English High Court Recognises Rights of Secured Creditors in Response to a Freezing Order Over Charged Assets

Author(s)

Laura Feldman
Senior Counsel at Freshfields Bruckhaus Deringer

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2 Minutes

In Taylor v Van Dutch Marine Holding Ltd & Ors [2017] EWHC 636 (Ch) (27 March 2017), the English High Court determined that a secured creditor of a respondent to a freezing order was not required to apply to court to amend the order so as to enforce its security rights. The decision confirms that a secured creditor can enforce its security over charged assets caught by a freezing order in circumstances where such action does not amount to aiding and abetting a disposal of assets by the defendant.

The background to the freezing order was that the claimant (“Mr Taylor”) obtained judgment against four defendants for substantial sums of over £3million on the grounds of liability under the terms of a bridging loan.  To enforce the judgments, Mr Taylor obtained freezing orders against the four defendants. TCA Global Credit Master Fund LP (“TCA Global”) was a secured creditor of the second defendant, Van Dutch Marine Ltd (“Van Dutch”). Van Dutch gave security to TCA Global in the form of a debenture to provide Van Dutch access to credit under the terms of a facility agreement. The terms of the debenture included a fixed charge extending to specified property, including intellectual property held by Van Dutch. Subsequently, TCA Global entered into an agreement with a Florida company, which provided that TCA Global would transfer certain assets that were subject to the fixed charge to the company. In light of the agreement, TCA Global intended to enforce its security rights under the debenture against Van Dutch. 

TCA Global applied to court to amend the freezing order to provide that nothing in the order would prevent or restrict TCA Global from enforcing any rights it might have pursuant to its facility agreement and debenture with Van Dutch. Mr Taylor opposed the application on the ground that the application for a variation should be delayed and determined as part of satellite proceedings to establish the true position as to ownership of assets, including those captured by the freezing order.  

The court permitted TCA Global’s application to amend the freezing order. The freezing order did not prevent a secured creditor from enforcing its security over charged assets caught by such an order. It remains a well-established principle that a freezing order generally operates personally against the defendant to prevent dissipation of his or her assets improperly in the face of a claim by the claimant. The order did not operate so as to affect the genuine rights of third parties over their assets.

Mann J observed that the bank’s duty may not require an application to vary the terms of the injunction. Strictly speaking, a bank or third party with security over property that was subject to a freezing order would not need to obtain permission in order to exercise that security, because the exercise of disposal rights under that security was not an act prohibited by the order, which operated against the defendant personally. A typical security enforcement situation, which did not involve a disposal by the party subject to the freezing injunction, which was not collusive and which did not amount to aiding and abetting a breach of the injunction, could be pursued without the need to vary the injunction. Technically, therefore, TCA Global did not need the relief it sought.

The decision clarifies the duties of a secured creditor to a respondent subject to a freezing order when on notice of the injunction. In doing so, it provides confirmation that where a bank or third party has a security interest in an asset it is entitled to exercise its rights in accordance with its own commercial judgment, provided always that the actions are not inconsistent with the underlying purpose of the injunction. Although, Mann J observed that an application to vary a freezing order to recognise security interests may be unnecessary, it is likely that banks or other third parties will seek confirmation that enforcing security over assets caught by a freezing order does not amount to breaching the terms of the injunction. Seeking confirmation would be prudent given the serious implications of a breach of a freezing order. 

Laura Feldman is a Senior Associate (Barrister) at Eversheds Sutherland

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