Scope of a freezing order and assets owned by a company in which defendant has shares

http://www.bailii.org/ew/cases/EWCA/Civ/2014/636.html

The claimant obtained a worldwide freezing order against the defendant. It was in the “narrow” form i.e. it covered the defendant’s assets (whether or not held in the defendant’s name or jointly owned), which included assets which he had the power to dispose of, or deal with, as if they were his own (and the defendant is regarded as having that power “if a third party holds or controls the asset in accordance with his direct or indirect instructions”. However, the order did not include an additional reference to assets of which the defendant had legal but not beneficial ownership (known as the “Commercial Court words”). The issue in this case was whether the freezing order covered the assets of three non-defendant companies of which the defendant is the 100% shareholder and director.

At first instance, Burton J held that the defendant did effectively control, and indirectly own, the companies. Furthermore, if the defendant allowed the companies to sell their assets, he is in turn diminishing the value of his own asset (namely, his shareholding in the companies).

The Court of Appeal has now dismissed the appeal from that decision. However, in so doing, it held that the assets of the companies did not fall within the scope of the freezing order (and the judge had erred in that finding). As Rix LJ put it: “the upshot is that the language to be found there [in the terms of the order] is not sufficient without more to cover assets of a company in which a director or shareholder of that company does not have a beneficial interest, even if the director is a sole director or the shareholder is a 100% shareholder”. Instead, the assets of the companies were “covered” by the order “because dealing with them has the potential to diminish the value of the shareholdings”.

COMMENT: The Court of Appeal referred to the case of Group Seven v Allied Investment (see Weekly Update 23/13) to support its finding that the freezing order did not cover assets owned by a non-defendant company. However, this decision contrasts with that case, where the sole owner and shareholder of a company was held not to have breached a freezing order against him when he settled a debt owed to the company by a third party at an undervalue (despite it being arguable that that too had diminished the value of his shareholding).