Isle of Man: Prison For Directors Breaching A Freezing Order

Last Updated: 12 February 2013
Article by Nick Verardi

A freezing injunction is an order granted under Rule 7.16 (f) of the Isle of Man Rules of the High Court of Justice 2009 either restraining a party from removing assets from the jurisdiction, or restraining a party from dealing with any assets whether located within the jurisdiction or not (known as a "worldwide freezing order").

It is commonly applied for in situations where there is a fear that the assets of a defendant will be removed to avoid the enforcement of any judgment obtained by the claimant. The decision whether or not to grant a freezing injunction lies largely at the discretion of the Deemster, and at section 42 (1) of the High Court Act 1991 it says that an injunction will be granted in cases where "it appears to the court to be just and equitable to do so". Once a freezing order has been granted it is important that the details of the order are fully understood and consequently that no breach of the injunction are inadvertently committed by the directors or shareholders of the injuncted entity. Any breaches may have serious consequences for those involved.

Templeton Insurance Ltd v Motorcare Warranties Ltd and others [2012] EWHC 795 is a recent example where in England a freezing injunction was granted and later breached for which serious repercussions followed. In this case, Motorcare Warrranties Ltd (Motorcare) had acted as agent for Templeton Insurance Ltd (Templeton) in selling motor vehicle breakdown insurance policies. The relationship between the parties broke down and proceedings were issued by Templeton which made allegations of fraudulent misrepresentation, deceit, knowing assistance and knowing receipt. Templeton obtained a freezing injunction against Motorcare and the injunction stated that Mortorcare was not to remove from the jurisdiction or in any way dispose of, deal with or diminish the value of, other than by payment to the claimant, any of its assets in England & Wales. In the freezing injunction it made it clear that "It is Contempt of Court for any person notified of this Order knowingly to assist in or permit a breach of this Order. Any person doing so may be sent to prison, fined or have his assets seized." Soon after the granting of the freezing order Motorcare transferred the whole business to Motorcare Elite 2008 Ltd (Motorcare Elite), which was a new company which was set up by the managing director and a shareholder of Motorcare. Templeton successfully obtained judgment against Motorcare, but because of the actions in setting up Motorcare Elite, Motorcare was placed into liquidation and the claimants were unable to enforce their judgment. Templeton argued that the directors and shareholder had knowingly assisted or permitted the company to breach the freezing injunction.

The court held that both the managing director and the shareholder of Motorcare were in breach of the freezing injunction and the court held that they were therefore in contempt of court as their actions were intended to interfere with or impede the administration of justice. The court held that a number of actions had breached the injunction, including trading as the new company from the same address as the company, using the same telephone number, email address, and by the company's website automatically redirecting users to the new company's website. The judge in the case said that breaching a freezing injunction was a "very serious matter" and sentencing was originally adjourned, explicitly stating that all options of sentence remained open, including the sentence of imprisonment. Later at sentencing1, Mr Justice Eder again confirmed the serious nature of the contempt of court. Having taken into account all the mitigating factors before the Court, the Court decided that immediate custodial imprisonment of 9 months for the director and 4 months for the shareholder of Motorcare were appropriate given the severity of the contempt.

This case highlights that severe punishment will be handed out by the judiciary in cases where people wilfully disregard a freezing order and find themselves in contempt of court. If the injuncted party or its representatives feels that a freezing order affects too large a part of its assets and it is impeding on its ability to trade, an application to vary or discharge the order should be made to the Isle of Man Courts, rather than simply to choose to ignore the freezing injunction and risk a breach which could lead to a custodial sentence.

As originally appeared in the Isle of Man Regulatory Update – February 2013


1 [2012] EWHC 2309 (QB)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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