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Freeze those assets

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.


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