By Tony Johnson - 21 Jul 2017
Insolvency law is all about recovering assets and
redistributing their value to creditors in an order pre-determined
by the laws of equity, secured creditor rights and priority rights
of unsecured creditors. It is all very well getting a judgment
against a creditor, but the real question is, does that judgment
result in the return to the company of an asset or money equivalent
i.e. it's all about the money.
The High Court Rules allow an application to freeze the disposal
of an asset until a substantive claim is determined by the Court.
This is a vital tool in insolvency law. However, a difficulty is
that an application for a freezing order requires an undertaking as
to damages. An insolvency practitioner will not give a personal
undertaking. A company in liquidation could provide an undertaking
but generally the Court would not be satisfied with that
undertaking if the company was insolvent and had no assets
available to honour the undertaking at a later date.
All is not lost. We have successfully
argued that in circumstances where the company has been stripped of
all its assets and the proceedings are against the accused
perpetrator of the stripping, the Court should accept an
undertaking by the company even if there is no substance behind
it.
Simply, it would be wrong for a person who
stripped assets, to be able to dispose of those assets, because the
denuded company was unable to provide an undertaking to the Court
of any substance.
A freezing order does not determine whether
the substantive claim will ultimately be successful. It does mean
that if a judgment is obtained, the asset (or money equivalent)
will be returned to where it belongs. This is good news for the
general pool of creditors.
Contact Tony Johnson or Alden Ho if you wish
to discuss any of the matters raised in this article.