Freezing orders – preserving the value of your judgment

insolvency-

Successful litigants may often worry that the cost of running litigation may not be justified when the other party might start disposing of assets in a way which would mean that the judgment would be of little practical value.In those circumstances, the law has developed several tools to assist litigants to avoid such situations, one of which is known as a “freezing order”.

Freezing orders, also known as “Mareva injuctions/orders” or “asset preservation order” is an order the Court may make restraining a party from dealing with certain specified assets (such as disposing of it, or otherwise removing or hiding it). Freezing orders were developed following a decision of the UK Court of Appeal in Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213. The case has subsequently been adopted in Australia in a range of civil court proceedings (including general civil law, insolvency, debt recovery, IP law, building and construction law, and family law proceedings).

In keeping with the preventative nature of the order, an application for a freezing order can be made without notice to the affected party. This, obviously is to avoid the situation where the affected party might move or otherwise dispose of the assets before the application is dealt with by the courts.
The ordinary purpose of a freezing order is to preserve a party’s asset until a judgment to prevent that party from dealing with property in such a way that may frustrating or inhibiting the Court’s process to satisfy a judgment, or otherwise be an abuse of process of the Court. There needs to be a real danger that the property will be disposed of unless a freezing order is made.
Freezing orders made by the District of Supreme Courts of Queensland may preventing another party from removing any assets located in or outside Australia or from disposing of, dealing with or otherwise diminishing the value of those assets (e.g. by damaging them, running them down, or using it as security for loans).

The orders will also usually include a number of exceptions, including dealing with assets in the ordinary and proper course of a business, including paying business expenses properly incurred. However, third parties such as financial institutions may face difficulty that if they are made aware of the freezing order and permit a transaction which is otherwise to be frozen, they may commit a contempt of court. The orders will also only be limited for a particular length of time, and do not continue forever. An affected party can also apply to courts to have the freezing order discharged.

Parties seeking to make a freezing order in Queensland need to be mindful of rule 260A of the Uniform Civil Procedure Rules 1999 and Supreme and District Court Practice Direction 1 of 2007. In particular, they will need to show that the freezing order is necessary to “prevent the frustration or inhibition of the court’s process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partially unsatisfied.” There are a number of points that applicants should be aware of, including the need to pay damages to an affected party if it is later revealed that the freezing order should not have been made.

On an interesting side note to insolvency practitioners, in the context of insolvency proceedings, the Courts have also clarified that freezing orders are not intend to affect priorities in which creditors are to be paid: Iraqi Ministry of Defence v Arcepey Shipping Co. SA (1981) QB 65.

Freezing orders form a useful tool for litigants to stop debtors from spending, hiding or otherwise dealing with assets in court proceedings. While an consideration to make an application must be carefully assessed, in the right circumstances, a freezing order is a strong tool to use against debtors attempting to make themselves “judgment proof”.

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