of the existence of a bankruptcy petition.