Articles

Key takeaways

• Freezing orders are used in fraud cases to preserve assets and prevent a person or company from hiding or disposing of them.
• They are used to ensure there are assets or funds available to satisfy any judgment the court ultimately imposes.
• They can be used by victims of fraud to gain a strategic advantage and pressure the other party to settle early.
• If you have been served with a freezing order, you should speak to a specialist fraud lawyer immediately as there may be exceptions which can be used to access frozen assets or funds.

Freezing orders are regularly used in fraud cases to prevent a person from hiding or disposing of their assets. They are often applied for and granted without notice to the person or company whose assets are being frozen.

If you are seeking to impose a freezing order, or you have been served one, you will need professional legal advice and representation. It is important you speak to a specialist fraud lawyer as soon as possible.

What is a Freezing Order?

A freezing order, otherwise known as a Mareva order, is a type of injunction that preserves a person’s assets. It is a temporary court order that prevents a person or company from selling, moving, hiding, or diminishing their assets while a legal dispute is ongoing.

The purpose of a freezing order is to make sure there are sufficient assets or funds available to satisfy any potential judgment. Freezing orders can apply to assets both within Australia and outside of Australia.

It is used regularly in fraud cases where it is alleged the assets were obtained from the proceeds of a fraud. The reasoning behind the orders is that the law prohibits people from profiting from illegal means. The order had its genesis in the decision of Mareva Compania Naviera SA v International Bulkcarriers SA
The Mareva [1980] 1 All ER 213.

Rule 25.11 of the UCPR The principles governing “freezing orders” are contained under rule 25.11 of the UCPR:

1. The court may make an order upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the court’s process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied.
2. A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets. 

Who can apply for Freezing Orders?

The following parties can apply for a freezing order:

1. The party claiming to be the victim;
2. Australian Securities and Investment Commission (ASIC); and
3. A Crime Commission.

How to apply for a Freezing Order?

You can apply a freezing order by making an ex parte application to the Supreme Court. You will need to provide evidence as to why you believe the respondent’s assets should be frozen. This is often done without notice to the respondent to prevent them from dealing with the assets or money laundering before the orders are made.

You must prove the following to obtain a freezing order:

1. Good, arguable case: You must have a good arguable case against the respondent, meaning it must be ‘one which is more than barely capable of serious argument, and yet not necessarily one which the judge believes would have a better than 50 per cent chance of success’ (Ninemia Maritime Corp v Trave GmbH & Co KG [1984] 1 All ER 398 at 404). In other words, you must raise a fairly arguable point. You must provide evidence through affidavits;
2. Real risk of dissipation: You need to prove that there is a real risk of the respondent concealing, disposing of, or removing its assets from the jurisdiction. A real risk means one that is more than suspicion. You must provide evidence to support this, usually through affidavits.
3. Fair and appropriate: You must prove to the Court that the freezing order is fair and appropriate in the circumstances, balancing the rights of both parties. An order might be seen as unfair if the amount of the alleged fraud is significantly less than the value of assets you are seeking to freeze.
4. Proportionality: The order must be limited to the value of the claim (including interest and legal costs). You must provide evidence to justify the amount sought.
5. Duty of disclosure: If the freezing order is sought on ex parte basis (ie. without notice to the respondent), you must provide the Court with full and frank disclosure, including potential defences the respondent may have and any material facts which do not assist your case.
6. Undertaking as to damages: You must provide an undertaking as to damages to compensate the respondent for any loss they suffer if the freezing order is later found to have been improperly granted. These undertakings can extend to minimising the impact on the respondent’s legitimate business or personal needs.
7. Exceptions for reasonable expenses: The freezing order will need exceptions for the respondent’s reasonable living, legal, and business expenses.
8. Procedural fairness: The respondent must be allowed to apply to vary or discharge the order. This will usually occur at a court listing a few days after the freezing order is granted.

If a freezing order is made, the respondent will be prevented from using their assets. You will then be required to serve copies of the orders to banks so that the respondent cannot access and use their accounts or credit cards. 

Advantages of Freezing Orders

Freezing orders are often used in fraud cases to:

• put pressure on respondents to settle the matter early, thereby saving time and cost;
• ensure that any judgment can be satisfied by ensuring the respondent has sufficient assets to pay any damages that the Court orders;
• regulators, boards, and stakeholders may need to see that you or your company are taking action to prevent fraud.

What Assets Are Frozen?

Generally, all assets are frozen, including:

• Funds in bank accounts;
• Term deposits;
• Share portfolios;
• Real property;
• Valuables;
• Motor vehicles.

These assets cannot be sold, mortgaged, leased or otherwise dealt with unless the orders allow an exemption for this. 

The orders apply to assets within Australia and overseas. This is necessary to address situations where the respondent is involved in transnational business activities.

Additionally, freezing orders can freeze the assets of third parties. This may occur in situations where the third party, such as a spouse, has possession or control of the defendant’s assets.

How Long Do Freezing Orders Last?

Freezing orders have an expiry date which is usually a few days. The case will be listed at court for the respondent to appear and the court will decide whether the expiry date will be extended or the freezing orders revoked.

If the orders are extended, they will last as long as the case proceeds. This can be years if the matter continues for that period of time.

Freezing orders against third parties

Freezing orders can extend to third parties if:

• a third party controls assets beneficially owned by the respondent;
• a third party conceals assets which may be beneficially owned by the respondent;
• the third party’s assets were obtained from the fraud. This is most common where you are able to trace the assets of a third party back to the fraud.

Freezing orders against third parties are granted where assets are transferred to family members, trusts or companies to hide the proceeds of fraud.

Can I spend money when my Assets are frozen?

Freezing orders will allow you to access assets as long as they are for legitimate purposes. For example:

1. Reasonable ordinary living expenses: You can access assets to afford your living expenses such as groceries and loan repayments. The order will prescribe a set amount that you can withdraw per week. If the amount is not enough, you can negotiate it.
2. Business costs: If you own a business, you can withdraw funds to meet the costs incurred in the ordinary and proper course of your business.
3. Contractual obligations: You can withdraw funds to meet any reasonable and legal contractual obligation you had before the order was made.

Further, you can make an application to the Supreme Court to vary the orders to increase the amount of money you are allowed to use.

How to Challenge a Freezing Order?

You can challenge a freezing order if you prove one of the following:

1. You can pay the entire amount it is alleged you took;
2. The claim is not strong enough to justify the orders; or
3. The applicant did not fully or frankly disclose information to the court.

Further, if the proceedings can be settled, the freezing order will be revoked.

Will I Be Prosecuted?

Typically no. A freezing order is a civil order where there is a different standard of proof than criminal proceedings. Further, not all freezing orders are sought due to criminal conduct. 

Despite this, if there is an allegation you have committed any criminal act, you will not have the benefit of the right to silence in civil proceedings. A leading criminal lawyer should be retained to advise you on how to apply for an exemption or a certificate against self-incrimination.

Breach of Freezing Orders

If a person breaches a freezing order, the Court will charge the person with contempt of Court. Penalties for contempt of Court include fines, sequestration of assets, and imprisonment.

If you believe there has been a breach of freezing orders, you will need to raise it with the Court, and the Presiding Judge will consider whether there has been a breach and the appropriate penalty.

Freezing order example

An example of the content required in a freezing order made ex parte (ie. without notice) is set out below:

No. of 20

Federal Court of Australia
District Registry: [State]
Division: [Division]

[Name of First Applicant] [if 2 or more add “and another” or “and others”]

Applicant[s]

[Name of First Respondent] [if 2 or more add “and another” or “and others”]

Respondent[s]

PENAL NOTICE

TO: [name of person against whom the order is made]

IF YOU (BEING THE PERSON BOUND BY THIS ORDER):

(A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR

(B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU NOT TO DO,

YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT.

ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED.

TO: [name of person against whom the order is made]

This is a ‘freezing order‘ made against you on [insert date] by Justice [insert name of Judge] at a hearing without notice to you after the Court was given the undertakings set out in Schedule A to this order and after the Court read the affidavits listed in Schedule B to this order^[2].

The Court orders:

Introduction

(1) (a) The application for this order is made returnable immediately.

(b) The time for service of the application, supporting affidavits and originating process is abridged and service is to be effected by [insert time and date]^[3].

(2) Subject to the next paragraph, this order has effect up to and including [insert date] (the Return Date). On the Return Date at [insert time] am/pm there will be a further hearing in respect of this order before Justice [insert name of Judge]^[4].

(3) Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified.

(4) In this order:

(a) ‘applicant’, if there is more than one applicant, includes all the applicants;

(b) ‘you’, where there is more than one of you, includes all of you and includes you if you are a corporation;

(c) ‘third party’ means a person other than you and the applicant;

(d) ‘unencumbered value’ means value free of mortgages, charges, liens or other encumbrances.

(5) (a) If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions.

(b) If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way.

Freezing of assets

[For order limited to assets in Australia]

(6) (a) You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia (‘Australian assets’) up to the unencumbered value of AUD$[ ] (‘the Relevant Amount’).

(b) If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount.

[If the Court makes a worldwide order, the following additional paragraph (c) also applies.]

(c) If the unencumbered value of your Australian assets is less than the Relevant Amount, and you have assets outside Australia (‘ex-Australian assets’):

(i) You must not dispose of, deal with or diminish the value of any of your Australian assets and ex-Australian assets up to the unencumbered value of your Australian and ex-Australian assets of the Relevant Amount; and

(ii) You may dispose of, deal with or diminish the value of any of your ex-Australian assets, so long as the unencumbered value of your Australian assets and ex-Australian assets still exceeds the Relevant Amount.

[For either form of order]

(7) For the purposes of this order,

(1) your assets include:

(i) all your assets, whether or not they are in your name and whether they are solely or co-owned;

(ii) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and

(iii) the following assets in particular:

(A) the property known as [title/address] or, if it has been sold, the net proceeds of the sale;

(B) the assets of your business [known as [name]] [carried on at [address]] or, if any or all of the assets have been sold, the net proceeds of the sale ; and

(C) any money in account [numbered account number] [in the name of] at [name of bank and name and address of branch].

(2) the value of your assets is the value of the interest you have individually in your assets.

Provision of information^[5]

(8) Subject to paragraph 9, you must:

(a) at or before the further hearing on the Return Date (or within such further time as the Court may allow) to the best of your ability inform the applicant in writing of all your assets in [Australia] [world-wide], giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets;

(b) within [ ] working days after being served with this order, swear and serve on the applicant an affidavit setting out the above information.

(9) (a) This paragraph (9) applies if you are not a corporation and you wish to object to complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that you:

(i) have committed an offence against or arising under an Australian law or a law of a foreign country; or

(ii) are liable to a civil penalty.

(b) This paragraph (9) also applies if you are a corporation and all of the persons who are able to comply with paragraph 8 on your behalf and with whom you have been able to communicate, wish to object to your complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that they respectively:

(i) have committed an offence against or arising under an Australian law or a law of a foreign country; or

(ii) are liable to a civil penalty.

(c) You must:

(i) disclose so much of the information required to be disclosed to which no objection is taken; and

(ii) prepare an affidavit containing so much of the information required to be disclosed to which objection is taken, and deliver it to the Court in a sealed envelope; and

(iii) file and serve on each other party a separate affidavit setting out the basis of the objection.

Exceptions to this order

(10) This order does not prohibit you from:

(a) paying [up to $……………… a week/day on] [your ordinary] living expenses;

(b) paying [$…………………on] [your reasonable] legal expenses;

(c) dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and

(d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation.

(11) You and the applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the applicant or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the applicant and you, and the Court may order that the exceptions are varied accordingly.

(12) (a) This order will cease to have effect if you:

(i) pay the sum of $[………..] into Court; or

(ii) pay that sum into a joint bank account in the name of your lawyer and the lawyer for the applicant as agreed in writing between them; or

(iii) provide security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court.

(b) Any such payment and any such security will not provide the applicant with any priority over your other creditors in the event of your insolvency.

(c) If this order ceases to have effect pursuant 12(a) above, you must as soon as practicable file with the Court and serve on the applicant notice of that fact.

Costs

(13) The costs of this application are reserved to the Court hearing the application on the Return Date.

Persons other than the applicant and respondent

(14) Set off by banks

This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order.

(15) Bank withdrawals by the respondent

No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order.

[For world-wide order]

(16) Persons outside Australia

(a) Except as provided in subparagraph (b) below, the terms of this order do not affect or concern anyone outside Australia.

(b) The terms of this order will affect the following persons outside Australia:

(i) you and your directors, officers, employees and agents (except banks and financial institutions);

(ii) any person (including a bank or financial institution) who:

(A) is subject to the jurisdiction of this Court; and

(B) has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and

(C) is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience of the terms of this order; and

(iii) any other person (including a bank of financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that person’s assets.

[For world-wide order]

(17) Assets located outside Australia

Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party’s application, reasonable written notice of the making of the application is given to the applicant.