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Criminal restraint order no bar to a worldwide freezing order

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

08-10-2020

London Capital & Finance and others v Thomson and others [2020] EWHC 2490 (Ch)

Facts of the Case

 

  • London Capital Finance (“LCF”) (now in administration) sold mini bonds to investors. It collapsed in March 2019, owing approximately £276m to bondholders.
  • The Administrators of LCF identified significant discrepancies in the books of LCF, as well as a series of suspicious transactions by which four employees (the “Respondents”) three of whom were directors of LCF, or companies connected with LCF, had directly or indirectly received bondholder money totalling approximately £20m. The Administrators of LCF and other claimants (together, the “Claimants”) successfully applied for worldwide freezing orders (“WFOs”) against the Respondents.
  • In addition, the Respondents were also the subject of criminal restraint orders (“CROs”) obtained by the Serious Fraud Office (“SFO”) under the Proceeds of Crime Act 2002 in the context of related criminal proceedings.
  • This briefing focuses on an application by the third and fourth Respondents to discharge the WFOs, on the basis that there was no real risk of dissipation because they were unable to dissipate the relevant assets as a result of the CROs.

 

The Decision

  • Meade J found that, as a matter of principle, a CRO does not stand in the way of a grant of a WFO.
  • Further: (i) while he accepted that a CRO may be “so watertight and so cogent” that it removes the need for a WFO, Meade J considered that in practice this would be “very unlikely at best” and (ii) on the facts of this case, that there was a real risk of dissipation such as to justify the continuation of the WFOs against the Respondents.

Analysis and Practical Advice

  • Meade J’ decision is consistent with previous authorities on the interplay between WFOs and CROs (see Cancer Research UK Ltd v Morris [2018] EWHC 2678; HMRC v Ben Nevis Holdings [2012] EWHC 1807 Ch; Faya v Butt [2010] EWHC 3461 Ch), and his decision is a reflection of the fact that:
    • The Claimants had no control over the CFOs since they were obtained (i) by a different party (the SFO), (ii) for that party’s own purposes and (iii) in the context of proceedings to which the Claimants were not joined.
    • Accordingly, were the Claimants to have to rely on the CROs to protect their position, they would be left vulnerable to a future change of mind by the SFO or the court, which might result in the discharge or variation of the CROs to the Claimant’s detriment.
    • For example, the SFO might unknowingly agree to permit dealings by the Respondents in assets subject to the CROs which might affect or undermine the position of the Claimants, and which would have been prevented by a WFO.
    • Further: (i) the Claimants may have no, or only insufficient, notice of any such discharge or variation, and therefore be unable to apply in time for a WFO; and (ii) any attempt to address this by way of notice arrangements directly with the SFO, would be vulnerable to failure whether, for example, as a result of oversight or circumstances where it is not feasible to give sufficient notice.
  • This case is therefore a reminder that respondents will face a very significant uphill struggle to persuade the court that, where there is otherwise a risk of dissipation, that this is satisfactorily addressed by the presence of a CRO obtained by another party in related proceedings.

 

 

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