Any steps which transfer assets away to a third party could have a damaging effect on your financial claims. There are of course times when these transactions may be perfectly legitimate, for example the sale of a property or shares in a business in return for a fair value but sometimes these transactions are taking place deliberately to prejudice or hinder your financial claims. If you are concerned that this is happening to you then there are steps that can be taken to protect you:

  • What is a freezing injunction?

    A freezing injunction is a court order which prevents a party from disposing of or dealing with assets, such as property and shares in a business. A freezing injunction is therefore an essential part of your armoury if you are looking to protect assets prior to you obtaining a financial settlement.

  • When would an application for a freezing injunction be made?

    An application for a freezing injunction is made when the court is satisfied that there is a risk that one party may be about to dispose of an asset the effect of which would be to prejudice the other party’s financial claims or prejudice their ability to implement a financial settlement.

    A  freezing injunction can also be sought after a final settlement has been reached to ensure that the court order can be properly implemented.

    In special circumstances, a freezing injunction can be sought in respect of overseas divorce proceedings. In such cases, the applicant will have to show the presence of relevant assets in the English jurisdiction or a sufficient connection between the respondent and the UK before they can proceed.

  • Who is subject to a freezing injunction?

    A freezing injunction will take effect personally against the party subject to it. A freezing injunction may be made against an individual or a third party holding assets on behalf of said individual. Bank or trustees are examples of possible third parties.

  • When will the court grant a freezing injunction?

    The court has a wide discretion to grant a freezing injunction but will do so only when it considers that such action is just and convenient. For such an injunction be granted, the following conditions must be met:

    • The English court must have jurisdiction;
    • The applicant must have a ‘cause of action’ such as a deceit or a breach of trust (a counterclaim will also be sufficient) by the other party;
      The applicant must demonstrate to the court that they have a good, arguable case – however, they do not need to show that the case will definitely succeed, the court will give due consideration to the strength of any defence;
    • There must be sufficient assets in existence to meet the amount of the claim;
    • There must be a real risk that the person in charge of those assets will dispose of or use them up; and
    • The applicant must provide an undertaking to the court to pay any damages to the other party if it is later shown that the injunction should not have been granted

     

    When making its decision, the court will apply what is known as the ‘balance of convenience’ test. All relevant factors will be taken into account and the damage caused to the subject of the injunction will be weighed against the benefit to be gained by the applicant. The applicant’s behaviour will also be considered.

    It is crucial that applicant acts quickly when bringing an application for a freezing injunction. Any delay in applying will make it more difficult to convince the court that the injunction is necessary. Delay also increases the risk that the assets in question will already have been dissipated by the time an injunction can be granted.

Assets Affected By The Freezing Injunction

A freezing injunction can freeze only those assets over which a judgment can be attached. These can include, but are not limited to, money held in bank accounts, land, vehicles, shares and bonds. Assets can also include those held for another party’s benefit, such as assets held in trust. However, it is usually difficult to obtain such an injunction over a beneficiary’s entitlement under a discretionary trust.

A freezing injunction can apply to assets held within England and Wales (a domestic freezing injunction) or to assets outside England and Wales (a worldwide freezing injunction). Also, a court has the ability to grant a worldwide freezing order but limit its effect in certain jurisdictions depending on how co-operative that other jurisdiction is willing to be.

Procedure

An application for a freezing injunction will be decided on by a judge at a court hearing. A freezing injunction application will often be made ‘without notice’ to the other party (without the other party being present at or aware of the hearing). This prevents the respondent becoming aware that their assets might be frozen and dealing with the assets before a freezing injunction can be granted. The applicant should consider in each case whether the risks or urgency merit a ‘without notice’ application.

The application for the freezing injunction must be supported by evidence in the form of an affidavit sworn by the person or organisation seeking the order.

Affidavit

The affidavit must address all the conditions for obtaining a freezing injunction. The affidavit must be accurate and provide all relevant documentation and information.

The affidavit must also explain the reasons for the urgency of the application and the risk that the assets will be dissipated. It must also give evidence of that organisation’s ability to meet the cross-undertaking in damages.

Initially, a freezing injunction sought ‘without notice’ will be granted on an interim basis, and it will last until the ‘return date’. This is when a further hearing takes places at which the respondent(s) will be present. At this hearing, the parties present their arguments as to why the injunction should be continued, varied or set aside.

Duty Of Full and Frank Disclosure: Applications Without Notice

As the respondent is not present at the first hearing, the applicant must disclose all relevant material to the court, even that which may be unfavourable to him or her. This includes matters raised by the other party in correspondence and any relevant defences. The duty of full and frank disclosure is ongoing. Any incorrect information or anything that has been left out and is then discovered must be corrected immediately, even subsequent to the granting of the freezing injunction.

Failing to comply with the obligation of full and frank disclosure may result in the court setting aside the freezing injunction. Even if the lack of disclosure does not change the court’s decision to grant a freezing injunction, the applicant may be ordered to pay compensation for any loss suffered by the other party due to the lack of disclosure. Applicants must be aware that knowingly misleading the court could lead to a criminal charge of perjury.

Breaching A Freezing Injunction

Freezing injunctions must contain a penal notice. If a party is validly served with the freezing injunction, they can be held in contempt of court if they breach its terms. This could result in the person in breach of the freezing injunction being imprisoned, fined or having their assets seized. A knowing and deliberate failure to comply with the terms of a freezing injunction, including any ancillary orders, will be ruled by an English Court as serious contempt.

It should be noted that the applicant has no right to damages against the other party arising from the breach of a freezing injunction.

  • Advantages of freezing injunctions:
    • They preserve assets for enforcement purposes;
    • They assist in asset tracing claims by forcing the party subject to the injunction to disclose the details of its assets;
    • They are a tactically powerful weapon which may lead to faster settlement of an underlying claim; and
    • The injunction process may lead to a resolution of the underlying dispute without the need for a trial, saving time and costs.

     

  • Limitations of freezing injunctions
    • They are draconian orders which the court will not grant lightly; the process can be expensive and the duty of full and frank disclosure can be burdensome on the applicant;
    • The applicant will have to give undertakings to the court to pay costs incurred in complying with the injunction and any damages if it is later shown that the injunction should not have been granted. These undertakings could impose a large liability on the applicant.
    • A freezing injunction does not provide the applicant with any security over assets or priority over those assets ahead of other creditors; and
    • Unless and until the freezing injunction is registered or recognised by a foreign court, it will not be enforceable overseas. Prompt registration in the local courts is therefore important.

     

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