It can be a very valuable tool if you have a good case against a respondent and you have genuine concerns that assets will disappear before you can enforce any order granted. However, a freezing order is also very draconian and, if not applied for and used carefully, can cause serious damage to your opponent’s business, meaning you run a high risk of paying compensation if the order is reversed.
‘This can be a very powerful tool if your business is owed money by a party who you suspect is trying to move assets or money out of your reach,’ says Jonathan Lewis, dispute resolution solicitor with QualitySolicitors Parkinson Wright. ‘It can apply not just to assets held in the UK, but also worldwide.’
Jonathan looks at how a freezing injunction can help you in various business dispute scenarios, when it might be used, how to apply for a freezing injunction, and what are the consequences of ignoring a freezing order for a respondent.
What is a freezing order?
A freezing injunction (also known as a ‘Mareva injunction’) is an order of the court that prevents a person or company from disposing of, transferring, or dealing with their assets while a legal claim is ongoing, or to avoid paying an order made against them.
When can a freezing order be utilised in a business dispute?
Business disputes can sometimes take a long time to be resolved. This can be a serious concern if you know your opponent has assets, but you believe these will have disappeared by the time you are successful. This is especially worrying in high value disputes, such as a partnership dispute, when you know your business partner has significant assets but you can see them moving over time.
An order can be made against anyone who may have possession of the asset. Therefore, it can be made against your opponent in court proceedings, but can also be made against a third party. For example, a bank can be subject to an order to prevent money being moved from a defendant’s bank account.
When can you make an application for a freezing order?
These can be made at any time:
- before issuing a claim in court - if you are worried that as soon as you file your dispute claim in court your opponent will move assets out of reach, you may make an application before even issuing your claim;
- during the court proceedings - you can make it at any time during the course of court proceedings; and
- after the court order - it can be used when enforcing an order the court has made.
The timing is very much down to the realistic risk of your opponent moving assets to defeat your claim.
What criteria do you need to apply for a freezing order?
A freezing order is a very draconian order for a court to make, which seriously restricts your opponent’s freedom to use their assets, and consequently a court will not make such an order lightly. Because these are often made before your claim has been granted by a court, there are very strict criteria that a court will expect to be followed before they will order an injunction.
You must have a claim that has a good chance of being successful. There must be a ‘serious issue to be tried’ for an injunction to be considered.
You will also need good evidence of the existence of the assets that you believe are at risk, and good reason as to why you think they will disappear. The more vague you are, the less likely it is that the court will make an order. It cannot simply be that you do not trust the defendant. There has to be a genuine reason why you believe specific assets are at risk of being removed, and cannot be recovered if an injunction is not granted.
The court will also look at the overall affect on the respondent of an injunction, compared to the risk of assets disappearing. This is called the 'balance of convenience' test.
What are the consequences if the respondent does not comply with a freezing order?
All injunctions will contain a penal notice, meaning that breach of the order is a contempt of court. Courts take contempt very seriously, and breach can have serious repercussions. The court has very wide powers to impose sanctions such as imprisonment of up to two years or fines or both. It can order the seizure of assets, and make an order for costs against the respondent. It is also possible for the respondent’s defence or counterclaim to be struck out if appropriate.
The court can also impose sanctions if the respondent has been ordered to disclose assets and fails to do so. A third party who assists with any breach of the order can also be subject to similar sanctions.
What is the procedure for applying for a freezing order?
Most applications are made ‘without notice’ to avoid a respondent becoming aware of the forthcoming application and disposing of assets in advance. An interim order is usually made to protect the assets and then the respondent is given a hearing date one or two weeks later to provide evidence of why they object to the order.
You will need to provide good evidence of why the order must be made without notice, which means strong evidence of the risk of assets being moved, as well as evidence of why you have a reasonable underlying claim.
You are under a duty to provide full and frank disclosure of all issues that are relevant (favourable and unfavourable) when making an application. This is because a freezing injunction can have serious ramifications for a respondent’s business, freezing its ability to trade as a going concern in the usual way. If it later transpires that you withheld information and an order should not have been made, you are likely to be asked to pay compensation for all damage caused by the order. This can be significant.
As a result, when making this application you are likely to be asked to undertake to pay damages to the respondent if the injunction is not fully justified, and to prove you have the means to do this.
How we can help
It is important you make your application with the benefit of full legal advice. Our solicitors have many years’ experience in advising and acting for clients in successful freezing injunction applications.
For further information, please contact Jonathan Lewis or a member of the dispute resolution team on 01905 721600 or email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.