Civil Fraud Quarterly Round-Up: Q1 2021
The purpose of a freezing order is to prevent you from disposing or dealing with your assets so that you cannot put your assets beyond the claimant’s reach should the claimant obtain and wish to enforce a judgment against you.
A freezing order is likely to have been obtained against you without your knowledge and at the same time as court proceedings are issued against you.
A freezing order is one of the most draconian orders the court can make. It will affect your ability to access cash, pay your bills and deal with your assets. Should you breach the strict terms of a freezing order, you could be held in contempt of court which, in turn, could lead to imprisonment.
It is crucial that you review and fully understand the terms of the freezing order and the obligations it imposes on you.
Which of my assets may be frozen?
All types of assets can be frozen, whether located in the UK, in other jurisdictions and/or worldwide, including bank accounts, shares, financial instruments, vehicles, property, jewellery and artwork. The assets may belong to you alone or may be jointly owned or held on trust by a third party for your benefit. A freezing order may also be obtained against a third party who holds assets on your behalf.
The claimant will serve the freezing order on any third parties in control of your assets (e.g. banks). From the moment they are notified of the order, these third parties owe a duty to the court to comply with the order and not to permit you to breach it.
In a recent case, a world-wide freezing order was continued over the assets of the main defendant’s wife on the basis that the husband had transferred assets to his wife, she had not given any consideration for those assets (had not paid for them), the transfers were designed to frustrate the husband’s creditors and the wife held the assets as nominee for her husband.
The value of the assets frozen generally matches the value of the claim against you plus interest and costs. The freezing order may however sometimes cover specific assets of a certain value, or be unlimited and thus extend to all of your assets (this is usually the case if the extent of your assets or the value of the claim against you is not known when the application is made).
What are my obligations?
In short, the freezing order prevents you from dealing with or disposing of your assets, but there may be ancillary orders. In order to understand what you are (not) permitted to do it is crucial to review the terms of the freezing order immediately upon receipt and to seek legal advice to assess which assets are covered, where, for how much, whether other orders have been made and how much time you have to respond – likely to be 48 hours only.
You are likely to be required (often within 48 hours of service of the freezing order on you) to make an affidavit (a written statement which is sworn to be true) disclosing the nature, value and location of all of your assets (usually those exceeding £1,000) and to provide documentation evidencing what you have said. The information you disclose may subsequently be used by the claimant in an asset tracing or asset recovery exercise (e.g. if there is a fraud claim against you).
In conjunction with the freezing order the court may order that:
How can I pay my living, business and legal expenses?
The court will not allow freezing orders to be used oppressively to prevent you from using your assets for a legitimate purpose. There should be a provision in the order permitting an individual respondent to meet its ordinary living expenses up to a prescribed figure requested by the claimant/decided by the court and for a corporate respondent to pay its employees and trade creditors. In both cases there should be a provision for the respondent to pay it reasonable legal costs. The freezing order should not cause the respondent to cease trading.
You may be able to incur new liabilities, for example borrow money or enter in a loan agreement, provided this does not reduce the value of your frozen assets. It may however be difficult to do so in practice with the freezing order in place. A freezing order is not a form of security: it does not provide any proprietary right over your frozen assets. Your creditors may therefore be able to enforce judgments against frozen assets.
You may be required to seek approval from the claimant’s solicitors if you are due to incur or pay an expense (including your legal fees), acquire, move or transfer an asset the value of which exceeds a certain threshold. This is because the claimant’s solicitors will want to monitor the amounts and sources of payments.
Can I challenge the freezing order?
The freezing order is likely to have been obtained without any notice to you. To obtain the freezing order the claimant must have demonstrated to the court that:
In making the application for a freezing order the claimant has a duty of full and frank disclosure to the court.
The court will order that a further hearing (the “return date”) will take place, usually 7 days after the initial hearing. At the return date the claimant will argue that the freezing order should continue and you will be able to argue that the order should be discharged or varied.
To succeed in discharging the freezing order you must have good arguments that the claimant did not comply with its obligations (e.g. the duty of full and frank disclosure and the delay in seeking the order or pursuing the claim), that there is no good arguable case against you and/or no real risk of dissipation of your assets. You may be able to make a payment into court or provide alternative security to the claimant in return for the discharge of the order.
To succeed in varying the freezing order you will need to show that its terms are oppressive e.g. the level of the assets frozen is too high; or the level of your ordinary living, business and/or legal expenses is too low.
If the order is continued, it will generally be continued until judgment is obtained in the main proceedings against you or until a further order is granted by the court.
There will be a well-coordinated and aggressive legal team acting for the claimant whose aim is to put you under pressure financially and emotionally. It is therefore crucial that you seek legal advice immediately upon service of the order on you, particularly if there are provisions for you to provide disclosure within 48 hours and for the return date to be in 7 days.
What if the claimant obtained the order against me wrongly?
To obtain the freezing order, the claimant must have given an undertaking to the court to pay any damages suffered by you (or by any other third party notified of the order) if it is subsequently found that the order should not have been granted. The nature and extent of the undertaking will depend on the case and your position. The court has discretion as to whether the undertaking should be enforced and if so, what should be the level of damages to be paid. If together we can demonstrate to the court that the freezing order should not have been granted, we will also apply for an order that the claimant compensates you, not just by paying your legal expenses of dealing with and challenging the freezing order, but by way of a payment of damages.
What happens if I breach the freezing order?
Strict compliance with a freezing order is required. You should take all possible steps to ensure compliance. The freezing order served on you will contain a “penal notice” which warns you that if you fail to comply with the terms of the order you may be held in contempt of court which is punishable by a fine, imprisonment or seizure of assets.
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