Fortunately, few Companies and their Directors find themselves on the wrong end of a Freezing Order, which was originally known as a Mareva injunction. But when they do, the implications are very serious and can make running the Company difficult at best and impossible at worst.
A senior High Court judge once described Freezing Orders as the law’s ‘nuclear weapons’. They take immediate effect once confirmed and can be served on the recipient with no advance warning. Because of this, strict criteria must be met by the applicant who needs to deliver a compelling argument to the Court in favour of one being granted.
What is a Freezing Order?
A Freezing Order is an injunction issued by the Court prohibiting a potential or actual defendant in criminal or civil litigation proceedings from dissipating their assets. Usually, such an injunction is intended to preserve a defendant’s assets until the proceedings have been completed.
Which courts can issue a Freezing Order?
A Freezing Order can either be granted by a judge in the High Court or by a Circuit judge in the County Court. Under certain limited circumstances, one can also be granted by a Master or District judge in the High Court or a District judge in the County Court.
The person applying must provide compelling reasons why a freezing order is needed, as well as undertaking to pay compensation if it’s shown later that the court order should not have been made.
What is the effect of a Freezing Order?
A Freezing Order prevents assets from being dealt with, sold, hidden or moved out of the jurisdiction by the recipient. It can be granted at any stage of legal proceedings.
In the case of a potentially insolvent Company and before an Insolvency Practitioner is appointed to take over its affairs, a Freezing Order can be used to prevent the sale assets at below their market value, which could otherwise restrict the recoveries that unpaid creditors can make in an eventual insolvency.
What assets can be frozen?
Any type of asset could be the subject of a Freezing Order, including land, property, vehicles, company shares and bank accounts. Although a Company’s entire assets could be frozen, it is more often the case that a ‘maximum sum order’ is granted by the Court. This means that assets not specifically identified by the Freezing Order can be dealt with in the normal course of business, but the Company must retains assets up to at least to the value of the maximum sum stated to remain compliant with the order.
How to respond to a Freezing Order
A ‘with notice’ Order
The Court process involves an initial hearing to decide whether a Freezing Order should be granted. A ‘with notice’ Order means that the recipient Company can be present and can make representations at the hearing. This offers a better opportunity to have the Order set aside, but only with prompt action on the basis of professional advice.
There may be ongoing liabilities to be settled, which would otherwise be restricted by the potential for a Freezing Order being made. In this scenario, an application to vary the Order may be granted so that these upcoming payments can be dealt with.
Application without notice
If an application is made ‘without notice’, the applicant must give the Court a compelling argument why such immediacy is necessary. Timing is clearly a vital part of the process where it is felt that assets may be removed, but the applicant must also undertake to pay damages if it is later found to have been an unnecessary action.
When no notice has been given, the initial hearing would have granted an interim Freezing Order. Notice will be given of a second hearing to confirm the Order, at which the recipient Company can make representations. There will only be a few days before the second hearing, so prompt action is essential.
In the meanwhile, the recipient Company must comply with Court instructions and not attempt to move or otherwise deal with Company assets covered by the initial Order.
Other remedial action
If the Freezing Order includes all company assets but some of sufficient value to cover the amount claimed can be ‘ringfenced’, the Court may be persuaded to release the remaining assets from the Order to facilitate continued trading.
It may be that, the Order has been sought in error or it can be proved that the debt has already been cleared or satisfied, then the Court may lift it on application by the recipient.
The return hearing can be deferred if it can be demonstrated that more time is needed to gather evidence, or obtain any information requested by the Court.
The perils of non-compliance
It is vital to note that:
- Non-compliance with a Freezing Order is contempt of court, likely to trigger severe penalties such as large fines or asset seizure.
- On occasions, Directors have been given prison sentences for their failure to comply with an Order.
- These risks also apply to anyone who assists the Company in removing or concealing assets covered by an Order.
- Any person who may become involved in dealing with assets should be informed that the Company has received a Freezing Order.
- The front page of the Freezing Order will show a warning notice to this effect.
How we can help
We have extensive experience assisting business owners and directors, and we will always work with you to find the best solution for you and your business.
One of our Partners would be more than happy to have a non-obligatory confidential chat with you. We can be contacted at rescue@opusllp.com or call us on 0203 995 6380 and we will arrange for a call with one of our specialists.