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).

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.

ENFORCING A FREEZING ORDER PART 1

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

Freezing Orders generally place very onerous requirements upon a Respondent.Having gone to the time and expense of obtaining a Freezing Order, it is vital for the Applicant to ensure that the Respondent fully complies with the order and does not seek to circumvent it or evade its terms.

By ensuring full compliance with the terms of the Order, the Applicant stands the best chance of making a full recovery if judgement is ultimately awarded in its favour in the substantive proceedings. There is no point obtaining a Freezing Order only to have the Respondent fail to comply properly due to a lack of policing of its terms by the Applicant leading to the requirement to take immediate steps to seek further court orders to remedy the breach by the Respondent.

If an Applicant believes that a Respondent has failed to comply with the terms of aFreezing Order, there are a number of options available to him to assist with the enforcement of the terms of the Order.

Enforcing Freezing orders in England & Wales

1. Contempt of Court Application

The most draconian of all sanctions available to an Applicant is to issue an applicationto have a Respondent committed to prison, or fined, for what is called Contempt ofCourt.

The Court treats these types of applications with particular care, due to the very serious consequences if a finding of contempt is made. However, they are available to the Court in circumstances where a party has breached the terms of a Freezing Order, for example by failing to provide proper disclosure of documents or providing an untruthful or only partially true statement in an affidavit or other document served in compliance with the Freezing Order.

Pre requisites of a committal application

1. For a committal application to succeed, the original Freezing Order must have the appropriately worded Penal Notice on the front of it, explicitly stating that any disobedience of the order by the Respondent will be a contempt of Court, punishable by either imprisonment, a fine or seizure of assets.
2. The original Freezing Order must have been personally served, unless the Court has since made alternative orders in relation to service.

The procedures for making a committal application

1. The Applicant must set out in an Application Notice the full grounds upon which the application for committal is being made. In so doing, the Applicant must set out each and every alleged act of contempt by the Respondent and if known, the date of each and every act of contempt.
2. The application notice also needs to be supported by a detailed Affidavit setting out the above information and exhibiting where necessary, relevant documentation to the statement.
3. The issued application, evidence and supporting documents need to be personally served on the Respondent unless the Court has provided alternative methods for service. In circumstances where the Respondent is a company, it must also be evidenced that the original Freezing Order was served on a director or officer of the company and, if it was, the committal application notice and supporting documentation must also be served on that particular officer ordirector.

Court discretion to make an order for committal

Orders for committal are entirely at the discretion of the Court. It is often the case that a minor breach of an order will not always be treated as Contempt and this is particularly true if compliance of a particular section of the order was impossible (for example, documents not being disclosable as they were in the possession of a third party).

Essentially, in order to commit a person to prison for breach of an Order, it has to be shown that there was a deliberate or wilful breach of the Order and this has to be established beyond reasonable doubt as it is in effect a criminal standard of proof which needs to be shown.

What actions or omission might give rise to a committal application?

Applications of this nature often arise following the failure of a Respondent to properly comply with the disclosure requirements of Freezing Order, especially in respect of a Respondent’s personal assets.

If a Respondent is seeking to conceal the truth in relation to his assets and swears an Affidavit which is only partially true or has a clear and obvious omission in it, this can provide legitimate grounds for an Applicant to make an application for committal.

Often, on a practical level, following the initial granting of a Freezing Order, the Applicant will continue making further enquiries with regard to the alleged wrongdoing which might also involve further analysis of the Respondents assets. It is often during those further enquiries that an Applicant can catch a Respondent out by discovering further information which the Respondent has failed to disclose in his disclosure Affidavits. This commonly comes about after work by forensic accountants who will examine banking records which can often reveal details of account names and numbers which the Respondent has failed to disclose.

A typical further instance which may give rise to a committal application is the disposal of assets by a Respondent in breach of the Freezing Order. It is not uncommon for assets to be disposed of before the Respondent has complied with his obligation to disclose his assets.