What is a Freezing Order or Injunction?

Freezing Orders (also called Injunctions) are a legal means of preventing the sale of any assets and are legally enforceable if not adhered to. They are one the most serious things to face any limited company. 

I’ll explain how they work, as well as what options exist for dealing with one if it arises.

What is a Freezing Order?

A freezing order, in the context of UK law, is a court order that temporarily prevents individuals or entities from disposing of or dealing with their assets. This legal measure is typically sought by claimants in litigation who are concerned that the defendant may dissipate their assets to frustrate the enforcement of any future judgment or award made against them.

What’s the Purpose of a Freezing Order?

The purpose of a freezing order is to preserve the assets of an individual or entity during the course of legal proceedings, ensuring that funds or property are available to satisfy any judgment that may be awarded to the claimant.

Essentially, it acts as a safeguard to prevent the defendant from rendering a judgment ineffective by dissipating their assets, either by spending them, moving them out of jurisdiction, or transferring them to third parties, thereby securing the claimant’s position.

How can a Freezing Order Prevent Access to Company Cash and Assets?

A freezing order can prevent access to a company’s cash and assets by imposing strict legal restrictions on how those assets can be used or managed during the period the order is in effect.

Almost any asset may be frozen including company bank accounts, property or land, investments and shares.

1. Freezing Bank Accounts: Stops all transactions, including payments and transfers.
2. Halting Asset Transactions: Prohibits selling, transferring, or altering asset ownership.
3. Limiting Operations: Indirectly affects business activities by restricting access to funds.
4. Enforcing Compliance: Non-compliance can lead to legal penalties, ensuring adherence to the order.

How Can They be Obtained?

The requirements for getting a freezing injunction are as follows:

• Applicant must have a strong case
• There must be a substantive cause of action against the defendant
• There must be a demonstrable risk that assets will be disposed of if the order is not put in place
• It must be ‘just and convenient’ to grant the order – meaning would it cause unnecessary and disproportionate hardship to the defendant or connected third parties

How Long Does a Freezing Order Last?

Freezing orders are generally granted for a period of between 7 and 14 days. After the expiry date, the court convenes again, at which time it may choose to extend the order, discharge it, or continue it until trial.

How Much Does a Freezing Order Cost?

Applicants for a freezing order should be aware that these can be extremely time-consuming in terms of legal costs and the time required of company personnel. Applicants may also be responsible for the costs of third parties such as banks.

As such, the legal costs may be significant and rank as the biggest potential drawback to choosing this course of action.

What are the Consequences of Non-compliance with Freezing Orders?

Non-compliance with a freezing order can lead to serious consequences, including:

1. Contempt of Court: Individuals or directors who fail to adhere to the order may be held in contempt of court, which is a serious offence.
2. Fines: The court may impose substantial fines on those found in breach of the order.
3. Imprisonment: In severe cases, imprisonment can be a consequence for contempt of court arising from non-compliance.
4. Asset Seizure: Assets may be seized to enforce the order or satisfy the claimant’s judgement.
5. Reputational Damage: The company’s reputation can suffer significantly, affecting business relationships and future opportunities.

It’s crucial for directors to ensure strict compliance with the terms of a freezing order to avoid these consequences.