Bank Account Freezing Orders: Advice for company directors

How will a freezing order affect access to company finances and assets?

A freezing order stops access to a company’s money and assets equal to the debt owed to a creditor. It can also be used to prevent higher authorities from disposing of assets. If creditors think a company’s money is in danger, they can request a freezing order to stop directors from selling assets. 

 

What are the freezing orders on business assets?

A freezing order is a temporary step granted by the courts, or in special cases, by the UK Government. Its purpose is to stop a company or person from getting rid of assets like property, vehicles, stock, or money in company bank accounts.

Freezing orders became a significant topic after the Russian invasion of Ukraine in February 2022. This resulted in sanctions and freezing orders placed on UK-based directors and stakeholders linked to Vladimir Putin.

 

Exploring the purpose of freezing order on business assets?

When a limited company is making a profit, its directors and shareholders will focus on what benefits the company, aiming to enhance its profitability. 

Yet, when a company is aware of its insolvency, this mindset must shift. Directors of insolvent companies are legally obligated to set aside their interests and those of fellow shareholders. 

They must act in a manner that prioritises the concerns of the company’s creditors. This involves preserving the company’s value as much as possible, avoiding additional debts, and refraining from removing assets from the business.

If a creditor thinks a company might deliberately get rid of its assets, they can seek a freezing order. This stops directors and shareholders from disposing of or concealing these assets before a court judgment is enforced. Even solvent companies may face freezing orders if a creditor fears the money owed to them is in jeopardy.

A creditor seeking a freezing order, formerly known as a Mareva Injunction, must have a valid reason. They need to present a strong and persuasive case to the courts.

The applicant must also commit to compensating the debtor if it’s later determined that the freezing order was wrongly granted. If a creditor seeks to freeze company assets, it’s improbable they’ve done so casually. Applicants face stringent conditions, risking financial loss if an error occurs.

 

Which assets can be covered under a freezing order?

A freezing order can encompass different asset types, often targeting specific assets or those equivalent to the owed debt’s value. Occasionally, such orders extend to all a company’s assets, including property, land, vehicles, and company shares.

Assets not covered by the injunction can be handled as usual, given the company’s solvency. However, caution is essential to maintain sufficient assets, meeting the value of a ‘maximum sum’ order, at least equal to the claim’s value.

 

How long does it take to make a freezing order?

To secure a freezing order, your creditor needs a valid cause for action and a strong, debatable case supported by solid evidence. 

They might have tried multiple times to collect the owed money. Faced with non-payment or no response, they may be concerned that you will take steps to prevent business asset sales, hindering debt recovery.

A freezing order typically comes just before or concurrently with additional court proceedings. It can be issued either ‘with notice’ or ‘without notice.’ Even with a ‘with notice’ injunction, the time to address the situation is severely restricted, demanding swift action.

 

How are freezing orders imposed under sanctions?

In March 2022, the UK Government initiated sanctions against Russia and prominent Russian individuals residing or holding assets in the UK after Vladimir Putin’s invasion of Ukraine. 

Consequently, the assets of several wealthy Russians in the UK, such as Roman Abramovich, owner of Chelsea FC, were frozen. An asset freeze prohibits any UK citizen or business from engaging with funds or economic resources owned, held, or controlled by the designated person in the UK. 

It also hinders the provision of funds or economic resources to or for the benefit of the designated person.

Additionally, a travel ban was implemented, requiring the designated person to be denied permission to enter or stay in the United Kingdom. This is applicable when the individual is identified as an excluded person under section 8B of the Immigration Act 1971.

 

What If I get a freezing order?

You might have received notice of the application, but a ‘without notice’ freezing order leaves minimal time for preparation. You must adhere to the court’s requirements, which may involve furnishing a comprehensive list of company assets or assembling additional financial information.

You’ll receive notice of a ‘return date’ hearing that you should attend. If more preparation time is required, you can request a later hearing date. During this period, avoid handling the assets in question, as doing so would amount to contempt of court.

Seek professional advice promptly to grasp your obligations. A penal notice on the freezing injunction’s front page indicates potential imprisonment if you engage with the specified assets or disregard court instructions.

 

Do freezing orders lead to company insolvency?

Receiving a freezing order may indicate your company’s overall financial instability, where the debt linked to the order is just one of several unmanageable liabilities.

If this is your situation, urgently seek professional advice. Various restructuring and turnaround strategies exist for such times. A licensed insolvency practitioner can guide you through options and suggest the best course of action moving forward.

 

Read More: 

• My business is making a loss – What are my options
• What is a personal guarantee
• What happens to a Personal Guarantee after bankruptcy
• What is an unenforceable personal guarantee
• What are my options when presented with a High Court Writ

 

How Vanguard Insolvency can help with freezing orders?

Vanguard Insolvency boasts a seasoned team of insolvency experts prepared to assist you. We can guide you on immediate actions and explore long-term options. With 100+ offices nationwide, expert help and confidential advice are easily accessible.