Is a Freezing Order the most appropriate remedy? Part 2

The appointment of a provisional liquidator.

This is probably the most unusual and dramatic remedy available to an Applicant. It is made pursuant to Section 135 of the Insolvency Act 1986 in respect of a company. It is an adjunct to winding up proceedings. An order appointing a provisional liquidator maybe made in circumstances in which pending the hearing of the winding up petition there is a significant risk that the Respondent’s assets will be dissipated and or that it will continue some fraudulent trading activity or that its books and records will be destroyed.

It is a very serious application indeed, as the appointment of a provisional liquidator over a company is very likely to have a terminal effect on the company’s trading life. A creditor in making an application must show that firstly he is likely to obtain a Winding-Up Order on the hearing of a Petition and secondly, in all circumstances it is right that a provisional liquidator be appointed.

A provisional liquidator must also be proposed to the Court, which is normally an accountant-qualified Insolvency Practitioner. This appointment serves only to protect the assets until the company is wound-up and does not always provide security for any assets in the short-term.

It is rare for creditors to seek such appointments, as the benefit of the appointment of a provisional liquidator lies with all creditors (and the Applicant’s claim will be treated equally against any assets recovered net of the fees of the subsequently appointed liquidator).

European Account Preservation Order

An Applicant may also consider the possibility of a European Account Preservation Order (“EAPO”). This is a new type of regime produced by the European Commission to enable a Court in one EU member state to make an Order freezing the bank account of a Defendant in a different EU member state.

Accordingly, this option only remains available between EU member states and may not apply to all European countries and is not available outside of Europe. There are also some limitations on the type of claim that may support an EAPO, it being only relevant to monetary claims.

The EAPO can only be used to freeze bank accounts and cannot be used against any other assets which the Applicant may be aware of. Equally, the rights of an overseas bank to set-off sums against account balances (for example where it operates more than one account in the Defendant’s name, it may set off an overdrawn account against the account subject to the EAPO).

Delivery up orders

These are Orders available under the Civil Procedure Rules 1998 (as amended) PD25A, which allows the Court to require that specified items are provided requiring delivery-up of such assets.

A Delivery-Up Order may be made where Orders are simultaneously being executed at the Defendant’s premises (for example Freezing Orders) and may be ancillary to the main order obtained. The Court must include all such ancillary orders as part of a Delivery-Up Order for the protection of third parties, including the Applicant. Such ancillary orders may relate to the manner of execution, the physical safeguard of assets and strict adherence to the terms of the order. Such an Order may also require a cross-undertaking by the Applicant.

Charging Orders

These are Orders normally sought against property of the Defendant once judgement has been obtained. They are very useful for circumstances where lengthy proceedings have led to obtaining judgement but the Defendant refuses to pay the judgement liability (often by reason of an inability to pay the debt).

A Charging Order will normally be relatively straightforward to obtain if judgement has been granted in your favour and no steps have been taken to appeal or revoke the judgement (an appeal must be filed within 21 days).

In such the Applicant should consider a Charging Order against any known property assets as soon as possible. The expediency of dealing with this is vital, as one common tactic often employed is to register a charge against a property to eliminate any equity (and thus make the effectiveness of a Charging Order pointless).

Is a Freezing Order the most appropriate remedy? Part 1

Alternative remedies considered

In this series of posts the person or company seeking the Freezing Order is referred to as the Applicant and the person or company subject to the Order is referred to as the Respondent.

It is always worth the Applicant considering whether there are other alternative remedies that could be sought from the court which are less time consuming, costly and potentially risky. Such remedies include for example;

1. An order preserving properties or securing a specific fund.

These orders are commonly granted in situations where there is a dispute as to a party’s entitlement to the property or fund in question. The Court will take into account in any such application whether (i) there is a serious issue to be tried; and (ii) the balance of convenience favours making an order. In the circumstances the grounds upon which such Orders are granted are slightly different to Freezing Order as there is no requirement to show a real risk of dissipation, although the balance of convenience will often be swayed by demonstrating that there is in fact such a risk.

If an Applicant considers that he can rely on the cooperation of the party currently holding funds, he can simply apply for an order as opposed to an Freezing Order relating to the funds. This type of application is probably the cheapest and most low key alternative to a Freezing Order and indeed, the order can be granted by a Master (a lower grade of High Court Judge) or even in the County Court.

One downside however, is that such a remedy does not give the Applicant the same level of protection as a Freezing Order, which carries a penal notice and puts the Respondent at risk of imprisonment for failure to comply with the order (a risk which makes the Freezing Order more effective).

2. Appointment of a Receiver to hold assets of the Respondent

An injured party can seek the appointment of a Receiver to hold assets of the wrongdoer. This is done so pursuant to Section 37 of the Senior Courts Act, although a Receiver will only be appointed in support of a Freezing Order where the Order is insufficient on its own and where there is a measurable risk that the Defendant will act in breach of the Order.

A Receiver can be appointed over both companies and individuals.

3. Proprietary Orders

An injured party can seek what is known as a Proprietary Order. This is a type of Order which attaches to a specific asset or assets rather than a Respondent’s assets in general. It will only be granted in circumstances in which the Applicant is able to make out an arguable claim that it has some beneficial interest in the asset in question. Whilst often described as Freezing Orders, they are not in fact Freezing Orders. The test applied by the Court is different to that which is required in Freezing Order scenarios. There is no requirement in a Proprietary Order to show that there is a real risk of dissipation of assets. Indeed, where a claim is purely proprietary (i.e. there is no monetary claim) the Applicant should always give careful consideration to seek a Proprietary Order as opposed to a general Freezing Order as the Court is actually likely to refuse an application for the latter.

Furthermore, a Proprietary Order can be granted by the County Court as opposed to only in the High Court.

VARYING THE TERMS OF A FREEZING ORDER PART 3

The procedure to vary the terms of a Freezing Order

If a Respondent wants to apply to vary a Freezing Order, this is done by way of the following:

1. Drafting an Application Notice.

2. Drafting a detailed Affidavit setting out specifically the grounds upon which the Respondent seeks to rely upon in terms of the proposed variation of the Freezing Order including the reasons for the proposed amended terms.

3. The Application Notice will need to be issued at Court and a date will be provided to all parties by the Court at which the Application will be heard. It is important when considering the extent of the variation to consider the time estimate appropriate, as this will ensure that the Respondent obtains sufficient time at Court to have the variation application heard. Bearing in mind it is likely that the Applicant, when served with an application to vary the terms of a Freezing Order, may itself serve evidence in response and as such, sufficient time must be set aside by the Court to hear both of the parties’ representations.

4. As part of the Application, a Respondent will require the services of a Barrister/Counsel to represent it at the hearing and prior to the hearing. Counsel will prepare what is called a Skeleton Argument which will need to be filed at Court, commonly the day before the hearing. The Applicant’s solicitors will need to select an appropriate barrister with the appropriate expertise, sufficient experience and who is able to work within the Applicant’s financial constraints. The solicitors will have to draft a comprehensive Brief/Instructions bringing the barrister up-to-speed on all background matters and providing copies of all statements made in the proceedings and any other documents which may be relevant to the barrister’s role. The barrister is generally referred to as “Counsel”.

5. A Skeleton Argument is a document prepared by Counsel setting out both the factual and legal aspects of the Application and it is provided for the benefit of the Judge hearing the Application to quickly get him/her up to speed with the documentation which has been served. It is vitally important that the Skeleton Argument is prepared properly, as a well prepared skeleton argument will be critical to the extent to which a Judge is brought fully up to speed prior to the application being heard.

Timings of the Application to Vary a Freezing Order

The Application is ordinarily made either:

1. Prior to the Return Date. The Return Date is the date which the Court will set, following the granting of a Without Notice Freezing Order, at which both parties will re-attend Court. This is commonly 7-14 days after the granting of the Without Notice Freezing Order. If the Respondent has sufficient time to prepare a detailed Affidavit seeking to vary the terms of the Freezing Order between service on it of the original Freezing Order and the Return Date, then the Return Date is the sensible time to have any variation application heard.

If however, further time is needed after service of the Freezing Order, it is possible, by consent, for an extension of the Return Date to be agreed between parties to enable the Respondent to prepare the Affidavit evidence required as part of the variation application. This will also enable the parties to list the matter for sufficient time to have that application to vary heard at the Return Date.

2. After the Return Date

Alternatively, even after the Return Date, the Respondent can at any time make an application to vary the terms of a Freezing Order if any of the above grounds arise, for example if the Respondent is unable to pay living, legal or business expenses pursuant to the terms of the original Freezing Order. If this matter cannot be dealt with by consent with the Applicant, then the Respondent is left with no choice but to make a formal application to Court to have the underlying Freezing Order amended.

Other examples leading to an application to vary may include,

Where a Respondent is subject to a Freezing Order but is unclear as to whether a payment from a business account would for any reason be in breach of the terms of a Freezing Order. On occasion, clarity is sought from the Courts on this particular point to avoid a Respondent being in breach of the Freezing Order accidentally and in potential contempt of Court.

Where the Respondents’ assets, for example his family home, are subject to the Freezing Order, but in order to afford or pay his legal representatives the Respondent either needs to sell his property and/or give a Charge in favour of his legal advisors over the property. A variation to the Freezing Order would therefore be required so that the Respondent does not fall foul of the requirements not to deal with or diminish his assets at Court under the terms of the Freezing Order.

Where the Respondent has been loaned money by a family member to pay legal expenses and the Respondent then needs to repay those loans (if substantiated) to the family member pursuant to the terms of the Loan Agreement from the assets which have been “frozen” by the Freezing Order. Again, unless this matter can be dealt with by consent, a formal application will need to be made to the Court for a variation of the underlying Freezing Order.

Other considerations to take in to account when varying a Freezing Order If a Respondent wishes to set-aside a Freezing Order which has been obtained without notice, the right route is that he must apply to the Judge and not, for example, attempt to appeal to the Court of Appeal without having first been to the Court in the first instance. The application must be made promptly if at all possible.

Should you require any further assistance at all in this area of the law, please contact one of our fraud specialists on 020 7841 0390 and we will be happy to have a free consultation with you.

VARYING THE TERMS OF A FREEZING ORDER PART 2

The maximum sum claimed by the Applicant is excessive

In all Freezing Orders, a Respondent’s assets are frozen up to a certain specified limit. This limit normally equates to the quantum of the losses which the Applicant says it has suffered as a result of the Respondent’s actions. However, it is open to a Respondent to apply to reduce the maximum sum if it can be shown that the Applicant has not given a realistic value of the claim, for example by not taking into account any counter claims that might be available to a Respondent.

Variation of any ancillary orders

When granting a Freezing Order, the Court will ordinarily consider making any additional orders that the Applicant may seek – these are commonly known as Ancillary Orders. Such Orders often relate to, for example, disclosure of documents and / or provision of information about assets, details of which must be provided to the Applicant sworn as true and correct in the form of an Affidavit. It is often the case that the deadlines in the Court Order are impossible to meet, due to the volume of documentation to be disclosed, the fact that it may relate to information held in different jurisdictions or, for example, that the documentation is in the possession, custody or control of third parties and may take some time to recover.

In such circumstances, a Respondent needs to explain why a particular deadline cannot be met and provide an alternate deadline within a reasonable time. Ideally, if it is open to a Respondent to do so, he should provide partial disclosure of documentation whilst making every effort to comply with full disclosure by any agreed extended deadline.

A Respondent may also wish to vary the terms of the order on the basis that disclosure of documents or information will not be given on the grounds of privilege against self-incrimination. For more details regarding the privilege against self-incrimination, please see our booklet in this series dealing with this particular aspect.

Other common terms which Respondents seek to vary include:

(i) Varying the terms of a Passport Order;

(ii) Requiring the Respondents to deliver up his passport and to not leave jurisdiction;

(iv) The appointment of a Receiver which could cause damage to his existing business.

VARYING THE TERMS OF A FREEZING ORDER PART 1

THE GROUNDS AND PROCEDURE EXPLAINED

In this series of posts, the person or company seeking the Freezing Order is referred to as the Applicant and the person or company subject to the Freezing Order is referred to as the Respondent.

Introduction

Even if there are no grounds to have a Freezing Order discharged (something discussed in other forthcoming posts in this series), there may be legitimate reasons to vary the terms of the Freezing Order. A variation can either be agreed by consent between the parties to the litigation or, alternatively in the event that the Applicant’s solicitors refuse to agree the variation by consent, a Respondent can do so by making an application to court.

Common grounds for seeking the variation of the terms of a Freezing Order include the following:

The Order is oppressive and the Respondent is unable to pay living, legal or business expenses.

A Respondent is always entitled to have sufficient money to pay reasonable living costs and legal or business expenses. It is common for a Respondent to seek an increase in the allowance given in the Order for either living expenses or legal costs.

Commonly, a sum of £500 a week is provided for in the terms of a Freezing Order in respect of living expenses. However, the Respondent will need to assess whether this amount is appropriate for his/her reasonable living expenses and whether or not an increase should be sought. In order to seek a variation of the living allowances figure, it will be necessary to show what the Respondent’s normal expenditure is, by reference to bank statements and / or facility / loan documents etc. Of course, there may be a number of reasons why a Respondent would not want an Applicant having access to such information. However, it is not uncommon for the Respondent to have to provide full details of his/her financial position in accordance with the provision of information sections contained within the usual Freezing Order itself.

Furthermore, if the Freezing Order does not support a proprietary claim to the frozen assets (i.e. specifically targeting the assets - see our booklet titled “Freezing Orders –A Practical Guide” then the Court will normally allow a Respondent to use his assets for ordinary living expenses together with reasonable, legal and business expenses.

However, if the Applicant claims a proprietary right to the frozen assets (i.e. the Applicant claims the rights to a specific asset such as a house purchased with allegedly stolen money), the Court is unlikely to vary the terms of the Freezing Order unless the Respondent can show three things:

(i) There are no other assets available at all;

(ii) He has a good defence to the claim / or a reasonable prospect of success; or

(iii) He is entitled to the funds in question.

It is always sensible to consider all issues relating to an application to vary the term of a Freezing Order at an early stage. The Courts generally do not like it if a Respondent returns to Court more than once to seek to vary the terms of a Freezing Order.

APPLICATIONS TO DISCHARGE A FREEZING ORDER PART 3

The procedure for applying to have a Freezing Order discharged is as follows

If a Respondent wants to apply to discharge a Freezing Order, this is done by way of the following procedure:

(i) Drafting an Application Notice.

(ii) Drafting a detailed Affidavit setting out specifically the grounds upon which the Respondent seeks to rely on in terms of the proposed discharge of the Freezing Order.

(iii) That Application Notice will need to be issued at Court and a date will be given by the Court at which the Application will be heard. It is important when considering the discharge application to ensure that the time estimate is appropriate, as this will ensure that the Respondent obtains sufficient time at Court to have the application heard. Bearing in mind it is likely that the Applicant, when served with an application to discharge the Freezing Order, may itself serve evidence in response and as such, sufficient time must be set aside by the Court to hear the parties’ representations. Otherwise, the Court may be unwilling to deal with the application in too short a time frame and adjourn the hearing for another date, which could be weeks away (with the Freezing Order continuing in the meantime).

(iv) The application and evidence (including documents to be exhibited to the evidence) will then need to be served on the other side. This will undoubtedly lead to further correspondence being exchanged. This will include service on you/your solicitors of their evidence in answer to your application.

As part of the Application to discharge a Freezing Order, the services of a Barrister/Counsel will be required to represent you at the hearing and advise prior to the hearing on strategic matters and additionally any new issues raised by the other side’s evidence in answer. Your solicitors will need to draft a detailed Brief outlining all matters and enclosing all documents to bring Counsel up to speed to assist him/her in their preparations.

(vi) Counsel will prepare what is called a Skeleton Argument which will need to be filed at Court, commonly the day before the hearing. A Skeleton Argument is essentially a document prepared by Counsel setting out both the factual and legal aspects of the Application and it is provided for the benefit of the Judge hearing the Application to quickly get up to speed with the documentation which has been served. It is vitally important that the Skeleton Argument is prepared properly, as a well prepared Skeleton Argument will ensure that a Judge is brought fully up to speed prior to the application being heard.

Timings of the Application to Discharge a Freezing Order

The Application is ordinarily made either:

(i) Prior to the Return Date.

The Return Date is the date which the Court will set following the granting of a Without Notice Freezing Order, at which both parties will re-attend Court. This is commonly 7-14 days after the granting of the Without Notice Freezing Order and is notified to the Respondent. If the Respondent has sufficient time to prepare a detailed Affidavit seeking to discharge the terms of the Freezing Order between service on it of the original Freezing Order and the Return Date, then the Return Date is the sensible time to have any discharge application heard. If however, further time is needed after service of the Freezing Order, it is possible, by consent of both parties, to agree an extension of the Return Date to enable the Respondent to prepare the Affidavit evidence required as part of the discharge application. This will also enable the parties to list the matter for sufficient time to have that application heard at the Return Date.

(ii) After the Return Date Alternatively, even after the Return Date, the Respondent can at any time make an application to discharge the Freezing Order if any of the above grounds arise, for example, it has become clear that the Applicant has not provided full and frank disclosure.

Other considerations when deciding whether to discharge a Freezing Order

If a Respondent wishes to set-aside a Freezing Order which has been obtained Without Notice, the right route is that he must apply to the Judge and not, for example, attempt to appeal to the Court of Appeal without having first been to the Court in the first instance. The application must be made promptly if at all possible. Even if you do not agree with the evidence in support of, or the existence of, a Freezing Order, despite any protests of innocence you may have it is vital that the correct procedure is adopted. Please remember that any breach of a Freezing Order, no matter the reliability of the grounds it was obtained on, is Contempt of Court and could lead to committal to prison.