Facing a freezing order, also known as a Mareva injunction, or another type of injunction, can be daunting for any company director or shareholder. These legal measures can significantly restrict your ability to move or manage assets, creating stress and uncertainty.
Understanding the purpose and impact of these orders is crucial, as is knowing how to respond effectively. Such orders are designed to prevent the dissipation of assets before litigation or liquidation, ensuring that creditors’ interests are protected. Seeking professional advice is essential to safeguard your position and comply with legal obligations.
A freezing order, also known as a Mareva injunction, is a powerful legal tool under UK law designed to prevent the dissipation of assets before or during litigation or insolvency proceedings. Originating from the equitable powers of the High Court, these orders are typically sought in cases involving company debt disputes, fraud allegations, or director conduct investigations. They preserve assets until a judgment can be enforced, ensuring that creditors’ interests are protected.
Freezing orders can apply to various assets, including bank accounts, properties, and other valuable holdings. This court-imposed measure is not granted lightly due to its invasive nature. It is often described as one of the legal system’s “nuclear weapons” because of its potential impact on a company’s operations and financial stability.
In essence, freezing orders are serious measures that underscore the court’s commitment to safeguarding creditors’ rights by preventing asset concealment or transfer that could jeopardise potential recoveries. Understanding their implications is crucial for directors and shareholders facing such legal challenges.
When and Why Creditors or Regulators Apply for Freezing Orders
Creditors or regulators apply for freezing orders when there’s a significant risk that a company or its directors might move assets out of reach, potentially jeopardising debt recovery. Common triggers include suspicions of asset hiding, imminent non-payment risks, or ongoing investigations into financial misconduct. These orders protect potential recoveries and ensure assets remain available for creditors.
For instance, HM Revenue & Customs (HMRC) might seek a freezing order to secure tax debts if it suspects a company is attempting to dissipate assets to avoid payment. Similarly, a liquidator could apply for such an order to safeguard funds intended for statutory distributions during insolvency proceedings.
Key reasons for applying for freezing orders include:
Suspicion of Asset Hiding: Evidence suggests a company may conceal assets to evade creditor claims.
Risk of Non-Payment: A credible threat exists that the debtor will not fulfil their financial obligations.
Ongoing Investigations: During investigations into fraud or misconduct, particularly if there’s a risk that assets might be moved out of jurisdiction.
Freezing orders are potent tools that creditors and regulatory bodies use to prevent directors from moving assets beyond reach, ensuring that any future judgments can be effectively enforced.
Impact on Directors and Company Assets
A freezing order is intense and disruptive, but it does not necessarily stop all day-to-day business activity. While the order restricts how assets can be used, most court-issued freezing injunctions include standard carve-outs that still allow essential business transactions to continue in the ordinary and proper course of business. That means many routine payments — such as suppliers, payroll, or utilities — may still be permitted, provided you stay within the order’s limits and keep clear records.
However, the restrictions are still serious. You cannot move or deal with assets outside normal trading without permission, and if the order includes your personal assets, you will have to be cautious about everyday financial activity. For most directors, the uncertainty is the hardest part — which is why getting immediate legal guidance helps you understand what is still allowed so your business can keep functioning safely.
The stakes are high: failing to comply with a freezing order, even unintentionally, can escalate legal and financial risks. Non-compliance might lead to contempt of court charges, which carry severe penalties, including fines or imprisonment. Directors must adhere strictly to the court’s restrictions to avoid these consequences. Operating within these constraints is not an option;, it is a legal obligation that requires immediate attention and action. Seeking expert legal advice is crucial to navigate these challenges effectively and ensure compliance with all court-imposed limitations.
Other Key Injunctions in Company Insolvency
Beyond freezing orders, there are other court measures that can affect a company in financial difficulty — but the terminology is different from what many directors expect. For example, the court can appoint a provisional liquidator after a winding-up petition has been issued. This is not an “injunction” but an order appointing a provisional liquidator to safeguard the company’s assets while the court decides what happens next.
Courts can also issue injunctions in insolvency situations — for example, to restrain a creditor from presenting or advertising a winding-up petition, or to stop someone dealing with assets contrary to existing obligations. These tools are used sparingly, but for a director under pressure, understanding the differences helps you recognise what the court is actually asking for and what powers each type of order gives.
Consequences of Breaching a Court Order
Breaching a freezing order is something the courts take extremely seriously, but the law draws an important distinction: contempt of court normally requires a deliberate breach of the order, not an accidental one. If the court finds a deliberate violation, it can impose strong penalties — including fines or, in the High Court, a prison term of up to two years.
For a director already under pressure, the key is clarity. If you’re unsure whether a payment or transfer is allowed, getting advice first protects you from mistakes and shows the court you are acting in good faith. The safest approach is to stay fully transparent and seek guidance early rather than risk a breach the court might treat as intentional.
Attempting to hide or secretly transfer assets significantly exacerbates the situation. Such actions are viewed as deliberate attempts to undermine the judicial process and can lead to harsher penalties. The courts are vigilant in maintaining the integrity of their orders, and any breach is likely to be met with stringent enforcement measures.
Key risks of breaching a court order include:
Contempt of Court: A criminal offence that can result in fines or imprisonment.
Personal Liability: Directors may be held personally accountable for company debts.
Damaged Legal Standing: Breaches can negatively impact future legal proceedings.
Increased Penalties: Attempting to conceal assets often produces more severe consequences.
Directors must adhere strictly to the terms of any court order and seek professional legal advice immediately if they are uncertain about compliance.
Practical Steps if You’re Served with a Freezing Order or Injunction
If you’re served with a freezing order or injunction, immediate and decisive action is crucial to mitigate potential legal repercussions. Begin by thoroughly reading all terms of the order. Understanding the specifics will help you comply accurately and avoid inadvertent breaches.
Next, seek urgent legal advice. A solicitor experienced in commercial or insolvency law can clarify your obligations and guide you through the order’s complexities. Informing relevant stakeholders, such as accountants and co-directors, ensures everyone knows the restrictions and can act accordingly.
Contacting an insolvency practitioner is also essential. They can assess your company’s financial situation and advise on the best action. This step is vital to safeguard both personal and company interests.
Prompt compliance with the order is non-negotiable to avoid escalated legal consequences. Gather all relevant financial documentation and preserve evidence of compliance to demonstrate good faith before the court. This proactive approach protects your position and reinforces your commitment to adhering to legal requirements.
If your company is facing a freezing order or injunction, our licensed insolvency practitioners and business rescue specialists can explain the implications, outline your legal responsibilities, and help you plan your next steps. Call us free on 0800 074 6757 for confidential expert advice.
Freezing Order & Injunction FAQs
What is the difference between a freezing order and a standard injunction?
A freezing order, also known as a Mareva injunction, prevents a person or company from moving or disposing of assets to ensure they remain available for potential judgment enforcement. In contrast, a standard injunction can compel or restrain various actions, not limited to asset movement, such as prohibiting certain business activities.
Can directors be personally liable for legal costs?
Yes, directors can be personally liable for legal costs if they are found to have acted improperly or in bad faith. If a court deems that a director’s actions led to unnecessary legal proceedings, they may be ordered to cover the associated costs personally.
Can a freezing order be imposed without prior notice?
Yes, freezing orders can be granted without prior notice to the respondent. This is often done to prevent the dissipation of assets before the order takes effect. However, the applicant must provide a complete and frank disclosure of all relevant facts when applying for such an order.
How can you challenge or vary a freezing order?
To challenge or vary a freezing order, you must attend the “return date” hearing, where you can present your case. Grounds for challenge include proving no real risk of asset dissipation or that the applicant failed to disclose material facts. Legal advice is crucial in these situations.
How does a freezing order affect ongoing business transactions?
A freezing order can severely restrict ongoing business transactions by freezing bank accounts and limiting access to funds. While essential expenses may be allowed, any transaction outside the scope of the order requires court approval. This can significantly disrupt normal business operations.
What happens if an injunction is deemed unfair or excessive?
An injunction can be challenged in court if it is considered unfair or excessive. The respondent may argue that the terms are disproportionate or that there was insufficient evidence for their issuance. Successful challenges can lead to the modification or discharge of the injunction.
