By: Money Navigator Research Team
Last Reviewed: 19/01/2026
FACT CHECKED
Quick Summary
If a bank closes a business account, it’s a contractual “end of relationship” decision: the bank stops providing banking services and processes any remaining steps (like returning a balance) under its terms and controls.
In insolvency, the relationship may not end immediately, but legal authority changes: an administrator or liquidator becomes the person the bank can lawfully take instructions from.
Access can still pause while the bank verifies the appointment and updates mandates, and in some situations (notably a winding-up petition) the account can be frozen by default until the court permits access.
The practical difference is that closure is about the bank exiting you, while insolvency is about the law replacing who can operate the company’s money, often with extra court or compliance gates before payments can move.
This article is educational and not financial advice.
Account closure vs insolvency: what actually changes
1) Account closure is a banking decision
A bank-led closure is usually implemented under account terms. Day-to-day impacts are operational:
access is removed (online banking/cards often stop)
inbound/outbound payments may reject or be returned
the remaining balance is returned after internal checks (timelines vary)
If you want the “payments plumbing” view (what happens to money already in flight), see:
In administration, the UK government’s overview is explicit that the administrator runs the business during administration. (They take control of the company’s affairs while the process runs.) See: GOV.UK guidance on putting a company into administration.
The Insolvency Act framework also gives administrators broad management powers. For example, Schedule B1 paragraph 59 says the administrator may do anything necessary or expedient for managing the company’s affairs, business and property. See: Insolvency Act 1986, Schedule B1 paragraph 59.
What that means in banking terms: even if the bank account number stays the same on paper, the bank must treat the administrator (not the directors) as the party with authority to operate the account once properly evidenced.
Administration: how banking access is typically established
Evidence and mandate change
Banks commonly need enough documentation to (a) verify the appointment and (b) amend account mandates so payments and approvals reflect the new authority. This is one reason “access” can pause even when an account isn’t permanently closed.
A useful way to think about it: the bank is managing instruction risk. If it takes payment instructions from the wrong person at the wrong time, it may have liability exposure.
(For the closure-side version of the same “evidence request” dynamic, see documents banks ask for when considering account closure.)
Practical timeboxes
Administration often has a defined lifecycle. Companies House notes administration typically ends after 12 months unless extended, depending on the circumstances and approvals. See: Companies House: what going into administration means.
That matters operationally because banking arrangements often need to support:
ongoing trading (if trading continues)
controlled receipts and payments
orderly realisation of assets (if sales proceed)
Liquidation: when the account can freeze before the liquidator even starts
Liquidation can introduce a specific “bank account freeze” risk earlier than many people expect.
GOV.UK states that a company’s bank account will be frozen when someone files a petition to wind up the company, and that a validation order is needed to access it. See: GOV.UK: access to your bank account during liquidation.
Why this matters in practice
If a winding-up petition has been presented, even routine payments (wages, suppliers, tax) can become difficult to process until the court permits transactions. The result can look like a “bank closure”, but the driver is different: it’s the insolvency/court framework gating payments, not necessarily the bank choosing to exit.
Summary Table
| Scenario | Outcome | Practical impact |
|---|---|---|
| Bank closes the business account (no insolvency) | Banking relationship ends under account terms | Payments may reject/return; balance return is processed after checks; new banking route needed for trading receipts |
| Administration appointment | Legal authority shifts to the administrator | Access may pause while mandate is updated; receipts/payments may continue once the bank recognises the administrator |
| Winding-up petition presented | Account can freeze pending court permission | Validation order may be required before funds can move; day-to-day operations can stall |
| Liquidator appointed (after liquidation begins) | Liquidator controls company money for the winding up | Banking is operated for realisation/distribution; directors typically stop being the instructing party |
| Closure plus later insolvency | Bank account may already be unusable when authority changes | Office-holder may need alternative banking arrangements to gather receipts/refunds and pay costs |
When closure and insolvency collide: the “access gap”
A frequent real-world problem is timing:
the account is closed first, then insolvency follows, or
insolvency begins, but bank access is delayed while mandates are updated, or
a petition triggers a freeze before any orderly handover is possible
In these situations, inbound money can still exist “in the ecosystem” even when the main account can’t be used. For example, card processors may need to be redirected to a new account route when closure or restriction happens. (If you’re mapping that operationally, see switch card processor payouts to a new bank account during closure.)
At a governance level, some sectors also face “de-risking” patterns where banking is withdrawn for whole categories of activity, which can make continuity harder even before insolvency is in play. See: de-risking and exit management when banking exits a sector.
Scenario-level / process-level / outcome-level
| Scenario-level | Process-level | Outcome-level |
|---|---|---|
| Bank-led closure | Bank terminates services; remaining steps follow internal controls | Access ends; payments route breaks; balance is returned after checks |
| Administration | Administrator becomes recognised authority once evidenced; mandate updated | Banking can continue, but under the administrator’s control and timelines |
| Petition stage liquidation risk | Court-linked constraint: transactions can be void/contested without validation | Account freezes can occur; court permission may be required for access |
| Liquidation (post-appointment) | Liquidator operates banking to realise assets and distribute | Directors cease control; payments are aligned to the winding up process |
| Mixed (closure + insolvency) | Two constraints stack: account unusable + legal authority shift | Operational workarounds may be needed to collect receipts/refunds and pay essential costs |
Complaints and “fairness” have different limits in insolvency vs closure
For bank account closure complaints, the Financial Ombudsman Service describes the kinds of issues it sees and how it approaches them (including notice and process). See: Financial Ombudsman Service guidance on bank account closures.
In insolvency-driven access problems, the constraint is often structural: authority, court gating, and mandate verification. Even where a bank’s service levels feel slow, the underlying question is frequently “who can the bank legally take instructions from right now?” rather than “should the bank keep the account open?”
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Frequently Asked Questions
An administrator’s legal authority doesn’t automatically reverse a bank’s contractual decision to end a relationship. If the bank has closed the account, the practical issue is whether the bank is willing and able to provide any continued account services.
In practice, administrators often focus on gaining control of funds and records and establishing workable payment routes, rather than expecting a closed account to be restored on the same terms.
Administration changes who can control the company’s affairs during the process. GOV.UK describes that the administrator runs the business while the company is in administration, which implies directors no longer control day-to-day operations in the usual way. See: GOV.UK administration overview.
Operationally, banks typically need to reflect that authority shift in mandates and access. Until the bank recognises the appointment and updates controls, access can be restricted even where the account itself hasn’t been terminated.
GOV.UK notes that a company’s bank account will be frozen when someone files a petition to wind up the company, and that a validation order is needed to access it. See: GOV.UK bank access and validation orders.
The practical reason this matters is timing: the “freeze effect” can arrive before there is any orderly transition of payment operations, which can disrupt payroll, suppliers, and tax payments even before a liquidator is fully underway.
A freeze and a closure can feel similar day-to-day (payments stop), but they are not the same mechanism. A closure is the bank ending the relationship; a freeze is a restriction that may be temporary and may be linked to verification, compliance, or legal gating.
If you need a clear operational comparison, see difference between frozen and closed business bank accounts.
If the account is closed, inbound transfers may be rejected or returned depending on payment type and timing. That can create reconciliation issues (customers think they paid; the business never receives funds).
For a payments-by-type breakdown, see incoming payments when a business account is closed. If insolvency follows later, the office-holder may need to trace and reroute receipts that bounced or were redirected.
Some outgoing payments can fail, be reversed, or never leave the account depending on the stage of processing at the time closure takes effect. This can create duplicated liabilities (supplier unpaid) and operational noise (payment references exist but settlement never occurs).
A practical explainer is here: outgoing payments if an account is closed mid-processing. In insolvency, clarifying what actually settled can be important for accounting and creditor communications.
There isn’t a single universal timeline because returns depend on internal checks (and, in some cases, linked disputes or compliance holds). The key distinction is that this is a closure process, not a formal insolvency distribution process.
For a practical overview of the usual moving parts, see how long banks return remaining balance after account closure.
The Insolvency Act’s administration framework gives broad management powers. Schedule B1 paragraph 59 states the administrator may do anything necessary or expedient for managing the company’s affairs, business and property. See: Insolvency Act 1986, Schedule B1 paragraph 59.
Even with that authority, banks still need to identify the correct instructing party and update mandates. So the legal power and the practical “logged-in access” can be separated by a documentation and verification step.
FSCS deposit cover is about bank failure, not the customer’s insolvency. If a UK-authorised bank, building society or credit union fails, FSCS explains the deposit protection limit rose to £120,000 from 1 December 2025, subject to eligibility and aggregation rules. See: FSCS deposit limit protection increase.
The Bank of England also summarises how FSCS deposit cover works and the £120,000 limit, including how multiple brands under one authorised firm can be treated as one for cover purposes. See: Bank of England explainer on FSCS and deposit limits. For a UK business-account-focused explainer on our site, see FSCS cover for business bank account balances.
The Financial Ombudsman Service sets out how it approaches complaints about bank account closures, including the standards it considers and typical issues like notice and process. See: FOS guidance on bank account closures.
During insolvency-linked access problems, the key constraint is often legal authority and court gating rather than customer-service preference. So even where a complaint route exists, the remedy can be limited by the underlying legal framework shaping what the bank can do at a given moment.
Most “banking access” problems in distress situations aren’t really about technology or logins – they’re about instruction legitimacy. Banks are set up to move money only when they’re satisfied the person giving instructions has the right authority at that time.
Account closure removes the service. Insolvency doesn’t always remove the service immediately, but it re-wires who the bank can listen to, and sometimes introduces court gating (especially around winding-up petitions). The friction point is the handover: proving the appointment, updating the mandate, and ensuring the bank doesn’t process transactions that later become contestable.
Sources & References
Insolvency Act 1986: Schedule B1 paragraph 59 (administrator general powers)
GOV.UK: Liquidate your limited company – access to your bank account (validation orders)
Financial Ombudsman Service: Bank account closures (business guidance)
Bank of England: What is the FSCS and what is the new deposit protection limit?