Court clarifies ‘risk of dissipation’ in asset freezing order case

The case concerns an application to continue a worldwide freezing order post-judgment. The court has provided a “useful” judgment in demonstrating how the courts will approach analysing a risk of dissipation of assets, in the context of a freezing order. Under English law, for a party to apply for a freezing order they have to satisfy the court that there is a real risk of dissipation of the assets concerned. The judgment has made it clear that the required evidence has to be “solid” and “forward-looking”.

Alan Sheeley, civil fraud and asset recovery expert at Pinsent Masons, said the judgment by Deputy High Court Judge Paul Stanley KC serves as a useful summary of the factors that the court will consider when determining whether that risk is present.

“When considering those factors, the judgment emphasises that a suspicion, fear or speculation is not sufficient. An existence of sophisticated financial structures, a history of proven dishonesty, avoiding paying a judgment debt and a failure to provide asset information in response to a court order will all be relevant, but not determinative on their own,” he said.

In this case, the defendants had refused to provide any disclosure of their assets as required by an existing court order. The factor was used as evidence to demonstrate there is a real risk that the defendant will dissipate the assets in question. The ruling shows that the courts are prepared to draw negative inferences against the defendants from their non-compliance of disclosure obligations. However, the judge pointed out that although it is a relevant factor, “care would be required before inferring a risk of dissipation merely from that factor”.

Rebecca Wilson of Pinsent Masons added: “As the court has emphasised, ‘risk’ is an inherently forward-looking concept. Even where a defendant has undertaken behaviour that may indicate a risk in the past, it cannot be regarded as an indispensable element of proof of risk. Those applying for freezing orders must ensure they can demonstrate a real risk that assets will be dissipated in the future.”

The judge reached his conclusion that there is a real risk of dissipation based on the combination of three relevant factors: sophisticated financial structures held internationally; a history of proven dishonesty and lack of integrity and intentionally avoiding paying a judgment debt; and an unexplained refusal to provide even the most basic asset disclosure under a court order. Therefore, the existing worldwide freezing order placed on the defendants has been allowed to continue.

Bill Geiringer, litigation expert at Pinsent Masons, said: “What is likely to be most telling is any evidence which points to an actual plan or propensity to dissipate. For example, placing an asset on the market will be crucial to identifying the real risk of dissipation.”

“For this reason, it is imperative that applicants have set out detailed and cogent evidence regarding the risk. Forensic accountancy and corporate intelligence services can be crucial to identifying and building this bank of evidence to show risk of dissipation,” he said.