Injunctions for asset recovery
- Alex Kleanthous
- Updated: Fri, 3rd Mar 2017
The idea of a court injunction for asset recovery is either exciting or alarming depending upon where you sit. Asset recovery does include freezing bank accounts. However, before proceeding you need to assess the risks with an injunction for asset recovery, consider the tactics and build the evidence.
We evaluate the prospects of success for you.
Injunctions for asset recovery and freezing asset expertise includes:
Injunctions for asset recovery – will you obtain an injunction?
An injunction for asset recovery is usually appropriate if there is a risk that the defending party may be unable to satisfy any court judgment. Included within the armoury of possible injunction applications is an application for an asset freezing order which can be very powerful as we explain.
Common situations where an injunction for asset recovery may be granted
Common situations where you may obtain an injunction to recover assets or put a freeze on assets includes:-
- Where there is a risk that a defending party will dispose of assets;
- The freezing of a director’s assets under a personal guarantee;
- Where an individual or a company may dispose of evidence;
- In shareholder disputes, where an individual is misusing the company bank account;
- The theft of partnership or company assets;
- A franchisee or agent setting up in competition and utilising franchisor’s/principal’s assets;
- Cases of financial difficulty – a fairly common ground for applying for an asset freezing injunction.
This list is not exhaustive.
Injunctions to recover assets – the hurdles
Court injunctions often avert lengthy and expensive litigation. Nevertheless, injunction applications are a high risk tactic, because courts require:
- A strong legal case;
- On a balance of convenience, the claiming party will suffer greater detriment than the other side, if:
- The injunction is not granted;
- Good reasons why you urgently need an injunction.
The claimant must fully and frankly disclose all facts. This includes facts which are known but which may not necessarily be to the claiming party’s advantage.
Asset freezing orders
An asset freezing order is sought when there is risk over the other side’s financial stability. A freezing injunction can apply to worldwide assets. We have access to an international network of professionals and experts who can assist in foreign jurisdictions.
Evidence needed to obtain an asset freezing injunction
To obtain an injunction placing a freeze on any asset such as bank accounts, property or shares, the claiming party must show four points:
- A good arguable case – does the claim have merit? We provide an objective viewpoint.
- The defending party has assets – and those assets have a realisable monetary value. We undertake a due diligence exercise for you.
- A risk that the assets will be interfered with in some way to avoid the consequences of successful litigation. For example, seeing an asset advertised for sale would amount to more than suspicion. This can be capable of satisfying the court’s requirement on this point.
Injunctions to secure a search order
A search order is the most powerful and advantageous injunction. A search order is used to preserve or obtain evidence to support the underlying claim. A search order can be used as a tool to determine whether a freezing order is required.
With a search order you can:
- Enter premises, and access files and computers;
- Search for information and documents;
- Copy the documents;
- Retain the documents for the purposes of the claim.
If a party has suspicion that the other party will conceal or destroy evidence, then a search order is suitable.
How to obtain a search order
The claiming party has to show:
- A strong case – this is more than just a good arguable case. The courts allow flexibility.
- Potential for damage – on the basis that the other party will destroy documents relating to the claim.
- Possession – strong evidence that the defending party actually has the documents in its possession. A right to control the documents may also suffice.
Documents on electronic storage devices fall within the court’s powers.
Forcing a party to disclose information
A Norwich Pharmacal Order “NPO” helps gather together information needed to establish a case. An NPO requires someone not involved directly in the case to disclose particular documents or information. This order benefits you if you don’t know the defendant’s location, or the source of the wrong, but a third party does.
We tell you if an NPO is worthwhile in your case.
Letter before action
You will be criticised and face being ordered to pay some or all of the other side’s legal fees if you apply for an injunction before having sent a letter before action. The letter before action states your position and sets out what you are seeking. For example, the letter before action can ask for:
- The immediate cessation of the undesired conduct;
- The handover of materials s/he should not possess; and sometimes
- Binding undertakings as to future conduct.
The letter before action warns that if you don’t receive a satisfactory answer, you will apply for an injunction.
In some cases, the letter before action stage can be skipped without risk of being ordered to pay the other side’s legal fees. This is where the threat is immediate and or the ongoing conduct is particularly damaging or sensitive. Often a judgement call is needed and we will debate this with you.
Defending court injunctions relating to asset recovery and freezing orders
If an injunction is obtained without notice (i.e. without your knowledge) firstly you must fully comply with the injunction, even if:
- You completely disagree; or
- Plan to apply to set it aside.
Most injunction orders incorporate a penal notice. If you breach the injunction, you can be imprisoned. If an injunction is obtained without notice, then the court will fix a return day. At the return day, the court will consider whether the injunction should remain in force pending the underlying claim’s trial.
Injunctions for asset recovery – lines of defence to explore
The exact defence will depend upon the circumstances. But, common defences to an application for a court injunction include:
- Serious loss – if the injunction is granted, the defending party will be unable to trade.
- Collateral purpose – the claiming party’s real motive is to diminish the defending party’s business, and not to protect its own.
- The basis of claim – the claiming party does not have a good arguable case for the underlying claim.
- Procedures – the claiming party did not disclose all material facts and documents.
We review the papers and the facts. We then tell you which defence(s) to run.
Legal fees for injunction applications
Usually, claiming parties attempt to recover their legal costs from the other side. Legal costs do have to be reasonable and proportionate, and that requirement should not be overlooked. If it is, then it can work to your detriment.
However, costs may be reserved, i.e. dealt with at the end of the main claim. If the losing party provides good reasons for bringing or defending the injunction application, then both parties are likely responsible for their own costs.
Court injunctions – successful cases for asset recovery and freezing orders
Many clients lack huge budgets for this type of legal work. We first conduct a cost/benefit analysis. Then we clearly state your prospect of success. We identify the key points to address on an injunction application, e.g. if the assets will materialise any value. Often we identify alternative solutions to manage costs.
Recent instructions include:
- Freezing injunction over £10m of assets:
- In the name of a director suspected of pocketing commission fees.
- Search order for an overseas bank claiming return of funds:
- The bank advanced funds to a UK resident private investor who fraudulently deceived the bank.
- Resisted a search order application for a silicon valley technology company:
- It was alleged our client undervalued assets it sold on the onset of insolvency, to avoid paying creditors.
- Disclosure of identity order that revealed the names of individuals based in Switzerland:
- They were suspected of receiving laundered funds through an intermediary subsidiary company. The subsidiary owed funds to our client, a provider of bridging loans. The individuals became parties to the proceedings.
Alex Kleanthous is the partner charged with running the dispute litigation team. Please do not hesitate to get in touch with us if we can be of assistance.
With over 15 years of experience in litigation and commercial disputes, I know what works and what won't. Why not call or email me now to arrange an informal discussion.....