What is a freezing order?
A freezing order is also known as a freezing injunction and used to be known as a Mareva injunction. It is a court order that prevents a person or business from disposing of or dealing with their own assets. Card payments and bank transactions will be declined and other assets won’t be able to be sold or used, potentially for a long time. A freezing order therefore has very serious consequences. For that reason, it has been described by the Court of Appeal as one of law’s nuclear weapons.
The purpose of a freezing order is to preserve a respondent’s assets until any judgment against them has been obtained and enforced. It is a useful tool for victims of fraud who can freeze a fraudster’s assets at an early stage whilst they go through the process of proving their case. This increases the chance of recovering lost assets before they are all spent or hidden by a fraudster. Assets can be identified by conducting desktop searches of databases such as Companies House, the Land Registry and social media or by engaging private investigators.
A freezing order is usually applied for before a claim has been filed. It can, however, be applied for at a later stage if there are good reasons for doing so.
What is the test for obtaining a freezing order?
A freezing order can be granted where it is just and convenient to do so.
An applicant for a freezing order needs to have an underlying cause of action against a person to obtain a freezing order against their assets. For example, that could be a claim for breach of contract which has caused the applicant to incur loss. In addition to an underlying cause of action, an applicant must demonstrate a good arguable case, the existence of assets and the risk of dissipation of those assets. They will also need to provide an undertaking in damages and have a duty of full and frank disclosure of all material facts, even where those facts do not support the applicant’s own case.
What types of asset can be frozen, where and for how long?
All types of assets can be frozen such as cash in bank accounts, shares, property, art, yachts, aircraft, cryptocurrencies and so on.
A freezing order can be made in respect of assets only within England and Wales or worldwide, known as a worldwide freezing order. A worldwide freezing order can be obtained where a respondent doesn’t have enough assets in England and Wales to be able to cover any damages subsequently ordered to be paid in the case. The High Court in England and Wales needs to grant permission before a worldwide freezing order can be enforced against someone in a foreign jurisdiction.
If a freezing order is granted by the court at a without notice hearing, it will take effect until the return date hearing one week later at which a respondent can challenge the order. At that hearing, the court will either order that the freezing order be discharged or alternatively that it shall continue in effect until judgment is given.
It’s important to understand that a freezing order doesn’t create any kind of security or preferential right to receive payments before any other creditors. It simply prevents those assets from being disposed of or dealt with until a case has concluded.
What do I have to do to comply with the order?
A respondent to a freezing order should read it carefully and obtain expert legal advice to ensure that the order is complied with and consider whether it can be challenged entirely or varied. As well as not disposing of or dealing with assets according to the terms of the order, notice of it will need to be given to any relevant people such as staff, bankers, trustees and anyone else who holds or manages affected assets. Usually, an affidavit will be prepared which sets out the details of a respondent’s assets. The scope of affected assets can be wide and include assets which are not owned but are controlled by a respondent.
Can I pay my legal and living expenses whilst a freezing order is in force?
Yes, in principle, a respondent is permitted to use their assets to fund their legal expenses and ordinary living expenses. Any permission to spend money on legal and living expenses is granted at the court’s discretion and will depend on the specific facts of each case. If it can be shown that there is a risk of dissipation of assets, the applicant may obtain a notification order. That creates a reporting and notification regime which enables an applicant to monitor the amount of any payments made towards legal and living expenses and which assets are being used to fund those payments.
How can a freezing order be obtained and can it be challenged?
An application for a freezing order will usually be made without notice of the application being given to a respondent. That is to ensure that a respondent doesn’t dispose of their assets before a freezing order prevents them from doing so.
An application must be supported by evidence set out in an affidavit. An initial court hearing will take place attended only by the applicant. A return date hearing usually takes place seven days later and is attended by both the applicant and respondent. At that return date hearing, a respondent can challenge a freezing order having been granted at the initial hearing. A challenge could be made if the order is oppressive because the amount of assets which have been frozen is too high compared with the value of the claim being made. In complex fraud litigation, a general order made against all of a person’s assets is more likely to be justified whilst the value of a claim against an alleged fraudster is being worked out.
A freezing order might also be challenged where damages would not be an adequate remedy for a respondent whose assets had been wrongly frozen. There is a high threshold, however, because the court has the power to order an applicant to fortify their undertaking, meaning pay money into court to cover the likely amount of any loss incurred by a respondent if a freezing order were to be wrongly made.
What happens if it is breached?
There are serious legal consequences involved in breaching a freezing order. You would be in contempt of court, which is a criminal offence punishable by imprisonment. This is shown in a prominent penal notice on the front page of a freezing order. You may also be ordered by the court to pay an applicant's significant legal costs.
Common ancillary orders made together with a freezing order
There are often ancillary orders made by the court at the same time as it grants a freezing order. The most common ancillary order is a disclosure order, which requires a respondent to provide information about what assets they own or control. That enables an applicant to take steps to ensure that those assets remain intact and, if necessary, take additional steps to freeze any assets located outside of England and Wales. Where money or investments are held with a bank, a disclosure order takes a specific form known as a Banker’s Trust order. A Banker’s Trust order compels a bank to disclose information to an applicant, such as the balance of any cash or investment accounts.
There are number of other orders that might be granted by the court depending on the circumstances of each case. These include immediate delivery-up of assets, payment of money into court, a search order, cross-examination of a respondent about their assets and the appointment of a receiver to manage a respondent’s assets. Where justified by the facts of a case involving serious fraud, the court can grant a passport order. That order is reserved for exceptional cases, because the respondent must deliver-up their passport and is not permitted to leave England and Wales. An order may also be made against a third party who holds assets on behalf of a respondent.
What to do if you are served with a freezing order
A freezing order involves tight deadlines and serious consequences. It’s important to urgently obtain legal advice from experienced litigation solicitors at the earliest opportunity.