Freezing orders can be used to stop debtors from spending or hiding assets which are under claim.
This Brief Counsel discusses how and when they can be an option in litigation and the benefits they offer the claimant.
A claimant should consider seeking a freezing order where the defendant:
- has committed some form of fraud or deceit (or there is strong evidence to suggest they have)
- has started selling off major assets
- is based overseas or is a flight risk, or
- is experienced and sophisticated in the use of trusts, corporate structures and other mechanisms for dealing with assets.
Freezing orders sit alongside a court claim for debt or damages and are usually made without notice to the defendant. These orders typically stop a defendant from shifting assets off-shore or from disposing of, dealing with, or diminishing the value of, those assets pending the outcome of proceedings or enforcement of judgment.
Freezing orders do not have to be directed at any particular asset and can apply to land, bank accounts and any other assets.
To win freezing orders a claimant must show:
- a good arguable legal case against the defendant – usually, a claimant must have obtained judgment against the defendant, or have commenced a proceeding against the defendant
- that the defendant owns the assets in question, and
- a danger that any judgment in the claimant’s favour will be wholly or partly unsatisfied because the claimant has disposed of assets or shipped them off in the meantime.
The danger threshold
Although freezing orders are commonly used in fraud cases, a claimant needn’t show malicious intent – it is enough that there is a “danger” that assets will be dissipated unless they are frozen. Suspicion alone is not sufficient; some credible and tangible evidence of dissipation is needed.
Freezing orders: further benefits
The Court can grant freezing orders preserving a defendant’s foreign assets. In extreme cases the Court can also freeze a third parties’ assets if there is a clear link between those assets and the claimant. Take a bank for example. A rogue defendant might be in debt to a bank, but have funds in credit in another account with that institution. The bank may have a claim against those funds, which a claimant might wish to freeze pending trial, because it says it has a better right to the money than the bank does.
Points to be aware of
When seeking freezing orders (without notice to the defendant) a claimant must:
- agree to pay damages to the defendant for any loss caused by the freezing orders, if it turns out later that the order should not have been made, and
- disclose all material facts, including any possible defences known to the claimant and any information casting doubt on the claimant’s ability to pay damages in respect of the undertaking.
Bear in mind that freezing orders are relatively rare and cannot:
- stop a defendant from dealing with assets to pay ordinary living expenses, legal expenses related to the freezing orders or disposing of assets in the ordinary course of business, or
- continue forever. They will be limited to a particular date, at which time the defendant will have an opportunity to be heard by the Court. The defendant can also apply to the Court to discharge or vary the freezing order.
But, in the right circumstances, freezing orders are a formidable weapon against defendants attempting to make themselves “judgment proof”.
Our thanks to James McMillan, Senior Solicitor, for writing this Brief Counsel.
For further information, please contact the lawyers featured.