Account Freezing Order Guide For Company Directors
Find out how a freezing order works in this guide and learn about the options for business recovery after a creditor has blocked access to the company’s cash or assets.
What is a freezing order exactly? Courts may grant a freezing order after a successful application from a creditor to deny directors access to their company’s cash or assets of an equivalent value to the debt.
In special cases, the government can also impose a freezing order. The most prominent recent example of this involved the UK government issuing freezing orders on assets after the invasion of Ukraine by Russia, totaling £22.7bn as of October 2023.
It is a preventative, interim measure intended to stop any individual from potentially exchanging company cash or assets below market value or in an unrecoverable way.
Solvent companies can receive freezing orders if a creditor successfully claims that money they are due is at risk. But for insolvent businesses, an account freezing order adds a further complication to already challenging circumstances.
The previous name for a freezing order was a Mareva injunction, referring to a 1975 court case. Before this time, such powers were very limited in English law.
In this article we’ll explore the different types of freezing orders – with or without notice – and explain the implications for insolvent businesses aiming to recover.
With and without notice freezing orders
We’ll focus on scenarios involving creditors seeking freezing orders against businesses in debt to them.
The two main types of freezing orders are:
- With notice: The creditor seeking repayment has made their intentions clear and initiated a court process. Representatives of the business in debt can go to the initial hearing where the court decides whether to grant the freezing order.
- Without notice: The business in debt to the creditor does not receive notice that the creditor is seeking the freezing order. In this scenario, the creditor needs to compellingly claim that there is a risk of asset disposal. If the creditor is proven incorrect at a later date, they may have to pay damages. If the court grants an interim freezing order at the creditor’s hearing, the business in debt receives a formal ‘return date’ for a second hearing, usually with little warning.
Even if the freezing order is ‘with notice’, there may still not be much time for the business in debt to prepare.
Freezing orders and company insolvency
Freezing orders are preventative measures relevant to company director duties and insolvency. Once a company becomes insolvent, directors’ duties shift from maximising profits to protecting creditor interests, by protecting and securing company assets.
Creditors with reason to believe that individuals may negatively impact the financial health of the company, in a breach of director fiduciary duties, may seek a freezing order.
Ultimately if the company enters liquidation, by freezing assets, this measure would help to preserve the amount of funds available to distribute among creditors.
No matter the circumstances, a successful freezing order is an additional restriction on and challenge for an insolvent business.
In some cases, the company may have grounds to challenge it. Potential reasons for challenging the order at a court hearing, with or without much notice, could include directors at the insolvent business successfully claiming that the creditor has:
- Misrepresented the situation or excluded critical information
- Failed to establish a clear risk of asset disposal, or similar arguments
But whether successful in challenging it or not, a freezing order is just one knock-on effect of a wider issue for insolvent businesses. We recommend that any company that cannot pay its debts when they fall due contacts an experienced insolvency practitioner without delay.
If an insolvency practitioner sees a way to rescue the company, a company voluntary arrangement (CVA) could save the business. This measure lets a company continue to trade while paying back creditor debts using a structured agreement, while improving cash flow and easing creditor pressure.
Alternatively, if business recovery is not possible, a creditors’ voluntary liquidation (CVL) is a much more appealing option than compulsory closure. In a CVL, the insolvency practitioner turns business assets into cash, with the aim of repaying creditors.
Final thoughts: Frozen accounts and validation orders
Frozen bank accounts are also one common consequence of receiving a winding up petition – find out more about this in our detailed guide.
Once a bank discovers that a court has issued a winding up petition, it will often freeze the business bank account of the company in debt. Receiving a winding up petition requires a quick response, with the business’ survival under significant threat.
So when a company is insolvent and ideally before, directors should seek advice urgently to prevent as many consequences as possible, such as a potential freezing order.
The team at Hudson Weir are both businesspeople and highly qualified insolvency practitioners.
To find out more about how we help businesses, or more information about the implications of receiving a freezing order, please do not hesitate to get in touch with us.
