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High Court confirms secured creditor entitled to enforce security over assets subject to a freezing order

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders

03-08-2017

 

High Court confirms secured creditor entitled
to enforce security over assets subject to a
freezing order

Kevin Taylor v Van Dutch Marine Holding Ltd & Ors [2017] EWHC 636 (Ch)

 

Facts of the case

– The Claimant (“C”) obtained judgment against four Defendants for substantial sums and obtained freezing orders against them. TCA Global Master Fund LP (“TCA”) was a secured creditor of the second defendant (“D2”) under a debenture inrelation to a facility agreement. The debenture contained, inter alia, a fixed charge that extended to specified property.

– TCA entered into an agreement with a further party to transfer to it certain assets which were subject to the fixed charge. This would follow the taking of enforcement action by TCA against D2 to recover amounts owed to it. In view of the freezing order, TCA requested that C consent to it enforcing the debenture. C did not agree. TCA therefore applied to court to amend the freezing order to provide that nothing in the order would prevent or restrict it from enforcing any rights it might have pursuant to the facility agreement or debenture.

– C opposed the application on the ground that any variation of the freezing order should be delayed until the true position as to ownership of the assets subject to the fixed charge had been determined.

The decision

– Mann J considered the case of Gangway Ltd v Caledonian Park Investments (Jersey) Limited [2001]2 Lloyds Rep 215 in which a bank applied to vary a freezing order for similar reasons to TCA. In that case, Coleman J observed that the bank “adopted exactly the right course in coming to court to get the order varied so as to permit it to realise its security interest in the properties. But that is the limit of its duty”.

– Mann J disagreed that a secured creditor was under any duty to apply for a variation of a freezing order prior to enforcement of its security. This is because (i) enforcement is not a disposal by the defendant but an exercise of the secured creditor’s own independent rights and (ii) a freezing order generally operates personally against a defendant and does not give security to a creditor or operate so as to affect the genuine rights of third parties over their assets.

– Mann J also held that there was no reason why a dispute as to ownership of the assets subject to the freezing order should prevent TCA from enforcing its rights. If it turned out that D2 did not have title to them, then although TCA would have interfered with the property rights of others, there would nevertheless have been no infringement of the order since no disposal would have been made by the defendants.

Analysis and practical advice

– The judgment is welcome confirmation that in a normal enforcement situation which does not involve anything which could be properly classed as a disposal by the defendant, a secured creditor (such as a mortgagee) does not need to seek a variation of a freezing order.

– However, a third party’s action would be a breach of a freezing order where (i) such action could be said to amount to aiding or abetting a breach of the order by the defendant or (ii) where the third party’s actions properly fall to be treated as acts of the defendant (e.g. where a defendant is able to deal with assets held by a third party as if they were its own).

– In complex cases, it may therefore still be the case that creditors wish to adopt a safety first approach and seek a variation prior to taking any steps in relation to frozen assets. The court in this case indicated that it would be sympathetic to such applications.