Freezing Orders: an Important Tool in Asset Protection

By |2022-06-28T15:13:08+10:0016-5-22|

Successfully securing a judgment from a Court is no easy feat. So what happens when the defendant has intentionally moved or disposed of its assets, leaving it with nothing to satisfy the judgment? A freezing order may prevent this unfortunate situation.

In this article we explore the Court’s power to make freezing orders.

 What is a freezing order?

A freezing order is a type of interlocutory order that restrains a respondent from dealing with certain assets until the applicant’s Court proceedings are determined.

The purpose of a freezing order is to minimise the risk that a prospective judgment will be wholly or partly unsatisfied, due to a respondent moving assets out of Australia or disposing of them while the proceedings are on foot. This is often a risk when there is evidence that a respondent is likely to deal with its assets in a way to avoid having to satisfy a judgment.

Freezing orders are normally made ‘ex parte’, i.e. without notice to the respondent. This is because, if a respondent is made aware of such an application, it may try to quickly move or otherwise dispose of its assets before the application is heard (the very situation a freezing order is trying to prevent).

A freezing order will usually cease to have effect by order of the Court, if the respondent pays a certain sum into Court (or to an agreed bank account), or provides security in that amount.

 When will the Court make a freezing order?

There is a high threshold to reach to satisfy the Court to make a freezing order, which is reflective of the fact that it’s a drastic remedy. Freezing orders have been described as one of the “law’s two nuclear weapons” (Lord Donaldson in Bank Mellat v Nikpour [1985] FSR 87 (CA) at [92]). For that reason, the Court generally approaches applications for freezing orders with caution.

As a general rule, an applicant needs to establish three things:

  1. a ‘good arguable case’ or ‘sufficiently arguable case’ against the respondent;
  2. a danger that, the applicant (if it’s ultimately successful in its action), will not have its judgment satisfied by reason of the respondent removing, disposing of, or otherwise dealing with its assets in some fashion; and
  3. it’s in the interests of justice that the order be made.

As a practical example, Nicholsons Solicitors recently assisted a client obtain a freezing order, in circumstances where there was evidence of fraud by the defendants, resulting in losses to our client in the sum of $3.5M. The evidence of fraud and dishonesty on the part of the defendants was a factor which favoured the granting of the freezing order, because there was a greater risk that the defendants would deal with their assets in a way which would have frustrated any judgment obtained by our client.

Key takeaway

A freezing order can be a useful tool if there’s a risk that a defendant will try to render a judgment worthless, by moving assets out of the jurisdiction, disposing of them, or dealing with them in a way which diminishes their value.

Plaintiffs should act quickly if there is any chance of this happening, to avoid the unfortunate situation where a judgment is unable to be satisfied.

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