Understanding Freezing Orders for Company Directors

Freezing orders are used to prevent assets being removed or disposed of by a debtor, and can be granted at any stage of legal proceedings against the recipient. The person applying must provide compelling reasons why a freezing order is needed, and also undertake to pay compensation should it later be proven that the court order should not have been made. 

It is a form of injunction, originally known as a Mareva Injunction, and is often delivered with no advance warning, which makes the situation extremely difficult for a debtor. Domestic freezing orders are applicable to England and Wales, with worldwide freezing orders being issued globally.

This is a powerful way to collect a debt, but requires strict criteria to be met by the applicant who also needs to deliver a compelling argument to the court in favour of it being granted.

A freezing order prevents insolvent companies from selling assets under their market value which would limit the amount left in the company for outstanding creditors.

Which assets will be frozen?

Any type of asset could be the subject of a freezing order, including land, property, vehicles, company shares and bank accounts. Although a company’s entire assets could be frozen, it is more often the case that a ‘maximum sum order’ is granted by the courts.

This means that assets not identified by the order may be dealt with in the normal course of business, but it is imperative that the company retains assets at least to the value of the maximum sum stated to remain compliant with the injunction.

Responding to a freezing order with and without notice

With notice
Court process involves an initial hearing to decide whether a freezing order should be granted. A ‘with notice’ order means that you can be present at the hearing, and offers a better opportunity to have it set aside, but only if you act quickly to obtain professional advice.

Begbies Traynor can provide professional guidance on what to do next. You may have ongoing liabilities to meet, but are restricted by the potential of a freezing order being made. In cases such as this, an application to vary the order may be possible so that you can deal with your upcoming payments.

Without notice
If an application is made ‘without notice’ the applicant must provide the court with a compelling argument that such an injunction is necessary. Timing is clearly a crucial part of the process from their point of view if they feel that assets may be removed, but they must also undertake to pay damages if it is later found to have been an unnecessary action.

When no notice has been given, the initial hearing would have granted an interim order and you will receive notice of the ‘return date’ on which a second hearing will be held. The nature of this process means that you only have a few days to act, but you must comply with court instructions and not attempt to move or otherwise deal with company assets.

What else can you do?

• If the freezing order includes all company assets and you are in a position to ‘ringfence’ some of them to cover the amount of the claim, you may be able to release the remaining assets and continue trading. 
• The court may have requested further financial information or a detailed list of all assets, in which case you will need to gather this together quickly in preparation for the hearing.
• In some cases, the application should never have been made, and the recipient is able to prove the debt has already been cleared, or that the claimant has made an error.
• It may be possible to have the return hearing moved to a later date if you need more time to gather evidence, or obtain the information requested by the court.

Non-compliance

Non-compliance with a freezing order is regarded as contempt of court, and carries with it severe penalties. Hefty fines are likely to be imposed, or assets seized, if you ignore court instructions; company directors have even received prison sentences in the past for failing to comply.

These rules also apply to anyone who helps in removing or concealing the assets in question. The front page of the injunction carries a penal notice as such, so anyone likely to become involved in dealing with company assets should be informed that you have received it.

Begbies Traynor can advise on what to do if your company’s assets are frozen, and offer a same-day meeting so that action can be taken quickly.