Key takeaways

A freezing injunction is a powerful order that a court can make against a prospective defendant in court proceedings. This order can require the defendant to stop dealing with their assets in England and Wales or abroad. This order’s aim is to prevent the defendant from spending or hiding their assets and ensure that they have enough money to pay under any prospective judgment.

Such restrictions can be placed on any overseas company in respect of its assets in the English jurisdiction or abroad and seriously disrupt their operations. To make a successful application for this order, an applicant overseas company would need to prove that it has a good arguable case against the respondent, there are assets that would satisfy its judgment, there is a serious risk of dissipation of these assets, and it would be just and convenient to issue that order.

What is a freezing injunction?

Complex cross-border commercial disputes can last for years. During this time, a defendant may dispose of their assets or transfer them to a different entity to conceal their ownership. This can severely undermine the ability of the claimant to recover the money awarded to it in a prospective favourable judgment. Freezing injunctions are aimed at preventing such situations.

A freezing injunction is a type of an interim court order. It is used before trial to prevent a party from dealing or disposing of assets. Therefore, this measure can ensure that the defendant to a claim does not spend or hide their assets and is able to pay under a subsequent judgment.

A claimant can apply for such an injunction to the court before filing a claim. In the proceedings determining whether an injunction should be issued, the claimant is called the applicant, and the defendant, whose assets are requested to be restricted, is called the respondent.

A freezing injunction can seriously disrupt the respondent's financial and economic activities and business. As such, overseas businesses which are either pursuing a claim or defending against one should be aware of the existence of this powerful tool.

Generally, there are two types of freezing injunctions: a domestic injunction and a Worldwide Freezing Order, or WFO for short.

What is a domestic freezing injunction?

A domestic freezing injunction is an interim court order that prevents a respondent from dealing with assets located within the English jurisdiction. It is used where the applicant is concerned that the respondent may dispose of, transfer or hide assets in England and Wales before judgment. The aim is to preserve assets so that any future judgment is not rendered ineffective.

What is a worldwide freezing order?

A worldwide freezing order, or WFO, is a freezing injunction that restricts a respondent from dealing with assets outside England and Wales.

The underlying test is the same as for a domestic freezing injunction. However, because a WFO can restrict assets abroad and may affect business operations in multiple jurisdictions, the courts will usually require more cogent evidence that the order is proportionate and justified.

Read our recent article on worldwide freezing orders and when the English courts will stop assets moving for a more detailed discussion of WFOs.

How to obtain a freezing injunction

A freezing injunction can be obtained through an application to the High Court and, in limited circumstances, the County Court. The courts will grant a freezing injunction if the applicant can prove the following elements:

1. The applicant has a good arguable case against the respondent;

2. There are grounds for believing that the respondent has assets that would satisfy the judgment;

3. There is a real risk that a judgment would go unsatisfied because the respondent disposed of their assets unless the court restricts them from doing so;

4. It would be just and convenient in all the circumstances to grant the freezing injunction.

While there is no time limit on an application for a freezing injunction, it must be made as soon as practicable. Any unreasonable delay may be used as evidence that there is no real risk of dissipation, since the respondent did not dissipate their assets during the period of delay.

Freezing injunction applications: what is a good arguable case?

An applicant must show that they have a good arguable case to successfully apply for a freezing injunction. A good arguable case is defined as a claim which has a real chance of success on its facts and merits.

The court will limit its determination to a preliminary question of whether the case is arguable. It will not seek to conduct a ‘mini-trial’ and determine whether the claim would be successful in civil court on the balance of probabilities.

Rather, this test is aimed at ensuring that the applicant’s claim can potentially succeed and justify the very severe restrictions put on the respondent by the freezing injunction.

Read our article on breach of contract claims and remedies for related discussion of claims, remedies and litigation strategy in commercial disputes.

Freezing injunction applications: how do you show the respondent has assets?

The applicant must also prove that there are grounds for believing that the respondent has assets which would satisfy a prospective judgment. This is not a high threshold for proving the existence of the assets, and evidence of payments or contracts under which the respondent would have been paid can be used to prove the existence of assets.

It is even possible that a freezing injunction can survive a winding up or bankruptcy order as long as its purpose is to preserve assets held by the administrator or liquidator for the defendant or the creditors. However, an order will only restrict assets of a company in liquidation and administration under exceptional circumstances.

Freezing injunction applications: how do you show the risk of dissipation?

An applicant must also demonstrate that there is a real risk of dissipation of the assets claimed. They must show that there is an objective risk that the respondent will spend or transfer their assets outside of the course of their regular business to avoid paying under a judgment in favour of the applicant. The risk must be sufficient to justify the imposition of such a burdensome measure as a freezing injunction.

The courts will look at evidence of the respondent’s past conduct and current financial circumstances to determine whether there is a real risk of dissipation. Evidence of the respondent previously disposing of their assets without justification, failing to follow court orders, committing fraud, not paying to their counterparties, can indicate higher risks of dissipation. Additionally, financial troubles and prevalence of highly liquid assets can also point towards a finding of a real risk of dissipation.

Read our article on preserving English assets pending foreign shareholder proceedings for related analysis of interim relief and asset preservation in cross-border disputes.

Freezing injunction applications: Just and Convenient requirements

The final requirement is that a freezing injunction must be granted only if it is just and convenient to do so in all the circumstances.

This test leaves the court with very wide discretion to balance the interests of the applicant, the respondent, and any third party that might be affected by a freezing injunction. The main question is whether the applicant’s interest in preserving the assets justify the severe restrictions imposed on the respondent and any third parties dealing with them.

The applicant’s legitimate interest is considered with reference to the strength of their case and the risk of dissipation. The higher their chance of success and likelihood of dissipation are, the more likely the court is to find that a freezing injunction is appropriate. Additionally, high effectiveness of a proposed injunction and timely submission of an application will sway the courts in favour of granting an order. For example, if a respondent is likely to go insolvent from the restriction on dealing with assets, the court may consider the measure to be counterproductive and refuse to grant an injunction.

This will be balanced against the hardship imposed by the injunction on the respondent and third parties. If the court finds it likely that the respondent’s business will suffer serious and irreversible losses and frustrate its obligations to third parties, the applicant’s case will need to be stronger to counteract that.

Once the court has evaluated the interests of all parties, it will decide if the applicant’s interests outweigh those of the respondent’s and third parties. If that is the case and the applicant has proven other elements, an order will be ordinarily granted.

Without notice freezing injunctions

In cases of exceptional urgency, a claimant may apply for a freezing injunction without giving notice to the respondent. Because the respondent cannot represent themselves, the applicant must disclose all material facts and make proper inquiries into the circumstances of the case to enable a fair hearing of the application given that the respondent will be absent. In addition to that, the applicant may be required to promise to compensate the respondent for any losses suffered as a result of an order that was granted without proper basis.

How can an overseas business defend against a freezing injunction?

A respondent can defend against a freezing injunction by showing that one or more of the conditions for granting one is not met.

Commonly, respondents seek to justify past conduct indicative of a risk of dissipation by reference to legitimate business operations to defeat a claim that there is a real risk of dissipation.

Additionally, a respondent may show that the applicant’s claim is weak or that their business will suffer losses which are disproportionate to the applicant’s interest in securing money for a prospective judgment.

What are the consequences of breaching a freezing injunction?

Once a freezing injunction has been ordered by the court, the respondent must comply with its terms and cease dealing with the restricted assets. If a party on which this order has been placed breaches one of its terms, it can be held criminally liable for contempt of court by the courts.

In this case, the respondent can face serious financial penalties, asset seizure, and even imprisonment. Therefore, it is very important for a business affected by a freezing injunction to ensure compliance with its terms.

This will likely include identifying the scope of the order, placing corresponding restrictions company-wide, circulating the need to restrict to financial officers of the company, and disclosing all affected assets to the other party.

Read our article on enforcing arbitration awards with final charging orders for related discussion of asset restraint, judgment enforcement and security for judgment debts.

What should parties do when preparing for a freezing injunction application?

If an application for a freezing order is necessary for an overseas company, collate all available evidence to prove that imposition of an order would be just and convenient. Consider propriety of making a without notice application. Ensure that the application is made as soon as possible, keeping in mind the need to properly prepare the application before submitting it to court.

If an overseas company is responding to an application, oppose an application for a freezing injunction by showing evidence of legitimate past operations, pointing out weaknesses in the applicant’s case, and emphasising the serious losses the company will experience as a result of the injunction.

If your overseas company is considering taking legal action against another party and wishes to secure enforcement of any subsequent judgment, or has been recently notified that it is a respondent to an application for a freezing order, our team of qualified commercial litigation solicitors and barristers based in London with extensive experience in commercial litigation is here to help.

Contact Yulia Barnes and the Barnes Law litigation team to explore available options based on your circumstances.

This article is not a substitute for formal legal advice, which will vary according to your specific circumstances.