What is a freezing order?
The purpose of a freezing order is to preserve the defendant's assets until judgment can be enforced. It operates by granting an injunction prohibiting the defendant (or anyone on his behalf) from disposing of identified assets. Legally, it does not operate as security over the assets.
Taylor v Van Dutch Marine Holding Ltd
In Taylor v Van Dutch Marine Holding Ltd, four defendants were held to be jointly and severally liable for a bridging loan for US$2.5 million. The bridging lender obtained a freezing order against assets of all four defendants to prevent dissipation of their assets. However, the assets were already subject to a debenture in favour of a third party secured creditor.
The debenture holder sought the bridging lender's consent to the enforcement of its debenture. The bridging lender refused because it thought it might have an interest in the same assets.
The critical issue in this case was whether the secured debenture holder required a variation to the freezing injunction in order to enforce its pre-existing security over the frozen assets.
Judgment
The Judge held that the secured creditor did not need to vary the freezing order and that enforcement of security was not a breach of the injunction in the freezing order.
The Judge explained that, so long as enforcement does not involve any step that could be classed as a disposal by the defendant, is not collusive and does not amount to aiding and abetting a breach of the freezing order, then a secured creditor is not required to have the freezing order varied before enforcing its rights to security.
Thus, the ability of the secured creditor to exercise its security would not be restricted by the freezing injunction. This would still be the case if the disposal was made by a receiver appointed by the secured creditor, even though a receiver will normally act as agent of the chargor.
The Judge determined that the bridging lender was seeking to use the freezing order as a form of security over the assets, which it was not entitled to do.
Key considerations
This High Court decision reaches a contrary conclusion to the previous High Court decision in Gangway Ltd v Caledonian Park Investments (Jersey) Limited [2001] which suggested that secured creditors ought to apply to vary the freezing order before enforcing their security – the Judge considered that this was a misinterpretation of an earlier comment by Lord Denning in Normid Housing Association Ltd v Ralphs and Mansell [1982].
This decision will bring welcome clarity to secured lenders who have traditionally taken a cautious approach by varying a freezing order before enforcing or appointing receivers.