Freeze and put your assets where we can see them! Freezing order application considerations

A freezing order, once granted by the court, stops a legal person – be it a company or individual –  from disposing of or dealing with property, money or other assets in a specific jurisdiction or on a worldwide basis. The typical purpose of a freezing order is to preserve assets until judgment can be obtained and enforced.

In considering whether to grant a freezing order, a court will require strong evidence to justify making one or that there is a real risk of dissipation of assets. This can often be a high bar for applicants, who are often Insolvency Practitioners (“IPs”), to overcome. Thought must be given to several key considerations before issuing a freezing order application.

Cross-undertakings

An applicant is required to promise the court that it will compensate the respondent on an unlimited basis if it is subsequently determined that the applicant was not entitled to the relief granted by the court.

In JSC Mezhdunarodniy Promyshlenniy Bank & Anr v Sergei Viktorovich Pugachev [2015] EWCA Civ 139, Lewis LJ said at [68] that:

“The default position is that an applicant for an interim injunction is required to give an unlimited cross-undertaking in damages. That is regarded as the price for interfering with the defendant’s freedom before he has been found liable for anything. […] There is also another possible exception where the applicant has no personal interest in the litigation and is bringing the action on behalf of others.”

and at [85] that:

[…] if “an applicant for an injunction says that he should not be required to give an unlimited cross-undertaking as the price of that injunction” the burden is on the applicant to show why they should not be required to do so.

IPs must therefore:

• Be aware that they need to be doing more than simply limiting the cross-undertaking to the assets of the insolvent estate
• Consider litigation funding, insurance or seek an indemnity from the creditors and include evidence of this in the application with a view of trying to limit the cross-undertaking
• If unable to procure the above, be able to provide an explanation as to why they are unable to provide an unlimited cross-undertaking
• Consider realistically what they are trying to achieve and what protection they are seeking.

Duty of full and frank disclosure

Applicants are under a common law duty to make full and fair disclosure of all material facts to enable a judge to properly deal with its application. An applicant must also make proper inquiries prior to making the application and the extent of the inquiries will be dependent on the circumstances of the case.

IPs must therefore:

• Carefully consider the content of their evidence to ensure that no material fact has been omitted, intentionally or otherwise
• Declare in their evidence that they have set out all the matters which they believe might have a bearing on the court’s decision, particularly when an ex parte application is made and
• Proactively make further inquiries and update the court on any new material information, even if it is detrimental to the applicant’s application for a freezing order.

Cause of action

Following the decision of The Siskina [1979] AC 210, the long standing position was that the court’s power to grant a freezing order was dependent on the existence of an underlying cause of action and therefore IPs could not bring an application for a freezing order without any such underlying cause of action.

In Convoy Collateral Ltd v Broad Idea International Ltd [2021] UKPC 24, the notion that the court’s power to grant a freezing order was contingent on an underlying cause of action existing was rejected.

The Supreme Court has recently endorsed the “Broad Idea” approach to the cause of action requirement for a freezing order application. In Wolverhampton City Council and others (Respondents) v London Gypsies and Travellers and others (Appellants) [2023] UKSC 47, their Lordships unanimously determined at [43] that:

“There has been a gradual but growing reaction against that reasoning [that an injunction must always be founded on a cause of action] […] culminating in the recent decision in Broad Idea, cited in para 17 above, where the Judicial Committee of the Privy Council rejected such a rigid doctrine and asserted the court’s governance of its own practice. It is now well established that the grant of injunctive relief is not always conditional on the existence of a cause of action.”

Both the clarity provided by this decision and the widening of the scope for bringing a freezing order application, are much welcome developments for IPs. This development allows IPs to bring applications for freezing orders against non-parties – i.e., parties not subject to insolvency proceedings.

Pause for thought

Whilst the recent Supreme Court decision is positive news, IPs would be well-advised to avoid adopting a scattergun approach to making freezing order applications against the respondent and their related parties without good reason. Thought should be given to the need to provide a cross-undertakings to the court, usually on an unlimited basis, and the duty of full and frank disclosure before taking any action, even if action often needs to be taken on an urgent basis with freezing order applications.