Injunctions for asset recovery

Providing swift and tactical advice for injunction applications and defence

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Injunctions for asset recovery

Before we bring or defend your injunction for asset recovery or commercial fraud, we assess the risks, consider the tactics and build the evidence. We evaluate your prospects of success, quickly and effectively address key issues, and so minimise your costs.

Injunction application

You apply for an injunction before you issue a commercial fraud or asset recovery claim. Once the court orders an injunction, you must issue a claim.

Injunctions occur early during the dispute resolution process. Unfortunately, most clients have yet to obtain strong evidence to support their injunction. Hence, injunctions are risky because they require:

  • A high burden of proof;
  • Prompt action; and
  • Full and frank disclosures to the court.

Thus, injunction applications require competent legal advice and experienced practitioners. Without that input, the application may fail.

Is an injunction appropriate?

Usually, we only recommend an injunction application if:

  • Your business is in serious and imminent danger;
  • You have a strong claim on the legal merits, an expert can help determine this requirement but an objective viewpoint is crucial;
  • You have compelling evidence.

Scenarios appropriate for an injunction

Common situations where an injunction application is appropriate, include:-

Asset recovery injunctions tactics

The English and Welsh courts recognise that any rights or remedies you obtain at trial won’t be effective, if you wait until the trial completes. Thus, you can apply for an interim injunction to immediately obtain rights or remedies, before the full trial concludes, and before the claim starts. Injunction applications are a powerful tool in the commercial litigator’s armoury.

Interim 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 applicant will suffer greater detriment than the respondent, if:
    • The injunction is not granted;
  • Good reasons why you urgently need an injunction.

The applicant must fully and frankly disclose all facts. This includes facts not to the applicant’s advantage. The applicant must show real motive. The applicant must also undertake to pay damages to the respondent, if it later materialises the injunction should not have been granted.

If your injunction application fails, the consequences are severe.  Your case loses credibility. You embolden the defendant. It’s likely you receive an expensive costs order that includes the defendant’s cost, and, potentially, damages.

The following injunctions: freezing injunctions, search orders and Norwich Pharmacal Orders are not standalone. Often, only a combination of injunctions fully and immediately protects our clients, e.g. a freezing injunction and a search order.

Freezing injunction

A freezing injunction prevents the respondent disposing of assets to which the applicant is entitled, until judgment is obtained or satisfied. It is a common first step in an asset recovery claim.

This order benefits applicants concerned about the respondent’s financial stability. Note, a freezing injunction can apply worldwide if assets are located outside the jurisdiction. Our case analysis shows if the defendant owns assets outside the jurisdiction.

How to obtain a freezing injunction

To obtain the injunction, the applicant must show 4 points:

1 Cause of action

The applicant must have a cause of action that is an underlying or equitable right. This will usually be the applicant’s main claim, once the injunction is granted. Common examples are:

  • Sell assets to avoid payment;
  • Breach of business contract;
  • Breach of duty or a right to acquire certain properties;
  • Assets can be tangible or intangible, i.e.
    • includes intellectual property and confidential information.

2 Good arguable case

A good arguable case means showing the court the main claim has merit, is not frivolous, nor sought for a collateral purpose. We can assess the merits and provide you with an objective viewpoint on chances of success.

3 Assets within the jurisdiction

The respondent must have assets within the jurisdiction. This is usually easy to prove.

Note we first tell you if the claim is worth pursuing, e.g. the costs of recovering the assets plus our likely legal costs. We only apply for a freezing order if the claim is worth pursuing.

4 Risk that assets dissipate

There must be a risk the respondent will dissipate the assets. Usually, we use the respondent’s past conduct to prove this requirement. Otherwise, we use the respondent’s future intentions or suspected negotiations, e.g. to reduce its balance sheet.

The duty to disclose

The applicant must fully and frankly disclose all facts. This includes facts not to the applicant’s advantage. The applicant must show real motive. The applicant must also undertake to pay damages to the respondent, if it later materialises the injunction should not have been granted.

A search order is the most powerful and advantageous injunction. It preserves or obtains evidence that supports the applicant’s claim.

It requires a respondent to permit the applicant’s solicitors to:

  • Enter the respondent’s premises;
  • Search for information and documents;
  • Copy the documents;
  • Retain the documents for the purposes of the applicant’s claim.

This benefits applicants concerned about the respondent’s standing, e.g. the respondent will destroy evidence.

Usually respondents strongly resist search orders. Clearly, respondents don’t want applicants, often competitors, searching their files for evidence to support their claim. To obtain a search order, you must have evidence to support your claim.

How to obtain a search order

To obtain a search order the applicant must show 3 points:

1 Serious & strong case

Applicants must show their case is serious and strong. Nevertheless, courts recognise that applicants might not yet know all facts and grounds of the claim. Thus, courts allow this requirement some flexibility.

2 Potential or actual damage

Applicants must show the respondent’s actions have or could damage their interests. The court maintains an objective viewpoint. It considers if the applicant wants the search order to protect their legitimate interests.

3 Respondent possesses documents or objects

Applications often fail at this hurdle. There must be evidence that the respondent possesses the documents or things that the applicant seeks. Then the applicant must show it’s possible the documents or things will be destroyed by the respondent prior to trial.

Even if documents are stored e.g. on magnetic media, the applicant still must prove the respondent possesses the documents.

Executing search orders

All injunctions must be served on the respondent, whether made on notice or not. Search orders must be personally served. The search is supervised by an appropriate supervising solicitor with sufficient expertise. We handle that process for you.

The service and search must comply with the court’s rules. Otherwise, the applicant risks later having to return any material, found during the search, to the respondent.

Norwich Pharmacal Order: disclosure injunction

A Norwich Pharmacal Order helps identify the appropriate defendant or obtain information to plead a claim. It requires a third party to disclose particular documents or information to the applicant. This order benefits applicants who 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. It can identify an individual or business. In some cases, it is not worth pursuing that individual or business. Another party may be a better target.

Example use of Norwich Pharmacal Order

For instance, an individual living outside the UK receives funds from a UK company director. The director is breaching his fiduciary duties to the company.

This order works even if the funds are sent via multiple intermediaries and offshore companies, which mask the ultimate recipient’s identity. Note banks are often involved, and banks owe a duty of confidentiality.

So, the company has suffered loss. Hence it takes action against the director, requiring the director to disclose the identity of the recipient.

How to obtain a Norwich Pharmacal Order

Unsurprisingly, parties resist disclosing the recipient’s identity. There are four key points to prove:

1 Respondent possesses information

Applicants must show it is likely the respondent has relevant documents or information on the true defendant or recipient. An email can be sufficient proof.

2 Applicant suffered loss

Applicants must convince the court they suffered loss, and their case is strong. Sometimes we advise forensic accountancy to ascertain the loss.

3 Respondent connected to wrongdoing

Applicants must demonstrate the respondent is in some way involved with, or connected to, the wrongdoing. So the respondent has supporting documents or information.

4 Order is necessary

Essentially applicants show the order is necessary, in the interests of justice. Importantly, applicants must not seek the order for an improper purpose, or disguise an ulterior motive.

Disclosure of the application for an injunction

A common question: Is it better to:

  • Apply for an injunction without warning the respondent; or
  • First give notice to the respondent.

Common sense prevails. Usually for a commercial fraud case, it is:

  • Imperative to act rapidly;
  • Without giving the defendant notice;
  • To prevent the respondent dissipating assets.

Giving notice of the interim injunction application

The court frowns upon those who apply for an injunction without notice, yet don’t follow the procedural rules. The letter before action states your position, then demands the party:

  • Desists from the undesired conduct;
  • Hands over materials s/he should not possess; and sometimes
  • Gives binding undertakings as to future conduct.

Finally the letter warns that if you don’t receive a satisfactory answer, you will apply for an injunction.

In some cases, the courts expect you to first write to the party in breach. For example breach of restrictive covenant and sometimes copyright cases.

Notification in advance of the interim injunction application

Nevertheless, despite the risks, it may be appropriate to apply for an injunction without notice, if:

  • Time does not permit the serving of notice; or
  • Giving notice jeopardises the applicant’s entitlement.

Injunctions to recover a director’s assets

Company creditors often seek commercial injunctions to recover assets from a director. We protect UK and overseas director’s personal assets. We defend bankruptcy petitions following a company’s default. It is complex, we know which defence will work.

Often, when a company seeks debt finance, the directors agree to personally guarantee the company’s repayments to the lender. If the company does not repay the debt, the creditor, i.e. the lender, asks the directors to personally repay the debts.

Risks under a guarantee agreement

In such circumstances, directors often sign a guarantee agreement. If the company does not repay the debt, the lenders ask the directors to pay. If the director does not pay, the lender tries to bankrupt the director.

So, if the lender’s claim succeeds, the trustee in bankruptcy for the director gains control of the director’s assets and then sells them. The proceeds repay the creditors i.e. the lender. So if the company defaults on a debt, the directors risk losing their homes.

Director’s assets: we reduce risk

We negotiate the guarantee agreement to fit the circumstances. We like to “ring fence” certain assets from the lender’s reach, e.g. the director’s home. This avoids the worst case scenario.

Good guarantee agreements specify a roadmap for the lender to enforce its debt. For example the lender should exhaust every route to recover the sum from the company, or group companies.

Directors often argue the company can repay the debt in the near future. Hence, granting a bankruptcy order is not equitable.

Injunction application defences

Firstly, you must fully comply with the injunction, even if:

  • You completely disagree;
  • Plan to apply to set it aside.

Most injunction orders incorporate a penal notice. If you breach the injunction, you’ll be imprisoned.

Duration of interim injunctions

Injunction orders are always temporary. Generally they have a fairly rapid return date. On the return date the court decides whether or not to maintain the injunction order. So one option is to await the return date, then present evidence that persuades the court to overturn the order. The applicant will have to apply to the court for the court to set a return date.

The right argument enables your business to trade during the commercial litigation. Your defence depends on whether notice was given.

Notice not given

Here notice was not given, and the court granted the injunction. You believe the injunction is unwarranted and damages your business or legal rights. So, you can apply to have it set aside. This requires an application to the court, which outlines:

1 No notice

Firstly, argue the applicant should have given you notice, before applying for the injunction. Procedural rules were not followed. Clearly, the applicant will resist these challenges. Both parties require expert advice. If successful, the defending party is likely to be entitled to costs.

2 Serious loss

Secondly, argue you will suffer serious loss if the injunction remains in force. Then raise concerns about the applicant’s financial standing. Argue that the applicant cannot deliver on their undertaking, i.e. their promise, to pay damages when they lose the case.

3 Lack of legitimate interest

Finally, show the injunction fails to protect the applicant’s legitimate interests. This might relate to the underlying claim. For example: demonstrate the applicant cannot show a legal or equitable right to your, i.e. the respondent’s, asset.

Notice was given

If the application is made on notice, the respondent can attend the injunction hearing and make submissions. Typical defence arguments include:

1 Injunction inappropriate

Firstly, argue the applicant has alternative protections, so the injunction is inappropriate. If the respondent’s financial position concerns the applicant, then early on the respondent usually pays a sum to the court.

2 Frivolous question

Respondents could argue the question is not serious and the applicant lacks a good arguable case.

3 Failed to provide full and frank disclosure

Respondents also allege the applicant did not provide full and frank disclosure, just disclosure in its favour. Usually respondents try this defence when the applicant is a competitor, who seeks an injunction over the respondent’s business. Essentially, respondents imply an ulterior motive.

4 Respondent will suffer

Finally argue if the court grants the injunction, the respondent suffers greater detriment. Hence the court should preserve the status quo. The “status quo” is the situation  immediately before the injunction application, i.e. before the court ordered the injunction.

Injunction costs

Usually applicants attempt to recover their legal costs from the respondent. Indeed, often the court orders the respondent to pay the applicant’s costs. 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 respondent provides good reasons for defending the injunction application, then both parties are likely responsible for their own costs.

Asset recovery track record

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.