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Exceptions to worldwide freezing orders: English High Court confirms it is not for the Court to second-guess directors

In the recent case of Vneshprombank v Bedzhamov the English High Court held (relying on the English Court of Appeal decision in Koza v Ipek) that when considering whether a payment is in the “proper and ordinary course of business”, once the directors of a company have come to a bona fide decision that expenditure was in the company’s interests, it is not for the Court to second-guess their decision. 

In Vneshprombank the first defendant sought a declaration that it was entitled pay the amount of £341,680 from the proceeds of sale of a hotel which were caught by the terms of a worldwide freezing order (WFO) to a property developer.  The WFO did not prohibit the respondent from dealing with or disposing of any assets in the ordinary and proper course of business provided that before doing so in respect of any asset with an aggregate value of more than £50,000 the respondent must give the plaintiff’s legal representatives’ 48 hours’ written notice. 

The first defendant did not suggest it had any legal obligation to pay the fees, but rather that it was the commercially sensible, practical and expedient step to take.  The first defendant’s evidence was that the payment was intended to be used to preserve its planning position, which if not preserved could have a significant effect on the value of the property.  The plaintiff objected on the basis that the proposed payment was really an alleged scheme concocted between the respondent and the developer, and it was not a bona fide payment and was going to be split between them.  The Judge did not accept this theory.  His Lordship found the proposed payment was a proper use of assets. 

The Judge in Vneshprombank also had regard to the following principles from the English Court of Appeal in Michael Wilson & Partners v Emmott:

  • The underlying purpose of a freezing order is not to give the plaintiff security for his claim.  The primary purpose of a freezing order is to prevent the dissipation or concealment of assets that would otherwise be available to satisfy a judgment.
  • “Ordinary course of business” does not mean “routine” or “recurring”.  The Court will be careful not to attempt to define what is in the ordinary course of business.
  • Freezing orders are not in terms limited to dealings with assets which amount to disposals.  The standard form of a freezing order contains an express exception for disposals in the ordinary and proper course of business.
  • However, not every transaction that is not dissipatory in nature is necessarily a transaction in the ordinary course of business.  What amounts to payments or disposals in the ordinary course of business is a highly fact-sensitive question.

The decision provides guidance on the standard exception in freezing orders, permitting disposals in the “ordinary and proper course of business”.  Applications for freezing orders are frequently made in the Cayman Islands, and the Judges are often guided by English authority.         

Exceptions to worldwide freezing orders: English High Court confirms it is not for the Court to second-guess directors

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