Asset Recovery tool-kit 101 – the Freezing Order

Possibly the greatest weapon in the fraud recovery kit-bag is an urgent order that can freeze assets without any warning.  The High Court may make a freezing order restraining a person from removing any assets located in or outside of New Zealand, or from disposing of, dealing with, or diminishing the value of those assets. 

If they move swiftly enough, victims of fraud with a good case and clear evidence can stop an evasive fraudster in their tracks with what was called, in past times, a “Mareva Injunction”.

However, as with any powerful court remedy, the bar to persuading the Court to grant a freezing order is deliberately set high, and there are some important riders to be borne in mind when applying.

The legal test to be met

Freezing orders may be available where the applicant already has a court judgment against someone, or where the applicant has a good arguable case on a prospective claim yet to be completed. The Court may make a freezing order if satisfied, having regard to all the circumstances, that there is a danger that a judgment (or prospective judgment) will go unsatisfied because the fraudster or another person might abscond from the country, or have the assets removed from New Zealand or sell, dispose of or dilute them.

The court may make a freezing order against a third party even if that person is not a party to any substantive proceeding against the fraudster.

The applicant for a freezing order must file a signed undertaking to comply with any order tolater pay damages, to compensate the respondent for loss sustained in consequence of the freezing order. The undertaking is to the Court and not to the defendant.  It is considered necessary to assure the Court that the defendant can be compensated for loss if it becomes apparent, following a later substantive hearing, that the freezing order was not justified. 

A person can apply to the Court for freezing orders without giving notice to the respondent – and this is usually the case, as the element of surprise is critical if the risk of dodgy disposal of the assets is real. 

However, an application made without noticecarries a heavy burden to fully and frankly disclose to the Court all material facts. These include any possible defences of which the applicant is aware, and any information casting doubt on the applicant's ability to discharge the obligation created by the undertaking as to damages. Otherwise, if the fraudster or respondent then makes application to discharge the freezing order on the grounds of material non-disclosure of some context or key element, the applicant risks a finding there are insufficient grounds to justify continuation of the orders, and adverse costs.

Evidence needs to be carefully and quickly prepared to address:

• The debtor/fraudster’s whereabouts and connection to New Zealand
• The assets (land, cars, bank accounts, whatever) and their location and ownership
• The strength of your good arguable case on the substantive claim
• The overseas flight risk, or risk of sales/diminution in the assets – showing a real risk (not mere suspicion) that even if you win the substantive claim, a court verdict will be frustrated by asset dispersal
• That there is no good reason why the Court should refuse the remedy
• Where a freezing order is made without notice to the respondent, the order must state that it is limited to a particular date, which should be as early as practicable after the freezing order is made. The respondent must be informed that, on the specified date, they will have an opportunity to be heard by the Court. On the specified date, the onus is on the applicant to satisfy the Court that the freeze of the assets should be continued or renewed.

The Court may make freezing orders against a person based upon an outstanding judgmentissued by overseas courts, if the person happens to be in New Zealand, where there is “sufficient prospect” that the judgment will be registered in or enforced by the New Zealand High Court. In that scenario, the applicant must persuade the Court of several elements: sufficient prospect that the overseas court will give judgment in favour of the applicant; that the judgment will be registered in or enforced by the New Zealand Court; there is a real connecting link between the subject matter of the order sought and the territorial jurisdiction of the New Zealand Court; and the freezing order will not be inconsistent with any interim relief granted by the overseas court.

Key things to bear in mind

The freezing order does not create any kind of property interest in goods, nor is it to be used merely to gain a security or to gain preference over other debtors.  The objective is simply to preserve the ‘status quo’ until the Court can get on and hear the full substantive claim without the assets being frittered away or hidden away in the meantime.

Usual accepted practice is that a freezing order will set a maximum sum above which defendants may not deal in their assets, and a date by which it expires. The order must not prohibit the person from dealing with assets in order to pay ordinary living expenses or legal costs to argue over the freezing order, or from disposing of assets in the ordinary course of business.

The respondent is able to apply to the Court to discharge or vary the freezing order, on whatever period of notice to the applicant is considered just. In other words, beware - the other side may react at short notice too, with an urgent application to the Court!

Reacting to fraud: move fast, move decisively, and with specialist help

With a Freezing Order, or any other powerful asset recovery tool, you must move swiftly.  Too often we see firms and individuals, upon discovering fraud, react in ways that are understandable, but actually limit their prospects of recovering – e.g:

• If the fraudster is an employee, a first thought is often to sack the person and call in the employment lawyer who prepared their staff contract.  Managing the employment disciplinary process is very important, but won’t get your money back.
• If accounting irregularities are uncovered, another thought may be to call in the usual accountant or auditor.  Those skills will certainly be needed to prepare the fullness of evidence and regularise the books, but that won’t get your money back either.
• Involving the Police or SFO is important too, but they are not mandated or resourced to prioritisegetting your money back.  When interviewed in the NZ Herald in July 2013, Acting SFO head Simon McArley confirmed that while it had worked with Victim Support and tried to provide more widespread information about finance company collapse cases, the SFO is “helpless” to recover victims’ money.

The single best chance of getting your money back is to immediately engage an expert fraud or asset recovery litigator – together with a specialist forensic accountant.

FraudNet – a global recovery network for fraud victims

FraudNet is a global network of specialist fraud lawyers that was created at the initiative of the International Chamber of Commerce in 2004.  Wilson Harle has been the New Zealand member since then.  

FraudNet’s aim is to identify and recover money, assets and proceeds of crime on behalf of victims.  Members represent victims of fraud, piracy, corruption and commercial crime internationally, and have an excellent track record in successful asset recovery cases – recoveries may be in the billons of dollars.

Fraud and corruption are pervasive, complicated and increasinglycross national boundaries.  Perpetrators take advantage of the difficulties created by jurisdictional borders, different legal systems, and the number of overlapping law enforcement agencies that can become involved.  This makes assetrecovery harder, and what FraudNet seeks to do is redress that balance.

Money moves faster than victims can, unless they have sophisticated assistance, and victims often do not know to whom to turn for help.  Understandably, law enforcement’s focus is the apprehension of fraudsters, putting them out of business and imposing criminal sanctions. 

The FraudNetnetwork allows quick referral to lawyers that are known and trusted in multi-jurisdictional cases.  Specialist legal teams can be managed, with rapid action on an urgent basis if court proceedings are needed around the globe.  A key advantage is beingable to determine where legal proceedings should be initiated, to maximise prospects of success.  

FraudNet has 63 members from 56 countries, each member being a leading practitioner in fraud recovery and asset tracing.  Candidates have to meet strict criteria, and are vetted and interviewed to ensure they have the necessary level of expertise to handle complex specialist fraud cases.Only experts who have in-depth knowledge of fraud investigations, and their domestic legal systems, can offeroptimum advice on recovery options.

A recent example of effective action - banking customer identity theft

Late one Friday evening in July 2013, an Irish bank became aware that large amounts of money had been removed from a customer’s account and transferred to the UK and Hong Kong.  It was obvious to bank compliance staff that those transfers were not authorised payments.

On Saturday morning, the bank called in the Irish FraudNet member, law firm Arthur Cox. During Sunday, various conference calls took place and investigations were pursued into the transaction data. 

On the Monday morning, the bank spoke to the Hong Kong bank that had received the unauthorised payments and, with that bank’s cooperation, later that day instructions were given to obtain an injunction in Hong Kong.  The FraudNet member in Hong Kong (King Wood &Mallesons) was engaged in the late evening and, in the short time available, worked closely and collaboratively with the lawyers in Ireland to put together pertinent and precise information for affidavits, to use in seeking the injunction the following day.  

On the Tuesday an urgent without notice Hong Kong Court application was made, and successfully resulted in a Freezing Order on the monies that had been illegitimately transferred out of Ireland the previous Friday.  The power of a 24/7 specialist network was apparent to all concerned.

http://www.icc-ccs.org/home/fraudnet

Few law firms focus on fraud and asset recovery as a specialist area.  

Wilson Harle, as NZ member of the ICC FraudNet network of expert tracing and asset recovery lawyers, can quickly initiate freezing orders and civil recovery actions, here and overseas.  

Our lawyers are recommended by international directory “Who’s Who Legal” (Law Business Research UK) in the area of Asset Recovery work.