Obtaining a freezing injunction over a dishonest party’s assets can help to maximise your chances of bringing a successful recovery action against them. But, what do you need in order to obtain an injunction and what are the risks involved?
A freezing injunction is a court order which prohibits a defendant from disposing of or dealing with his assets (up to value of your claim) until the claim against him is resolved at trial or by earlier settlement. An injunction can therefore be a particularly valuable strategic tool if you suspect that a party you’re pursuing for a recovery is likely to dispose of his assets in order to defeat any judgment you get against him.
Freezing injunctions are not available in every recovery action. In order to obtain one, you’ll have to demonstrate to the court (among other things) that:
- you have a “good arguable” case against the party you’re pursuing;
- the party has assets that would be available for execution; and
- there is evidence of a real risk that the party may dissipate his assets in order to defeat the enforcement of an eventual judgment against him.
It is the last of these tests which is often the most difficult to satisfy. Evidence of dishonesty is not (in itself) enough to pass the test. However, it will often be a very significant factor in favour of granting a freezing injunction – particularly if you can demonstrate to the court that the party you’re pursuing has a history of misusing assets in the past and/or has taken steps to try and cover up his dishonest actions.
There can be enormous benefits to obtaining a freezing injunction if you have the grounds to do so. In particular, obtaining an injunction not only preserves assets that might otherwise be put out of your reach, it will also require the defendant to provide you with full details of all of his assets and where they’re situated. In many cases, obtaining an injunction also leads to an early offer of settlement from the defendant.
Intentional breach of an injunction is also a contempt of court. Consequently, the court has the power to fine or imprison the defendant (or seize his assets) if he breaches the injunction’s terms. The same applies to any third party who knowingly assists the defendant to breach the terms of the freezing injunction in any way.
All of that said, it’s also worth bearing the following points in mind when considering whether or not to make an application to the court for a freezing injunction:
- While a freezing injunction prevents the defendant from disposing his assets, it does not give you security over them. Consequently, if other creditors obtain judgment before you, they can enforce against the frozen assets.
- Obtaining an injunction can be an expensive process and it is always worth making enquiries first in order to ascertain (as far as you can) whether the defendant has sufficient assets to make an application worthwhile.
- The party applying is also under an onerous duty of “full and frank disclosure” which can lead to the injunction being set aside if it is breached. An unlimited undertaking also has to be given to the court to compensate the defendant if your recovery action fails or the injunction is later set aside.
Delaying too long can also be fatal to an application, so it’s always worth evaluating an early stage of your recovery process whether you may have grounds for making an application and, if so, whether this is route that you want to pursue.