A freezing order is an interim measure granted by a court to prevent a person or business from being able to dispose of or deal with their assets prior to any judgment being enforced. These orders are wide-reaching, with the power to restrain all types of assets, including bank accounts, shares, property, land and investments, representing powerful tools for creditors looking to protect assets for recovery to repay substantial debts. Orders can be obtained in respect of assets in England and Wales, as well as assets outside of the jurisdiction under a worldwide freezing order (WFO).
Given that parties should ordinarily be able to deal freely with their own assets, the courts will not grant freezing orders without good reason. The evidential and legal burden on an applicant seeking this type of injunctive relief is therefore extremely high, not least on a without notice basis as is commonly the case so as to not give the respondent any opportunity to remove or hide its assets. Equally, once a freezing order is in place, the court will carefully consider whether to continue the protection afforded by that order at the return hearing. It’s all a matter of the court’s discretion.
In the recent decision of Madison Pacific Trust Ltd v Groza and another [2024] EWHC 267 (Comm), in which the High Court refused the respondent’s application to discharge a WFO, Jacobs J set out a useful reminder of the legal principles underpinning the exercise of the court’s discretion to grant freezing orders, including the relevance of any existing security available to the applicant.
On the facts of Madison v Groza, the respondents accepted that there was a good arguable case on the merits of the arbitration debt claim being pursued against them under two deeds of suretyship, this being the first requirement for the making of a freezing order. However, they argued that 1) there was no real risk of dissipation of assets, and 2) that it was not "just and convenient" to make or continue the WFO because the applicant already held a comprehensive package of security involving various pledges, guarantees and other securities in support of the outstanding loans.
In relation to the risk of dissipation, each case is fact specific, where relevant factors must be looked at cumulatively. In the context of Madison v Groza, even absent any allegations of fraud in the arbitration claim, where issues of dishonesty may be of relevance to a risk of dissipation, there was still said to be a real risk of an unjustified disposal of assets. This was based upon a number of actual and attempted transfers of assets following the commencement of enforcement action.
In relation to whether it is "just and convenient" to make or continue a freezing order, once a court has decided that there is a good arguable case on the merits, and that there is a real risk of dissipation of assets, this will usually lead without much difficulty to the conclusion that it is just and convenient to grant the injunction. However, there may occasionally be a specific factor, such as one which has not previously been considered by the court in the context of arguments on good arguable case or risk of dissipation, which falls for consideration in the context of justice and convenience. On the facts of Madison, this specific factor was said to be the existence of security arrangements which, according to the respondents meant that the applicant was significantly over-secured, with the value of the package exceeding the value of the loan facility several times over.
Mr Justice Jacobs accepted, in principle, that there’s no limit to the factors that may sway the court when considering what is just and convenient. He also accepted that the existence of a security package available to a party seeking a WFO may be relevant to the exercise of the court's discretion. However, this carried no weight in the circumstances of the case before him. In particular, the fact that the respondents were fiercely resisting the steps which had already been taken to enforce the securities was found to be key here. It is therefore only in cases where there is no dispute as to a claimant's entitlement to enforce a valuable security that this factor is likely to weigh against the grant of an order — a scenario in which a claimant is unlikely to seek a WFO in any event.
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The matters contained within this article are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.
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Before acting on any of the information contained herein, expert advice should always be sought.