What is a Freezing Order or Injunction?
A freezing order may be of the most serious things to face any limited company.
Although they can be presented to both individuals and companies, for the purposes of this article we will be exploring the impact of a freezing injunction on a company.
Freezing Orders (also called Injunctions) are a legal means of preventing the sale of any assets and are legally enforceable if not adhered to.
Generally, the injunction is put in place for a period of time preceding a court judgement.
What’s the Purpose of a Freezing Order?
If a creditor feels concerned that a company may wish to sell or dispose of assets rather than pay what is due, they may apply to the court for a freezing order.
The Courts do not grant these lightly, of course, as they interfere with the basic right of any individual or company to sell their assets as they see fit.
What Can Be Frozen?
Almost any asset may be frozen including company bank accounts, property or land, investments and shares.
Freezing Orders do not prevent individuals or companies from borrowing money and, should they do so after the order is in place, any money borrowed has not historically been classed as an asset.
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
Freezing Injunction Form and Requirements
In order to obtain the injunction, you will need the following forms, best prepared with the support of your legal advisor
- Application Notice
- A Draft setting out the terms of the Freezing Order
- Ancillary Orders (sometimes needed) which may include an order for cross-examination, delivery of passport, an order for a Company receiver etc.
Any application should consider exactly what ancillary orders may support their request in order to give them the strongest case.
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.
Because these are obtained before a trial, the applicant should also be aware that injunctions are only granted if the applicant assumes what is called a cross undertaking in damages, meaning they will compensate the defendant for any losses if it turns out the injunction was wrongly obtained.
As such, the legal costs may be significant and rank as the biggest potential drawback to choosing this course of action.