Why Would a Business Bank Account Be Frozen? Tips to Unfreeze It
Nobody likes to experience a frozen bank account. That is because, in addition to the financial restrictions that the sad event places on your account, fixing it can be time-consuming. Thus, a frozen account is something worth preventing.
This article is your best guide to understanding why a business bank account might be frozen, how you can unfreeze it, and the preventive measures to take for an uninterrupted payment experience.
What Does a Frozen Bank Account Mean?
A frozen bank account refers to when your financial institution does not allow you to withdraw your money, transfer it to another account, or make purchases with your card. In such a case, access to your account is permitted but without the capacity to perform debit transactions. Hence, while you may be able to make deposits, view your balance, and monitor your account, previously set payments, subscriptions, and new transactions that can take money out of it will not be enabled until your account is unfrozen.
Reasons Your Business Bank Account is Frozen
There are several reasons why your financial institution has frozen the account of your company. It could be because of the following:
- Account protection:
Your business account can be frozen if your financial institution suspects unusual activity on it. The strange event could be a hack or unauthorised access to your account. - Insufficient funds:
When there is insufficient money to make a payment from your balance, your bank might freeze your account for insufficient funds. - Creditor’s petition:
When a creditor lodges a winding-up petition against your company and it is brought to the attention of your bank, then your company account might be frozen. - Court debit order:
In the case of a court order for debit taken against you by your creditor, requiring you to pay your debt on or before a certain date, your bank might freeze your account when informed about this. - Illegal activity:
Your bank can freeze your business account when you or your company is suspected of illegal activities such as terrorist financing, money laundering, or fraud. For this reason, it helps to learn about anti-fraud, AML, and KYC regulations. - Unknown substantial deposit:
When a large sum of money is deposited into your account from a source that your bank manager is not aware of, your financial institution might freeze your account pending investigation. - Misleading information:
The discovery of misleading or false details in your customer records, such as a fake address or an incorrect source of income, can lead to the freezing of your account by your bank.
Ways to Unfreeze Your Company Bank Account
It is always better to try and avoid whatever can lead to the freezing of your account. Nevertheless, if your company’s bank account is frozen, here are some ways you can go about unfreezing it with your financial institution:
Use evidence-based disputing
Your bank will likely unfreeze your company account if you can dispute the freeze by showing evidence that there is no reason for it. Therefore, contact your bank and give your account manager the details of your most recent transactions. Share information and documentation that can answer every question asked. The purpose is to prove that neither you nor your company is engaged in any illegal activity, there is no misleading information, or that your digital account was hacked.
Apply for a validation order
If your company was served with a winding-up petition, which led to the freezing of your business account, you can apply for a validation order from the court as a way to unfreeze it. If you are able to satisfy the court with evidence that your company is solvent, the validation order will be accepted. Next, your creditor will be notified, and your business account will be unfrozen so that you can continue to make certain transactions through it, such as paying back your debt.
Negotiate a company voluntary arrangement
If there is still hope for the viability of your business, propose a Company Voluntary Arrangement (CVA) to your creditor through your insolvency practitioner (IP). This kind of arrangement requires you to make a single monthly payment of a certain amount to your creditor. If your CVA is accepted, your business account will be unfrozen. However, it would be best if you avoided another legal action against your company by maintaining the terms and conditions of the CVA.
Place the company on voluntary liquidation
Consider this last option when you are sure that your business establishment is no longer capable of growth and development. Here, you need to avoid being accused of illegal conduct by entering into voluntary liquidation through filing for bankruptcy or insolvency. That way, you can close the company following a legal procedure that will unfreeze your business account. Permitting you to resume transactions on your account lets you sell your company's assets and pay back your creditor(s).
How to Prevent a Frozen Bank Account
According to a proverbial saying, "Prevention is better than cure." In this context, your business gains more from stopping a bank account from freezing than from trying to fix it. For that reason, we offer you the following pieces of advice to help prevent a frozen business bank account:
- Secure your business account: The security and safety of your business bank account determine its susceptibility to unusual activities. Find out how to accept payments safely and keep your account secure. It will help ensure that your bank does not freeze your account due to strange access.
- Pay your corporate debts: Do not ignore your debts, not even because of your personal loans. Pay them early, including credit card debts, to prevent a creditor from taking your company to court or levying your bank account.
- Fund your business account: It is not enough to open a digital bank account for your company, you need to keep it active. Whether you created it for doing business in the UK or managing your transactions in an overseas country, ensure to fund it adequately. By doing so, you prevent insufficient fund reports from your bank and stay free from a frozen account.
- It is not enough to open a digital bank account for your company; you need to keep it active. Whether you created it to do business in the UK or to manage your transactions in any other country, make sure it is adequately funded. Doing so prevents insufficient fund reports from your bank and avoids a frozen account.
- Make your account manager aware: Whenever you are expecting a large sum of money from a business associate who resides locally or internationally, make sure to inform your account manager so that your bank will not safely allow the transaction.
- Avoid criminal activities: Do not participate in any activity or transaction that is criminal in nature. Otherwise, law enforcement agents might come after you to investigate fraud, money laundering, terrorist financing, or any other illegal operations.
- Provide correct information: Ensure that the details on your bank account are always correct and valid. If you changed your passport, address, source of income, or did any other significant activity that might make your bank suspect you, tell your bank manager as soon as possible so that they will not freeze your account.
FAQ
Yes, you can get back your money in a frozen bank account, but that is only if you are able to convince your financial institution to unfreeze it. You can do that by settling with your creditors or providing evidence that the freezing was a mistake.
The time it takes to unfreeze your bank account depends on some factors, which include how quickly you can resolve whatever issue led to the freezing. Typically, a frozen business account can take between a month and a year to unfreeze, depending on how serious the case surrounding the freeze might be.
Your bank may be legally required to freeze your account if you are suspected of doing any illegal transactions, which include writing bad cheques, financing terrorists, and money laundering.
An unusually large deposit paid into your bank account is often considered suspicious activity by your bank or financial institution. Other suspicious activities include cheque fraud, wire transfer fraud, terrorist financing, identity theft, credit card fraud, and mortgage and personal loan fraud.
Yes, your bank can deny you access to your money if they suspect illegal operations on your account and freeze it.
The documents required to unfreeze your bank account vary from country to country and case to case. So, contact your bank to find out what you need to present. There may be some official forms, such as an “Unfreeze Request Form,” “PAN/Form 60,” and so on.
Depending on the banking legislation in your country, you might be able to sue your bank in court for mistakenly locking or freezing your account.
The Bottom Line
The reasons your business bank account can be frozen range from an attempt to protect your account to being suspected of participating in a criminal transaction. A frozen account can be such a terrible experience; hence, it is better to prevent it. Having shown you all about handling a frozen company bank account, we expect that you would be able to prevent it going forward.
