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Supreme Court closes freezing order loan loophole, holding that increasing indebtedness will constitute dealing with an “asset”

  • United Kingdom
  • Commercial litigation
  • Fraud and financial crime


In its judgment on 21 October 2015 in JSC BTA Bank v Ablyazov [2015] UKSC 64, the Supreme Court unanimously decided that a respondent is prevented, under the terms of the standard Commercial Court form of freezing order, from incurring certain forms of unsecured debt which reduce his net asset position to the detriment of a claimant.

The background to this long-running case is that Mr Ablyazov was the chairman and majority shareholder of the JSC BTA Bank during 2005-2009, during which time it was alleged he had misappropriated US$10 billion for personal gain. In November 2009, the bank successfully applied for a freezing order over his assets. The freezing order in question stated that it “applies to all the respondent’s assets whether or not they are in their own name and whether they are solely or jointly owned and whether or not the respondent asserts a beneficial interest in them. For the purpose of this Order the respondent’s assets include any asset which they have the power, directly or indirectly, to dispose of, or deal with as if it were their own.. ”. This wording forms part of paragraph 6 of the standard Commercial Court freezing order wording which was expanded in 2002.

Despite the terms of the freezing order, in 2010, Mr Ablyazov entered into four loan agreements with a combined credit facility of $4 million. The loan agreements were fully drawn down by Mr Ablyazov, who directed payments including around $17 million in legal costs, $500,000 in relation to a property in London and just under $120,000 to corporate services providers. Under the terms of the freezing order, had Mr Ablyazov been using his own money, he would have been prevented from making the payments save to the extent that the legal fees were “reasonable” and that other ordinarily living expenses did not exceed £10,000 per week without the permission of the bank or the court.

The Bank applied to the court for a declaration that Mr Ablyazov was in breach of the order. It argued that the ability to directing payments to be made under the loan agreements meant that the funds in question should be construed as assets for the purposes of the order. The arguments were rejected at first instance by Christopher Clarke J ([2012] 2 All ER (Comm) 1243) and in the Court of Appeal ([2014] 1 WLR 1414). However, both courts accepted that their decisions may allow an astute defendant to seriously prejudice the claimant’s position by borrowing assets on an unsecured basis and thereby reducing his net asset position, potentially reducing the amount available for the claimant by the full extent of the loan.

The Supreme Court considered two arguments, firstly rejecting the argument that rights to draw down under a loan agreement were choses in action which are assets for the purposes of the freezing order, without reference to the expanded definition contained in the last two sentences of paragraph 6.

However, and more importantly, it subsequently unanimously held that whilst Mr Ablyazov did not legally or beneficially “own” the money held by a lender under a loan facilities, he had the power to direct the lender to dispose of, or deal with those funds as if they were his own. The revised wording of paragraph 6 was held to be “expansionary” and the words in the new definition were clear. The fact that Mr Ablyazov had the power to direct the lenders to disburse of each facility upon his written request meant that in the rights to draw down were caught by the prohibitions of the freezing order.

This decision deviates from a line of established case law, cited in both the 2013 and current editions of the White Book, which state that a freezing order restrains the respondent from dealing with his assets but does not prevent him from borrowing money, thereby increasing his overall indebtedness (Cantor Index Ltd v Lister [2002] CP Rep 25 and Anglo Eastern Trust Ltd v Kermanshahgi [2002] EWHC 1702 (CH)).

What it means for you

The decision confirms that freezing orders will be constructed strictly in light of the natural meaning of the words contained within it in construing the assets which are subject to its scope. The most obvious consequence relates to the ability of a respondent to a freezing order to utilise borrowing and credit facilities. Deviating from the previously established position that a respondent may continue to exercise a contractual right to direct the payment of funds under an agreed credit facility, including loans, overdrafts and even credit cards, the position is now made clear that in doing so, he will be dealing with his paragraph 6 assets and so must act in accordance with the freezing order. The practical effect of this is that new indebtedness will fall within the limits set out within the freezing order for weekly or monthly spending allowances and that legal fees funded in this way must be reasonable. Whilst still respecting the established position that a freezing order does not constitute security over the respondent’s assets, the decision is welcome news for claimants who have previously been forced to watch in vain whilst respondents have materially worsened their net asset position through the creation of new indebtedness. Practitioners should take care to ensure that the standard form of paragraph 6, including the expansionary wording is used in every case.

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