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Are assets held by a respondent’s company caught by a freezing injunction?

Author: Nicola Sharp  15 April 2024
2 min read

Freezing orders are a tool to freeze the assets of a respondent, so that the claimant can enforce the judgment, if they are successful.

But sophisticated respondents make attempts to circumvent freezing orders against them by concealing their assets in legal structures, like a company or a trust. By doing so, they are able to make declarations about their assets which are significantly less than the actual position, because the respondent no longer ‘owns’ the assets. The corporate personality of the company owns the assets instead. 

So, where a respondent controls a company which owns assets, there is a problem for freezing injunctions. Freezing the assets of the company, rather than the shares, risks undermining the nature of corporate personality under English law.

Evolving the wording of injunctions

In order to combat this problem, the Courts have developed various forms of wording for freezing injunctions, so that it extends beyond assets to which the respondent has a legal right. Now it can include: “any asset which the respondent has power, directly or indirectly, to dispose of or deal with as if it were his own.” (Admiralty Court Guide, and Commercial Court Guide) A respondent has such a power if a third party (such as a company) holds or controls the assets in accordance with his direct or indirect instructions.

But this creates a tension. Does the wording overstep the mark for which the freezing jurisdiction was designed? The freezing order jurisdiction is intended to prevent the unjustified dissipation of assets against which the claimant might enforce its judgment. The claimant cannot enforce its judgment against a company which is not party to the proceedings.

Control over assets vs reducing the value of the company

“Control” exercised by a company’s owner or director over its assets does not make them his assets, nor does it amount to him dealing with them as if they were his assets. Instead, he has the power to cause the company to make dispositions of its assets, but if he does he does so as agent of the company. 

In Lakatamia Shipping Company v Su [2014] EWCA Civ 636, the court got around this problem by determining that a respondent to a freezing injunction, who procures a transaction which dissipates company’s assets, reduces the value of the company, and therefore renders the respondent in breach of the injunction. The reason being that the respondent would have diminished the value of his own assets; the shares in the company. 

What options are available to the Court?

One option for getting around this problem is to apply the principle in Lakatamia and request that the court makes an order preventing dissipation of assets of a company, as a means of preserving the value of the respondent’s shareholding.  

In a similar vein, the freezing order can ‘cast a wider net’ in some circumstances extend to assets which are susceptible to the respondent’s control. This is possible when sufficient risk is established that the respondent may use its control of assets to reduce the value of assets which are available.

For further reading, these issues were discussed in detail in the recent hearing of Thomas Anthony Civiello & Anor v Erik Brodahl [2024] EWHC 707 (Comm). Grant & Mumford Civil Fraud: Law Practice and Procedure (2018) also has an excellent analysis at [28-107] – [28-125].

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Nicola Sharp

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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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