A freezing order (formely known as Mareva injunctions) is an interim injunction preventing a potential defendant from dissipating assets. Typically, such an injunction is sought to preserve a defendant’s assets until a judgment can be obtained. Freezing orders can be obtained to prevent the disposal of assets within the UK or worldwide (worldwide freezing order).
What is a freezing order?
A freezing order is used by a creditor who may be concerned that a company may wish to sell their assets rather than pay what is due to the creditor. The freezing order will allow almost any asset to be frozen which may include: company bank accounts, property, land or investments and shares.
The freezing order will not however prevent the company or individual from borrowing money and if they are to borrow money following the order being put in place the borrowed money is not classed as an asset.
When a freezing order is granted by court it is endorsed with a penal notice in case a respondent does not comply, it will be contempt of court and face a fine.
What are the requirements for a freezing order?
- The applicant must have a strong case. The applicant must establish that its case is capable of a serious argument.
- There must be a substantive cause of action against the defendant
- The applicant must demonstrate the risk of the asset being disposed of if the order is not put into place.
- It must be ‘just and convenient’ to grant the order – it would cause unnecessary and disproportionate hardship to the defendant to grant the order.
In order to obtain the injunction the following forms will need to prepared:
These forms will be best prepared with support from a legal advisor.
- Application Notice
- A draft Order – which will set out the terms for the freezing Order.
- Ancillary Orders (only sometimes needed) – this may include an order for cross-examination, delivery of passport, or order for a company receiver.
When preparing evidence to support an application the following should be considered:
- How quickly the assets in questioned could be disposed of.
- The financial standing of the defendant in relation to the relative value of the claim.
- Whether the defendant operates a business and the reputability of the business. The more longstanding a business is the less likely that a defendant would attempt to dispose of the business.
- Where the defendant or any business they have is based. If the defendant is domiciled abroad there is a higher risk of dissipation. The particular country in which the defendant is situated may also have an effect on the risk due to varying tax and company laws between various companies.
- The defendant’s behaviour. Evidence of threats dissipate, poor commercial morality or refusing requests for disclosure or a settlement discussion may help establish evidence of a threat to dissipate.
What must the applicant provide?
The applicant must give a full disclosure of all relevant information as well as an undertaking in damages to compensate the respondent if it is decided the freezing injunction should not have been awarded. In some cases the applicant will be required to provide security.
It is important the applicant discloses all facts and information to the court to enable the court to properly exercise its discretion. These facts include anything that could adversely affect the applicant’s own case; how long the dispute has been ongoing; and facts that the applicant or their advisors did not know but could have discovered if they made reasonable enquiries.
How long does a Freezing Order Last?
Generally freezing orders will be granted for a period of between 7 and 14 days. After the expiry of the order the court will convene again where it may choose to extend the order, discharge it or continue it until the trial.
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