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The following article discusses session one in the IR Global Virtual Series on 'Freezing Assets – The mechanics behind cross-border injunctions'
Dominican Republic – Pablo Gonzalez Tapia (PGT) In
the Dominican Republic, in general terms, asset freezing is a procedure that
you have to undertake before a judge, usually the Chief Justice of the First
Instance Court of the jurisdiction where the assets are placed. Creditor has to
show that the credit is in danger of collection, or that the debtor has been
hesitant to pay. It is also useful to demonstrate that there is a danger the
debtor could dissipate the assets. The presentation is usually done ex-parte,
meaning that the other side doesn’t know that creditor is looking for an
injunction.
If creditor manages to prove the case, the embargo order is
provided and with that order creditor is entitled to freeze. Usually, a
creditor would ask the judge to freeze not only mobile assets but also real
estate assets.
Real estate assets are frozen under a so-called ‘judicial
mortgage’. That's distinct from a normal embargo, which is usually applied to
mobile assets and bank accounts. Presenting the judicial mortgage order before
the register of deeds, means you can put a lien on the real estate properties.
With regard to mobile assets, a creditor would have two
options, at the moment of the embargo. Firstly, you can leave the mobile assets
in the hands of the debtor, without transporting them to another location. The
court officer conducting the embargo would just go to the place where they are,
and either leave them in the hands of the debtor or appoint a guardian of those
assets. Sometimes a creditor is entitled to move the asset, which is very rare
in practice, because the law commands that if the assets remain in the hands of
the debtor or the guardian, they are legally responsible for the safety of
those assets.
Another option is to freeze the debtor’s bank accounts. This
can be done with a judicial order, but in the Dominican Republic we do also
have a special kind of injunction or embargo, which only requires proof of the
credit, i.e., an invoice or contract clearly showing you are owed money. With
that document, a creditor is entitled to go to every bank in the Dominican
Republic, or to any person that owes money to your debtor and freeze that money
in the debtor’s hands.
Once you have frozen the assets, you are required to appoint
the normal Court, in order to validate the procedure. You have to present your
case before the judge within either 10 days or 60 days, based on the type of
embargo that you have placed. The judge will rule the case on its merits, but
the assets remain frozen throughout the procedure.
If a debtor wants to release the assets, they would be
required to post a bond in order to take back control.
Netherlands – John Wolfs (JW) The Netherlands,
together with Belgium, has a very particular position within the European
Union.
This is because, it is not only possible to arrange for an
asset arrest after having obtained a judgment, but it's also possible to
arrange for a so-called conservatory arrest. This means that assets can be
frozen from the moment that one intends to start a proceeding, even before the
proceeding has begun.
It is, however, obligatory to start a proceeding within one
month at the latest, in order to obtain permission to arrange a conservatory
arrest. You need to go to the President of the District Court and explain the
claim you have against the opponents. You are also required to name the assets,
or possible assets, to be included in the conservatory arrest.
Those assets can include real estate, shares, claims on
third parties (debtors) cars, computers, TVs, jewellery and money. If the money
is in a bank account, it is possible to arrange for a third party conservatory
arrest, administered by the bank.
Implementing a conservatory arrest, means that it is not
possible for the debtor to do anything with those assets. As an example, a
conservatory arrest on a house means that the house cannot be sold, unless the
one who seeks the conservatory arrest approves.
This might happen if security is provided by the debtor, for
130 per cent of the claim. The extra 30 per cent is used to cover interest,
judicial costs and so on, because it may take a year or more before a
proceeding has ended.
The bailiff is the executor of the conservatory arrest and
can execute this with third parties, or at the real estate registry, from that
moment the conservatory arrest is in place. Once a judgment is obtained, the
conservatory arrest changes into an executionary arrest.
Ohio – Chris Niekamp (CN) In Ohio, as in other
states, you can file for a temporary restraining order and a preliminary
injunction at the outset of your case.
Generally, if you are seeking to enjoin a person or a bank,
you would name that party to the lawsuit and get some sort of service over that
party. You can attempt to walk through the motion and do it ex-parte with the
judge if there is some injury to be had, or if you are concerned that assets
will be transferred fraudulently. In that instance, you can put forth a case
that there is a real emergency.
The judge will usually require some kind of notice to the
other side, so as not to surprise them, especially if you've been communicating
with them. If the circumstances are right, and you can show irreparable harm
and likelihood of success on the merits, then the judge may grant a temporary
restraining order.
The Court will generally set the matter for a hearing within
10 days to consider a preliminary injunction, which is a little more lasting
until you get to trial. At that point you can attempt to freeze assets until
you have a trial on the merits.
Another tactic that we use in Ohio is the appointment of a
receiver. Sometimes we go in and seek an emergency motion to appoint a receiver
over a company that is in the process of liquidating assets, so that the
receiver can take control of the assets and collect any assets for the benefit
of the creditor.
I do this regularly on behalf of banks.
Turks & Caicos Islands – Stephen Wilson, QC (SW)
The Turks and Caicos Islands, perhaps not surprisingly as a British overseas
territory, very much follows the law in England and Wales.
In terms of orders available to freeze assets, there is the
classic Mareva Injunction, or freezing order as they tend to be called these
days.
That's usually an application made ex-parte, without any
notice, in order to secure assets stopping them from being dissipated in order
to frustrate an eventual judgment.
Unlike the procedure Chris has just described in Ohio, there
is no need in the Turks and Caicos Islands to name banks or other third parties
who might be affected by the order, but the order would nevertheless be served
on those institutions.
The Mareva injunction is thought of as a nuclear weapon, but
in circumstances where there is less likelihood of an immediate dissipation of
assets, such as when dealing with real estate, there's an ability to apply for
what's called an Inhibition, which is then registered on title and prevents the
owner of real estate from transferring it without the Court's approval.
There are also orders allowing for the preservation of
property that is the subject matter of a dispute. In those cases, in which a
winding up order might be made, we have something similar to what Chris
described as the appointment of a receiver.
In such a case, we would seek the appointment of the
provisional liquidator, who would hold the ring and protect the assets of the
company that was the subject of a winding up petition.
Finally, if the asset that is owned by the defendant, is a
ship, we can arrest the vessel if it's in Turks and Caicos Islands’ waters.
Cayman Islands – Cherry Bridges (CB) The Cayman
Courts have a wide discretion to grant Mareva Injunction Orders (MIOs), in
order to prevent assets from being disposed of within a jurisdiction, removed
from a jurisdiction, or otherwise dealt with either in the Cayman Islands, or
worldwide. They can be free standing injunctions in support of foreign legal
proceedings (where there are no extant proceedings in the Cayman Islands). The
party applying for the MIO (the plaintiff) may apply for it at any stage of a
case, without notice, including before proceedings have been issued, if urgent.
Since MIOs are usually made ex-parte (without notice) the
plaintiff must give full and frank disclosure of all material facts and matters
in the affidavit evidence on the ex-parte application. Failure to do so, will
result in the discharge of the MIO at the stage of the inter partes hearing, if
contested. The court usually requires the plaintiff to give an undertaking to
pay damages to the counterparty who may later be found to have suffered an
unjustifiable loss, if it is subsequently determined that the MIO should not
have been granted in the first place. The Court may also require security to
fortify the undertaking as to damages and to meet the costs of third parties.
MIOs are usually personally served on the defendant. A
breach of an MIO constitutes a civil contempt, punishable by a fine, seizure of
assets and/or imprisonment. Importantly, the MIO may apply to third parties
(such as a bank) which may also face sanctions for any breach.
To prevent the destruction of relevant evidence, a plaintiff
may also apply for an Anton Piller Order to search premises and seize evidence
without prior warning.
Turkey – Cemil Baha (CEB) In Turkey, the preventive
legal actions are divided into two types as a quick and effective solution
which are provisional injunction and provisional attachment.
In general, if the claimant is in a position as follows;
• If action is not taken, the acquisition of the right would
be become substantially difficult or completely impossible
• if there is a concern about loss or a serious damage, in
the event that the decision is not taken, because of the delay
• If the borrower does not have a specific residence
• If the borrower prepares to hide or to smuggle his/her
property or if s/he escapes or if s/he makes fraudulent transactions that
violate the rights of the creditor in order to not fulfil the commitment
A decision for the injunction may be ordered by the court.
It may be decided that the movant may deposit collateral to meet the potential
losses of the third party. It is usually at the discretion of this court; the
general rate is approved at rates ranging from 10 per cent to 20 per cent of
the value of the dispute. The amount of the guarantee may vary depending on
whether the measure is changed or removed. If the request is based on an
official document, further evidence or other circumstances, the court may
decide not to receive a guarantee, provided that it clearly indicates its
justification.
The provisional injunctions decided without any explanation
of the counter party can be appealed. Unless otherwise decided, the objection
shall not stop the execution of the decision.
Turkey is a party to the United Nations Convention on
Contracts for International Sale of Goods (CISG) and this contract does not
have exactly this kind of a measure. However, this situation does not prevent
the provisional injunction and provisional attachment decisions made by the
local court.
In case there is a foreign country court order, which is not
yet to be completed the recognition and enforcement procedure, even that order
can be subject to the same conditions as mentioned above.
Austria – Klaus Oblin (KO) The main precondition for
a party to ask the court for an injunction under Austrian law is that it can
demonstrate that the enforcement of specific claims would be endangered if no
interim measure was granted. When assessing the presence of endangerment,
judges consider the behaviour and recent actions of the debtor as well as any
specific circumstances of the case at hand.
Preliminary injunctions may be granted for securing
pecuniary and non-pecuniary claims as well as disputed legal relations. The
possible interim measures granted are stipulated by law and comprise judicial
custody of physical assets, forced administration of real estates or
prohibition of the sale or attachment of assets.
Preliminary injunctions are granted or dismissed in
expedited proceedings. The court may even refrain from hearing the opposing
party, if the purpose of the preliminary measure was otherwise impeded. In
practice, courts often allow opponent to submit a written statement, but set a
very tight deadline. A lower standard of proof applies, so that parties only
have to present plausible proof for their allegations.
Spain – Roger Canals (RC) Our system regarding
interim measures is similar to The Netherlands or Belgium. We have a system of
conservatory arrests when you submit a claim to a court. If we are claiming for
an amount of money, you are entitled to at least try an interim measure ending
in a conservatory arrest. Any assets you include will be frozen until the
procedure is ended, if it is successful.
In general terms, Spanish courts are reluctant to recognise
or grant these kinds of measures, unless you can prove a very strong claim
against a debtor. Often, such interim measures are refused when demanded,
because the court prefers to convene the parties in a hearing where the issue
will be discussed. The award is more likely, after review, if you show a clear right.
The other route arises from enforcement of foreign court
judgments. The first thing to do with a foreign court judgment is to go through
a recognition process within the Spanish court. If the court has recognised the
foreign judgment, then you can seize the assets of the debtor if they are
located in Spain. The Spanish government has a good system of public
information regarding the seizure of assets. The court issues a general order
to banks and real estate registers to locate the assets, then once you have the
foreign judgment, you can seize the assets easily.
Germany – Jana Schott (JS) In German law there are
several preliminary injunctions at one’s disposal in order to secure claims,
even before main proceedings may be started or completed.
Firstly, there is the preliminary proceeding in accordance
to Sec. 916 et seq. ZPO (German Civil Procedure Code) which literally
translates to ‘arrest’ or ‘seizure’. It is admissible when securing the
enforcement of a monetary claim or a claim that may be converted into a
monetary claim. The request must be submitted at the local court that also
covers the main proceeding regarding the claim. The request should contain the
title of the claim stating the amount of money or the monetary value and name
the reason for the proceeding.
Secondly, there is the preliminary proceeding in accordance
with Sec. 935 et seq. ZPO. This injunction aims at safeguarding individual
claims that are not currently directed at money. The injunction is also
admissible for the purpose of regulating a condition in relation to a disputed
legal relationship. Under certain circumstances, the court may issue a
performance order. This order is an exception to the principle in German law,
that claims should be secured first before issuing any performance orders, as
this order already provides a performance benefit. The performance order is
thus an exception concerning interim proceedings because it already includes
what would otherwise be received through the main proceeding.
Judgments in main proceedings that are performance-oriented
may be declared provisionally enforceable by the court in accordance with Sec.
709 ZPO against the deposit of a security. If a monetary claim is to be
enforced through the judgement, it is sufficient if the amount of the security
is stated in a certain proportion to the amount of the enforced monetary claim.
This offers the possibility of enforcing a judgment which is not yet legally
binding because of possible appeals.
Enforcement, in the case of refusal of performance by the
debtor after a judgment, or foreclosure is in general dependent on three
conditions: the title (e.g. the judgment, order or ruling), the clause (an
enforceable duplicate of the title) and the delivery of the aforementioned to
the debtor (the debtor must know about the title in order to take counter
measures). The court bailiff may then visit the debtor and seize and secure
assets.
A judicial officer may also issue an attachment and transfer
order (so called “Pfändungs- und Überweisungsbeschluss”) at the creditor's
request according to Sec. 829 ZPO that effectively leads to the garnishment of
the bank account. Even before this attachment is made there is the possibility
of advance attachment in accordance with Sec. 845 ZPO.
England – Frankie Tierney (FT) The process utilised
in the civil courts differs in Scotland and Northern Ireland so it is important
to recognise there is not a standard UK-wide court system – albeit the legal
principles on which they operate are pretty much the same.
A civil freezing injunction is dealt with in the High Court
and can be applied for without having to give any notice to the other party. It
is not given lightly; so you generally have to show that there is a real risk
of assets being dissipated or removed from the reach of the court. If there are
no court proceedings already underway; you have to start them at the same time.
You therefore prepare the court documents as you would normally, but include an
application for a freezing injunction which is backed up by a witness
statement. That has to set out what information you have obtained about the
assets held by the other party; the value of the claim you are bringing and
demonstrate why you say there is a high risk that once the other party becomes
aware of the court proceedings; assets will be disposed of.
If the injunction is granted; notice is given by you to the
banks where you know the other party holds accounts so that they can freeze
access to them. This is normally done just before the court documents are
served on the other party. This all has to be done literally within hours of
the injunction being granted. The injunction forbids the other party from
disposing of any assets (e.g. property, stocks, share cash etc) and requires
them to provide you with full details of the assets they have and to provide
bank statements etc.
Breaching a freezing injunction, or assisting someone to
breach it, is a contempt of court and can result in a prison sentence. Because
of the impact such orders have on businesses and individuals, a high court
judge will only grant them in very serious cases.
More limited injunctions can be obtained if you just want to
prevent the disposal of a particular asset that is the subject of a court
claim.
There is an Injunction process by which the high court will
authorise a party to enter the premises of another to search and seize
property. These are highly specialised orders made only in exceptional cases and
are subject to strict rules. They are mainly restricted to situations whereby
data/ information/pirated or bootlegged products will potentially be destroyed
if prior warning of a claim is given.
The sting in the tail is that a condition of getting an
injunction is that undertakings (legally binding promises) must be given to the
court by the party seeking the injunction. This means that if you lose the
primary case, or the court later finds the injunction has caused loss, you will
be ordered to pay compensation.
Securing the seizure of assets that are mobile; e.g. a ship
or airplane; to ensure they are not moved out of the jurisdiction; also
involves specialist court applications.
U.S – Ohio – CN Just one additional thought. I have
real concerns about cryptocurrency and the use of Bitcoins, as debtors are
finding ways to elude the banking system. I was interested to know if any
members have dealt with that issue and whether they’ve had any success with
debtors that are transacting business with cryptocurrencies.
Netherlands – JW Yes, I've been requested on behalf
of a foreign client to research the possibilities of setting up a company
dealing in cryptocurrencies.
We work together closely with one of the top law firms in
The Netherlands, and even they are very reluctant to offer advice. So what one
sees, is that, here in The Netherlands, it is quite difficult to not only
obtain advice, but also to arrest and attach cryptocurrencies.
Contributors
Roger Canals (RC) Arco Abogados – Spain www.irglobal.com/advisor/roger-canals
Dr. Klaus Oblin (KO) OBLIN Rechtsanwälte GmbH – Austria www.irglobal.com/advisor/dr-klaus-oblin
John Wolfs (JW) Wolfs Advocaten – The Netherlands www.irglobal.com/advisor/john-wolfs
Frankie Tierney (FT) Herrington Carmichael – England www.herrington-carmichael.com/our-people/frankie-tierney
Chris Niekamp (CN) Niekamp Weisensell Mutersbaugh &
Mastrantonio, LLP – U.S – Ohio www.irglobal.com/advisor/chris-niekamp
Stephen Wilson, QC (SW) Graham Thompson – Turks & Caicos
Islands www.irglobal.com/advisor/stephen-wilson-qc
Pablo González Tapia (PGT) GONZÁLEZ TAPIA ABOGADOS –
Dominican Republic www.irglobal.com/advisor/pablo-gonzalez-tapia
Dr. Jana Schott (JS) AQUAN Rechtsanwälte, Germany www.irglobal.com/advisor/dr-jana-schott
Cherry Bridges (CB) Ritch & Conolly – Cayman Islands www.irglobal.com/advisor/cherry-bridges
Cemil Baha (CEB) ÖZALP – Turkey www.irglobal.com/advisor/cemil-baha-ozalp