A recent case involving frozen funds held by American Express in the US has highlighted the difficulty of enforcing freezing orders internationally. In this particular instance, Warren Jiear, Head of Piper Alderman’s Insolvency team, was able to use this to assist liquidator, Blair Pleash of Hall Chadwick, to recover substantial funds owing to an insolvent company.

Funds held by American Express Australia, a wholly owned subsidiary of American Express Corporation, (Amex USA), a United States company. Amex USA were subject to a freezing order issued out of Courts in Texas, restraining any financial institution from dealing with the funds. In the application heard on 23 April 2014, orders were made in the Supreme Court of Queensland for the funds to be paid to the company in liquidation.

The claim to funds was made in the face of strident opposition from Receivers in the USA and US Regulatory bodies (the SEC and the CFTC). Despite that opposition, the Liquidator maintained that the funds should rightfully be paid to him for the benefit of all creditors of the company, as the US Receiver was only representing certain groups of creditors. With our assistance orders were ultimately made which saw the funds being paid for the benefit of all creditors of the company.

Background to the case

Investment  Intelligence  Corporation Pty Ltd (in liquidation) (the Company) operated entirely online in a format where the director provided various life and financial coaching webinars and as a part of one aspect of its business, also gave recommendations in relation to companies who would be appropriate to manage investments on behalf of members of the public, trading in the foreign exchange market (FOREX).

Customers of the Company purchased memberships, which allowed them access to the Company’s website for life, business coaching and other tutorials – they are referred to as Members. Once a membership was purchased, Members were introduced to a third party investment platform who could facilitate them investing funds, whereby their investment was to be traded by professional FOREX traders at their discretion (i.e. Members had no control over what trades were done, by whom or in what amount). The minimum investment for those Investors was US$10,000 or £10,000.

Many of the membership subscriptions purchased by Members were paid for using American Express cards. Those payments were processed by Amex USA and at the time of the liquidation, the funds were in a merchant account held by American Express Australia (AMEX Australia) pursuant to terms agreed between AMEX Australia and the Company.

Ultimately, due to what appears to have been a fraud perpetrated in the Netherlands, Investors lost approximately 60% of their investment.

Assets frozen

The Company’s assets were frozen after complaints were made to ASIC in Australia and the SEC/CFTC in the US. As a result of freezing orders obtained by ASIC, the Company’s website was shut down and it was prevented from continuing to trade. The SEC and CFTC obtained the appointment of a receiver in Texas (US Receiver) and freezing orders were also issued in Texas restraining any dealings by any financial institution with funds payable to the Company.

Investigations are currently being undertaken in the UA by the SEC/ CFTC and Australia by ASIC as to alleged fraudulent activity surrounding the platform. There are also criminal proceedings on foot in the Netherlands against third parties in relation to the platform.

Liquidator appointed in Australia

Subsequent to the US Receiver’s appointment, Blair Pleash was appointed Administrator,  and  subsequently Provisional Liquidator and Liquidator of the Company. Following this appointment, ASIC’s freezing order was lifted in Australia in 2013, however a United States freezing order remains in place.

Throughout the course of Mr Pleash’s appointment, he has recovered funds of the Company to distribute to creditors. Similarly, the US Receiver has separately been recovering funds for distribution.

Upon the freezing orders being made by ASIC, AMEX Australia froze their account with the Company. The funds held by AMEX Australia were retained in a merchant account (AMEX Funds). The Liquidator sought to have the AMEX Funds paid into the Company’s liquidation account to be made available for distribution to all creditors.

The US Receiver also argued an entitlement to the AMEX Funds, although did not ever set out the basis of this alleged entitlement. The US Receiver simply alleged that the US Restraining Order prevented distribution of the AMEX Funds without an order from the US Federal Court allowing same. Not unsurprisingly, AMEX Australia and Amex USA sought to not be involved in the dispute - they wanted to avoid being caught between two competing court orders.

Proceedings in the Supreme Court of Queensland

When negotiations failed, the liquidator was left with no option but to apply to the Supreme Court of Queensland for the AMEX Funds to be paid to the Company. AMEX Australia was a Respondent to this proceeding, and a copy of the application and supporting affidavit was provided, a month before the hearing to ASIC; the US Receiver, CFTC and SEC.

Only AMEX Australia appeared at the hearing, with the US Receiver providing written submissions to the Court.

While there was evidence of service of the freezing order on Amex USA, there was no service in Australia on Amex Australia. The Court acknowledged the US Restraining Order, but determined that it was not sufficient to restrain dealings with the monies by Amex Australia.

The Court determined that, given the liquidation is occurring in Australia, AMEX Australia is an Australian Company, and the AMEX Funds were located in Australia, the Supreme Court of Queensland was the appropriate court to determine the matter. The Court acknowledged that the US Receiver, the SEC, the CFTC and ASIC had been provided notice of the application, and determined that it was not necessary for any of those parties to be named as respondents or served formally with the material.

Given the above, the Court found that the Corporations Act powers of the Court and the Liquidator were operative and the US Orders did not operate to oust that jurisdiction Accordingly, the Court ordered that the AMEX Funds comprised part of the property of the Company for the purposes of section 474(1)(a) of the Corporations Act 2001 and that they be paid to the Company.

What the decision tells us

The concerns of Amex Australia and the decision of the Court highlight the difficulties which can face practitioners given the complexity of modern international business transactions. This case is a careful reminder for those involved in disputes between international companies and financial institutions – a freezing order in one jurisdiction does not automatically protect all assets worldwide. This is particularly so when considering entities where parent companies (or their subsidiaries) may be located in different jurisdictions to the entity which may hold the assets you are seeking to protect/ enforce against.