Freeze Order Vs Asset Preservation Order: Which Is Right For Your Legal Situation?

In the realm of civil litigation, two distinct legal remedies often come into play when dealing with financial assets: freeze orders and asset preservation orders. While both aim to safeguard assets and prevent their dissipation during legal proceedings, they differ in their scope, application, and implications. This blog post delves into the nuances of freeze orders versus asset preservation orders, providing a comprehensive understanding of their respective purposes, processes, and legal implications.

What is a Freeze Order?

A freeze order, also known as a Mareva injunction, is a court order that restricts a party from dealing with their assets or disposing of them in any way. Its primary purpose is to preserve assets that may be subject to a future judgment or enforcement action. Freeze orders are typically granted when there is a risk that the defendant may attempt to hide or transfer assets to avoid paying a potential judgment.

What is an Asset Preservation Order?

An asset preservation order, also referred to as a Norwich Pharmacal order, is a court order that compels a third party, such as a bank or financial institution, to disclose information or freeze assets held by the defendant. Unlike a freeze order, which directly restricts the defendant’s actions, an asset preservation order targets third parties who may be in possession of the defendant’s assets or have knowledge of their whereabouts.

Key Differences Between Freeze Orders and Asset Preservation Orders

1. Target of the Order:

• Freeze Order: Directly targets the defendant, prohibiting them from dealing with or disposing of their assets.
• Asset Preservation Order: Targets third parties, requiring them to disclose information or freeze assets belonging to the defendant.

2. Purpose:

• Freeze Order: Preserves assets to ensure their availability for a potential future judgment or enforcement action.
• Asset Preservation Order: Gathers information about the defendant’s assets and prevents their dissipation or concealment.

3. Scope:

• Freeze Order: Covers all assets within the jurisdiction of the court that issued the order.
• Asset Preservation Order: Limited to specific assets or information held by the third party named in the order.

4. Timing:

• Freeze Order: Typically granted before judgment is obtained, to prevent the defendant from dissipating assets.
• Asset Preservation Order: Can be granted before or after judgment, depending on the circumstances of the case.

5. Enforcement:

• Freeze Order: Enforced by the court that issued the order, with penalties for non-compliance.
• Asset Preservation Order: Enforced by the court that issued the order, with remedies such as fines or imprisonment for non-compliance.

When is a Freeze Order Granted?

Courts may grant a freeze order when the following conditions are met:

• There is a real risk that the defendant may attempt to hide or transfer assets to avoid paying a potential judgment.
• The plaintiff has a strong case and a reasonable likelihood of obtaining a judgment in their favor.
• The balance of convenience favors granting the freeze order, meaning the potential harm to the plaintiff if the order is not granted outweighs the potential harm to the defendant if the order is granted.

When is an Asset Preservation Order Granted?

Courts may grant an asset preservation order when the following conditions are met:

• There is a real risk that the defendant may attempt to conceal or dissipate assets to avoid paying a potential judgment.
• The plaintiff has a strong case and a reasonable likelihood of obtaining a judgment in their favor.
• The information sought from the third party is relevant to the proceedings and cannot be obtained through other means.
• The balance of convenience favors granting the asset preservation order, meaning the potential harm to the plaintiff if the order is not granted outweighs the potential harm to the third party if the order is granted.

Implications of a Freeze Order or Asset Preservation Order

Both freeze orders and asset preservation orders can have significant implications for the parties involved:

1. For the Defendant:

• Restrictions on dealing with or disposing of assets can hinder their ability to conduct business or access their funds.
• Potential financial losses if the assets are frozen for an extended period.
• Damage to reputation and business relationships due to the public nature of the order.

2. For the Plaintiff:

• Increased likelihood of recovering a judgment if the defendant’s assets are preserved.
• Protection against the defendant’s attempts to hide or dissipate assets.
• Potential delays in the legal proceedings if the defendant challenges the order.

3. For Third Parties:

• Compliance with an asset preservation order can be burdensome and costly, especially if it involves disclosing sensitive financial information.
• Potential liability for non-compliance with the order.

Wrap-Up: Navigating the Complexities of Freeze Orders and Asset Preservation Orders

Freeze orders and asset preservation orders are powerful legal tools that can be instrumental in safeguarding assets and preventing their dissipation during legal proceedings. However, their application is complex and requires careful consideration of the specific circumstances of each case. By understanding the distinctions between these orders, their respective purposes, and their implications, legal practitioners can effectively navigate the intricacies of civil litigation and protect the interests of their clients.

Common Questions and Answers

Q1. Can a freeze order be challenged?
A1. Yes, a freeze order can be challenged by the defendant through legal arguments or by providing evidence that the conditions for granting the order were not met.

Q2. What happens if a freeze order is breached?
A2. Breaching a freeze order can result in serious consequences, including fines, imprisonment, or contempt of court proceedings.

Q3. How long does a freeze order last?
A3. The duration of a freeze order varies depending on the circumstances of the case and the jurisdiction. It can be extended or discharged by the court upon application.

Q4. What is the purpose of an asset preservation order?
A4. An asset preservation order aims to prevent the defendant from concealing or dissipating assets that may be subject to a future judgment.

Q5. Who can apply for an asset preservation order?
A5. Typically, the plaintiff in a civil lawsuit can apply for an asset preservation order to protect their potential claim.