A company seeking a freezing injunction cannot expect the court to order a blanket order prohibiting any expenditure by the defendant business, an important ruling has confirmed. The specialist commercial lawyers at Bahamas law firm ParrisWhittaker are specialists in advising on commercial disputes and securing effective freezing orders.
A ruling1 from the UK’s appeal court, which has highly persuasive authority on the courts in The Bahamas, has provided important clarification on what might be excluded from the terms of a worldwide freezing order.
What’s the background?
A €12m transfer from the claimant, a Spanish company, given to a new alcoholic drinks business in Britain – which had no pattern of trading as yet – took place under a purported loan transaction. Shortly after, the claimant removed some directors and appointed new directors to its board, and they disputed the validity of the loan on the basis that one of the former directors did not have authority to enter into the contract.
The claimant sought a worldwide freezing order. An injunction was granted for a fixed period, but the order stated that it did not prohibit the defendant company (D) from dealing with or disposing of any of its assets in the “ordinary and proper course of business”.
At a further hearing, the injunction was extended – but D was barred from carrying on with the drinks business, although the judge was not suggesting the cash would be spend in bad faith. Rather, there was a risk of failure which would leave insufficient assets to satisfy any future judgment.
On appeal, the court had to consider whether D’s pursuit of his business as outlined in its business plan (and a witness statement from the sole director/shareholder), be in the “ordinary and proper course of business”; and if not, should the judge nonetheless have sanctioned dealings and disposals in pursuit of that business?
The Court of Appeal made clear a point of principle, that it will not restrain all conduct which could prejudice a defendant’s ability to satisfy a judgment. In the absence of a proprietary claim, a defendant’s assets belong to him. Furthermore, a freezing order is not intended to give a claimant security for what he alleges to be due to him, rather, the court is concerned with unjustified disposals.
It confirmed the general rule that:
Ordinary living expenses will not be excluded as improper or unjustified, even if it does deplete the defendant’s assets. This will not justify a freezing order, but any freezing order should expressly exempt payment of living expenses.
Expenditure on business need not be regarded as unjustified either
However, specific cases may require specific allowances or exemptions within the terms of a freezing order in the court’s discretion. Here, the court decided to amend the wording making clear that expenditure on D’s new business would be permitted.
The court did not think a business should be prohibited merely because it carries even a substantial degree of risk. To hammer the pint home, the judge said question marks, ‘real risk’, or the fact a business is ‘speculative’ do not provide adequate reasons for preventing trading.
What does this mean?
The ruling underlines the importance for businesses to understand the purpose behind a freezing injunction. It is to restrain unjustified disposals not to restrain all conduct, such as legitimate business pursuits which are pursued in good faith – even if risky.
Nor are freezing orders to be treated by an aggrieved party as a form of ‘security’ for an alleged debt. In circumstances where a freezing order is sought, it is vital to take specialist advice from experienced commercial litigation solicitors so that expectations can be managed while also robustly protecting your interests.
How can we help?
We advise and represent companies and other business clients in all types of disputes, including financial disputes and securing freezing orders. It is important to take early advice from the experts. Contact the experienced commercial disputes lawyers at ParrisWhittaker for strategic assistance and representation.
1Orange Grape Spirit Limited v Nueva [2020] EWCA Civ 999
