Litigation | 5 October 2021 3 min read

Freezing Order – Avoid dissipation of assets

Brief Facts on Freezing Order

Winning a litigation is one thing but getting paid can be a different thing. If there is a reasonable risk that the other party may dissipate its own assets to avoid meeting the judgement (i.e. transferring its assets and funds to another party or even overseas), you may consider seeking a freezing order to freeze the other party’s assets and funds until resolution of the dispute.

Freezing order, also known as Mareva Injunction, is a court order to preserve the disputed assets of the ongoing proceedings (Freezing Order). The Freezing Order can restrain a party from dealing with certain assets, e.g. disposing, hiding or removing assets. 

Freezing Orders may be considered in two situations where there is a risk that the removal or disposal of assets will frustrate an existing or prospective judgement or order. 

a

What are covered under a Freezing Order?

In general, all personal and real assets can be frozen. This includes, but is not limited to, the following:

  • Bank accounts; 
  • Real property (land or buildings); 
  • Motor vehicles; 
  • Share portfolios; 
  • Term deposits; and 
  • Valuables.

These assets cannot be sold, leased, mortgaged, or otherwise dealt with unless expressly authorised by the Freezing Orders. The orders do not apply only to assets held or located in Australia, it can include the defendant’s overseas assets.However, the following are excluded from the Freezing Order:

  1. payment of the respondent’s ordinary living expenses;
  2. reasonable legal expenses;
  3. business expenses;
  4. meeting its contractual obligations under a contract entered into before the order was made.

a

How to apply the Freezing Order?

A successful application of Freezing Order in New South Wales requires the applicant to clearly demonstrate that:

  1. there is a good arguable case; and
  2. there is a risk that assets will be dissipated, or that the respondent will abscond.

To avoid ‘tipping off’ the respondent and result in dissipation of its assets, Freezing Orders are heard and made without notice to and present of the respondent.  A freezing order is intrusive and does not provide the respondent with prior notice before the order is issued. This is clearly an attempt to avoid a situation in which the affected party disposes of or removes the assets before the application is heard in court. It is also frequently regarded as a harsh remedy, which is reflected in how the Court exercises its discretion. The courts in Australia have the discretion to make Freezing Orders but they courts are cautious in making them due to the nature of the Freezing Orders (i.e. preventing the respondent from dealing with its own assets).

In order to successfully obtain a Freezing Order, the applicant must demonstrate that:

  1. there is a serious question to be tried (i.e. a reasonable prospect to success); and
  2. on the balance of convenience the Freezing Order does not cause any inconvenience.

(See Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264.)

a

Can I place a Freezing Order against a third party?

A Freezing Order may be granted against a non-party.

a

Can I place a Freezing Order against a party who is outside Australia?

A Freezing Order may be granted on a person who is outside Australia (whether or not the person is domiciled or resident in Australia) if any of the assets to which the order relates are within the jurisdiction of the court.

a

What is the limitation of a Freezing Order?

A Freezing Order does not give the applicant any proprietary rights over the assets or give an application of preference over the creditors of the defendant. A Freezing Order should preserve the liberty for the defendant to apply on short notice to have the order varied or discharged. It also stated that the value of assets covered by the Freezing Order should not exceed the likely maximum amount of the applicant’s claim, including the costs and/or interest and should exclude the dealings by the defendant for legitimate purposes such as living expenses and legal costs.

a

How long can you freeze the assets for?

It depends on the Freezing Order. However, an ex parte Freezing Order (order made without the present of the respondent) generally lasts for a short period of time pending resolution of the matter inside or outside the court.

a

Applying for a Freezing Order is a complicated process and requires significant litigation experience to ensure a favourable result. If you wish to explore further, please do not hesitate to contact us.

Contact us to get more information.

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