A freezing order is a court order that can be applied for to stop an individual or group from transferring or disposing its assets. Although they can be requested at any time, freezing orders are usually obtained prior to litigation and when the applicant has a strong case for believing that the respondent will indeed be looking to dispose of any assets before a judgment is enforced.
Assets are usually classed as money in the bank, land, property, vehicles, shares, bonds and investments and can also include assets held on trust. However, the question of whether a loan is classed as an asset recently came to light in the long running Ablyazov saga.
The Case in Question
In July 2012, Mr Justice Christopher Clarke handed down a judgement against the former chairman of JSC BTA Bank (the Bank), Muktar Ablyazov, who was accused of misappropriation of the Banks funds, leading to a billion pound litigation case against him and his associates.
In August 2009, Mr Justice Teare granted a freezing order in favour of the Bank, which still remains in force today. The order stops the removal of any assets from England and Wales (a domestic freezing order) and the disposal of, dealing with or diminishing of the value of any assets anywhere in the world (a worldwide freezing order).
These orders apply to Mr Ablyozov’s assets including jointly owned assets; assets over which he asserts a beneficial interest and assets over which he has no control. My Ablyazov is allowed to spend up to £10,000 a week towards his ordinary living expenses and a reasonable amount on legal advice and representation.
Clarifying the grey areas
However, the grey area in this case covers four loan agreements amounting to £40 million (the Loan Agreements) which Mr Ablyazov was party to.
These Loan Agreements had been used by Mr Ablyazov to fund his legal expenses; those of his co-defendants and his living expenses. In his judgement of October 2011, Mr Justice Christopher Clarke said there was reason to believe that the companies providing the loans were, in fact, owned by Mr Ablyazov.
As a result, in April 2012, the Bank claimed that these Loan Agreements were in fact assets and should therefore be covered under the freezing order and prohibited. The Bank also requested to the court that any money drawn from the Loan Agreements should only be withdrawn lawfully as part of the £10,000 allowance and that all drawings made under the Loan Agreements were disclosed to the Bank.
Progressing the case
For the purpose of his judgement, the judge assumed that the Loan Agreements were not made by companies owned by Mr Ablyazov and were, therefore, allowed.
The Bank argued that the right to borrow was itself an asset and that by exercising that right under the facility of the Loan Agreement Mr Ablyazov was dealing or disposing of his assets. It said that if someone who was subject to a freezing order was allowed to borrow large sums of money from a lender; they would then be reducing their assets by the amount of the loan.
The judge needed to decide if, in borrowing the money, Mr Ablyazov was disposing or dealing with assets as described in the freezing order. He found that the freezing order should be construed in the way it ought to be reasonably understood by the businessman to whom it was addressed. He found that the defendant’s right to borrow was not an asset and therefore, an exercise of that right did not equate to dealing with an asset. The Bank’s application was dismissed.
In delivering his judgement, Mr Justice Christopher Clarke said future similar cases may not always have the same outcome but would depend on the interpretation of the freezing order. As a general rule, when freezing orders are made according to the standard template and in plain English, then a genuine right to borrow will not breach a freezing order.