This blog answers the question “Can Money Be Paid Into A Frozen Bank Account?” Once a Bank Account is frozen, it cannot be accessed for withdrawals or deposits. To try to unfreeze the bank account you will need a validation order from the court.

Can Money Be Paid Into A Frozen Bank Account?

Money can be paid into a frozen bank account but it will also be lost or frozen, as the account cannot be used. A bank account is usually frozen by using a bankruptcy restriction order or a freezing order. Such actions are also taken by confirming the relevant legal laws and statutes and in the general public interest.

Once a person has been convicted of defaulting on their debts or of financial fraud relating to fund transfers their bank accounts are frozen. These orders cannot be reversed easily and will last for at least 12 months in most cases. The bank deposit made into a frozen account will immediately be rejected through the bank’s electronic system.

What is a freezing order?

A freezing order is used by a creditor who may be concerned that a company may want to sell its assets rather than pay what is owed to it. The foreclosure order allows the freezing of almost all assets, including company bank accounts, property, land or investments and shares.

However, the freezing order does not prevent the business or individual from borrowing money, and if they are required to borrow money after the order comes into effect, the Borrowed money will not be classified as an asset.

If a freezing order is issued by a court, it will be accompanied by a notice of contravention, failure by a defendant will result in contempt of court and a fine. You can fill out the IAA form and write a testimonial. Take the form and statement with you to court.

You also have to pay a fee of £ 155.

What happens after applying?

After applying, you will receive a hearing on the same day or within a few days.

At the hearing you will have to present your case to the clerk of the court or the District Court Judge. The defendant will present their case after you.

At the end of the hearing, you will either:

  • receive a notice along with a written copy if the notice
  • be asked to attend a new hearing if the court wants to see additional evidence

In case an application is accepted, you will receive the test order. You must submit a copy of your bank statement to access your company’s bank account.

If you disagree with the decision, you have the option of appealing to the Chancery Division of the High Court.

How can a company apply for a validation order?

Under Section 127 of the Insolvency Law, company directors can apply for a validation order via the Insolvency Act Application( IAA) form. Anyone with an interest in a transaction can also submit an application.

 The IAA form must be sent to the court along with a witness statement indicating the assets and liabilities of the company and a fee of £ 155.

Once the application is received, a hearing is set and the company’s case will be taken to court. At the end of this hearing, a decision may be made. If not so the court may need to see further evidence of the company’s situation.

After the hearing, several outcomes are possible, including:

  • The issuance of penalties for specific transactions
  • An order to have all transactions done through the company’s bank account during a specified period
  • An order for eliminating restrictions entirely, perhaps in order to formalise a Voluntary Corporate Agreement

Acting quickly is of great importance when filing a liquidation request with the court. If you can act before the petition is published in the Gazette, the company has a better chance of survival.

You will be required to give the following information with your application:

The High Court has issued a Practice Note on Validation Orders detailing the information required for applications to the Court. Although this may vary depending on the nature of the case, some of the typical information the court will need is:

  • Your business details including name, registered address etc. ;
  • A history of the trial that led to the motion for dissolution;
  • Full details of the company’s financial position, including balance sheets, cash flow projections, etc. ;
  • An explanation of the business arrangements or activities for which an order is sought;
  • A cash statement and a profit and loss forecast (for the period for which the order is requested)
  • Details of orders or payments for which an order is requested. Also include the legal basis on which such orders are based..

What evidence does the court require to grant a validation order?

The evidence and information required by the court are generally, but not limited to, the following:

  • Why the petition has been issued and what were the circumstances
  • Judging whether the claim’s guilt is admitted or disputed. If the guilt is disputed a brief statement about the causes
  • Complete details of the company’s financial position, including details of its assets and liabilities, which should be supported to the greatest extent possible by using documentary evidence
  • A cash forecast and profit and loss forecast for the period. (in which the validation order is requested)
  • Details of arrangements or payments for which a validation order is requested
  • Explanation of the grounds upon which the need for such injunctions or payments is founded on.
  • Any other information available relating to the exercise of the court’s discretionary powers

For which reasons can my bank account be frozen?

Your bank account may be frozen due to the following reasons:

  • You owed money to creditors. They’ve received a (court) judgement which allows them or gives them powers to levy (or seize) your bank account 
  • You owed money to the UK government. The government has now seized your account (without using judgement). And the government intends to use it to pay for federal taxes, child or couple support, federal student loans, or paying off other government debts.
  • Your debit card or cheque book has been lost: The bank has temporarily frozen your account (with your consent) This has been done so that your account cannot be misused and it will be opened once you have recovered your chequebook or debit card
  • Your bank has detected potential fraudulent or illegal actions performed on your account: Which could have happened from writing bad checks or making a suspicious deposit or transfer by the user. So the bank has acted to temporarily freeze your account to investigate the situation.
  • You were convicted of a crime: The government has ordered your bank accounts be frozen to use their contents to cover damages to your victims.
  • You own an investment account in which you’ve been “freeriding”: Freeriding implies that you were buying and selling securities prior to paying for them. As a penalty for this action, the institution has put a 90-day freeze on your account to comply with Regulation T.
  • The sole account owner has died. Their account has been temporarily frozen until a beneficiary or executor of the estate comes forward to claim it

Under the Anti-Terrorism, Crime and Security Act 2001, HM Treasury can issue a freezing order regarding any non-UK individual, entity or body where there is reasonable cause that they have taken or are likely to take actions that:

  • Are to the detriment of the British economy 
  • Are a threat to the life or property of one or more British nationals or residents

Your claim must be supported by testimony, usually provided by a director or officer of the company who knows the business and financial condition of the company intimately. Where applicable, supporting documentation must also be provided in the form of a testimony from the company’s accountant.

The scope and content of the evidence will vary depending on the circumstances and the type of relief sought, but in most cases it should include at least the following information:

  • To when and to whom the notification was made
  • Details of the company’s official headquarters such as address and telephone number 
  • Reports on the existing share capital and the paid-up capital of the company
  • Brief information relating to the circumstances that led to the filing of the request for dissolution of the company
  • Information on how the company became aware of the filing of the petition
  • Whether the guilt of the request is admitted or disputed. In case it is disputed, brief information on the basis for such dispute
  • Complete information of the company’s assets and liabilities, supported as far as possible by documentary evidence
  • A cash flow forecast and a profit and loss forecast for the period in which the assignment is requested;
  • Disclosure on the requests for payment arrangements relating to the order
  • The grounds on which the need for such injunctions or payments is based
  • Any additional  information relevant to the exercise of the court’s discretion 
  • Information regarding the consents obtained from the aforementioned persons 
  • Details of all relevant bank accounts including their account numbers and their address and sort code of the bank with which this account is held.Also details of the amount of credit or debit balance on this account present at the time of the request for freezing it.

Will my bank account be frozen during bankruptcy?

Yes, your bank account will be frozen during bankruptcy, starting from when the Bankruptcy Restriction Order is issued. This is usually for 12 months but may be extended in special cases by using a Bankruptcy Restriction Order for 2-15 years. During the bankruptcy period, you will be able to keep enough money to cover your daily living expenses.

The “official receiver” takes control of the rest of your finances during the bankruptcy. Once the bankruptcy order is issued your bank accounts are immediately frozen, which implies:

  • Your bank can prevent payments from coming into or going out of your account
  • You need to immediately cease using your bank account cheque book, credit card, or debit card
  • In case the official receiver asks for your cheque book, credit card or debit card, you must immediately hand it over to them.
  • The official receiver also passes on your bankruptcy notification to your electricity, water and gas suppliers as well as to your local council (for council tax change of circumstances).
  •  Your council tax payments will be paused for 12 months and will resume in April of the next year.
  • Your utility bill companies might ask you for some type of financial security or advance payment (for the bills of the upcoming 12 months).
  • Any savings which you have will be used to  repay your debts. While you are bankrupt, you will not be permitted to borrow an amount exceeding £500. The bankruptcy will stay on your credit reference file for 6 years after you are declared bankrupt.

Conclusion

This blog post addressed the question “Can Money Be Paid Into A Frozen Bank Account?”A Bankruptcy Restriction Order is the usual reason for freezing a person’s bank account and is served based on misconduct or fraud on the part of the account holder (in the judgement of the official receiver) Funds in such an account cannot be accessed by anyone nor can any money be deposited into it until its status changes.

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Frequently Asked Questions (FAQs) : Can Money Be Paid Into A Frozen Bank Account?

What Is A Bankruptcy Restriction Order?

A Bankruptcy Restriction Order is a court order used to punish any fraudulent activity by the person undergoing bankruptcy such as (under The Insolvency Act 1986 section 358 Bankruptcy Offence) Fraudulent Disposal of Property or Absconding.

Reasons for getting a Bankruptcy Restriction Order being made against you may include:

  • Getting rid off your assets for less than their actual value ( with the intention of preventing the official receiver from selling them off to recover your unpaid debts)
  • Lack of conformity with the demands of the official receiver (Section 353 – Non Disclosure and Section 356 False Statements)
  • You have in the past borrowed funds which you knew you could not pay back on the given repayment schedule.
  • Having paid off your creditors in the wrong sequence (with reference to priority debts). 
  • Fraudulent financial behaviour (which may include falsifying credentials or credit rating to obtain loans or mortgages)
  • Deliberately ignoring your finances so that your debts increase due to mismanagement.

The issuance of a Bankruptcy Restriction Order will extend your bankruptcy status restrictions for a period of between 2 and 15 years.

What is a Bankruptcy Restriction Undertaking?

A Bankruptcy Restriction Undertaking has the same effect as a Bankruptcy Restriction Order with the only difference being that you will not be taken to court. If you accept the allegations made against you in the letter by the official receiver within a period of 21 days you can offer to enter into a Bankruptcy Restriction Undertaking. This prevents the BRO from taking effect.

The restrictions which you face as a result of a Bankruptcy Restriction Undertaking include:

  • Not being able to serve on various educational posts such as school principal, university professor or lecturer
  • Not being able to secure employment in various posts in the health sector
  • Borrowing restrictions (limited to £500)
  • Not being able to work as an insolvency practitioner or as a Director of a company
  • Unable to be appointed as a trustee of a charity or pension scheme

Citations

The Magistrates Rules (Freezing and Forfeiture of Money in Banks and Building Society Accounts) 2017