Understanding Freezing Orders

In July 2024, I discussed the topic of freezing orders with guest Graeme Blank, a seasoned barrister from Blackburn Chambers.

Insights into Freezing Order Applications| Graeme Blank, Barrister and Mediator – Cathro & Partners (cathropartners.com.au): Understanding Freezing Orders

The following is a brief snapshot to assist in understanding this process:

• Definition and Operation: Freezing orders, also known as Mareva injunctions, are legal tools designed to prevent individuals from dissipating their assets. These orders operate ‘in personam,’ meaning they target the individual rather than the property itself. They are effective against anyone who receives notice, such as banks. Given the severe consequences of breaching these orders, including criminal penalties for contempt, it is crucial that they clearly specify the affected assets and permissible actions.

• Purpose and Scope: The primary purpose of freezing orders is to preserve assets that may be subject to a judgment or court order, preventing their dissipation by debtors. They do not provide security for a judgment but ensure that assets remain available. These orders do not hinder the legitimate operation of a business, normal living expenses, or the disposal of assets in the ordinary course of business, including covering legal costs. However, they impose significant restrictions on dealing with one’s own assets, limited to the amount of the claim plus interest and costs.

• Legal Framework: Freezing orders are considered a drastic remedy and are not granted lightly. In the UK, they are described as ‘one of the nuclear weapons of the law.’ Typically sought by creditors, these orders can be obtained before litigation and are usually granted ex parte, requiring full disclosure. Initially based on limited evidence, a full argument is presented later when the defendant can respond. To obtain a freezing order, the applicant must establish a ‘prima facie’ case, demonstrating a good arguable case rather than a mere plausible evidential basis. Applicants must also provide an undertaking as to damages and act promptly. Disclosure orders may accompany freezing orders, requiring the defendant to reveal the existence and location of assets, though the privilege against self-incrimination applies.

• Case Example: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 96 [2023] NSWSC 343 – In this case, a builder contracted to construct a six-unit apartment complex and sought to recover payments. The owners cross-claimed for incomplete work. The builder undertook not to deal with or diminish assets up to $1.25 million without 14 days’ notice, allowing for ordinary living expenses and legal costs. Despite evidence of asset value, the final hearing dismissed the builder’s claim and upheld some cross-claims. An appeal followed, with a stay of bankruptcy granted upon payment into court. The owners later discovered asset sales, prompting a freezing order application. The court emphasized the need for diligence in applying for such orders and the importance of sufficient evidence.

• Types of Assets: Freezing orders can attach to a wide range of assets, including bank accounts, real estate, shares, and valuable possessions. The definition of property encompasses any legal or equitable interest. However, assets held by a trustee for a beneficiary are not included unless the trustee is bound as a third party. Similarly, assets in a company require separate orders restraining the company.

• International Enforcement: Enforcing freezing orders across international borders involves navigating different legal systems and jurisdictions. These orders can have worldwide effect, preventing individuals from dealing with assets globally. However, enforcement can be complex, as seen in the UK’s issues with Switzerland post-Brexit. The Swiss Federal Act on Private International Law (PILA) now governs enforcement, raising questions due to the interim nature of injunctions.

• Impact on Debtors and Creditors: Freezing orders significantly impact debtors by restricting their ability to conduct business or access assets. For creditors, these orders provide assurance that assets will be available to satisfy judgments.

• Legal Considerations and Challenges: Obtaining and enforcing freezing orders involves several legal considerations and challenges. Full and frank disclosure is essential, including negative matters. Applicants must make proper inquiries and disclose what they know and should have known. Orders must not prevent legitimate business operations or ordinary living expenses. Applicants may need to provide an undertaking as to damages, potentially requiring a payment into court, with exceptions under certain regulations.

By understanding the intricacies of freezing orders, both debtors and creditors can navigate the legal landscape more effectively, ensuring the fair administration of justice.