What is a freezing order or injunction?

A freezing order prevents a company from selling or otherwise disposing of assets. Also known as a freezing injunction, it’s an order of the court that reflects a serious situation for the company involved.

If you’re worried that your company may be subject to a freezing order or one has already been granted, what does this mean in practice and why have your creditors decided to take this action?

What is a freezing order?

A freezing order is a legal injunction that prevents you from dealing with some or all of your business assets. It represents a serious interim step taken by a creditor, and typically lasts between 7 and 14 days.

The injunction comes into effect as soon as the company is notified, and will be in place for a specified period of time – typically until a court judgment has been made. If you fail to comply with a freezing order and dispose of or sell assets named in the injunction, you’ll be held in serious contempt by the court and could face imprisonment.

Why are freezing injunctions used?

Freezing orders are used by creditors to safeguard a company’s assets and protect the money owed by the debtor. The creditor has to provide evidence that their concerns are valid, have a ‘cause of action’ such as a breach of trust, and demonstrate that serious attempts have been made to enforce their debt.

Applying for a freezing order is a serious move by a creditor. They must swear an affidavit that they’ll pay any damages incurred by the recipient should it later be found that the order shouldn’t have been granted, and also provide evidence of their financial ability to make this payment.

When assessing an application the court will use a ‘balance of convenience’ test, which compares the harm that would be experienced by the company against how the applicant would benefit.

What assets can be included in a freezing order?

Freezing orders incorporate assets such as property, land, vehicles, shares, bank accounts, and investments, and typically cover the value of the claim being made by the creditor. Company directors inform the court of the assets’ location and value, and may be required to disclose other details.

The company isn’t typically informed of the application in these circumstances, as the main aim is to safeguard the assets - this is known as a ‘without notice’ application. You are able to challenge a freezing order, but need to act quickly in seeking professional assistance.

Challenging a freezing order or injunction

A return hearing will be arranged during which you can challenge the freezing order or vary its terms. Arguments against an order could include misrepresentation of the facts by the creditor, for example, or perhaps failure in their duty to provide full and frank disclosure.

If the creditor has taken a long time to apply for an injunction, its necessity could come into question. Similarly, if your company has built and maintained a strong and credible reputation for some time, this may contribute favourably to a challenge.

Every incidence varies, however. The details of individual cases need to be analysed by an expert to establish whether the application was legitimate, and determine whether a challenge is possible.

Begbies Traynor has extensive experience of dealing with freezing orders and injunctions, and can provide professional advice if you’re concerned about your company’s assets being frozen. We’ll make sure you understand all the ramifications, assess your company’s situation, and establish whether you have grounds for a challenge. Please contact one of our partner-led team to arrange a free same-day consultation – we work from a broad network of offices nationwide.