Sefton (As Liquidator of Online Corporate Services Ltd) v Gallucci

A freezing order is maintained only while the claimant genuinely intends to pursue the protected claim and progresses it with reasonable expedition. A substantial and unjustified failure to advance the action is a ground for discharge, although the court retains a discretion and must weigh all the circumstances, including the claimant’s reasons for delay and the defendant’s conduct. Assets disclosure accompanying the order exists to police the injunction, not to help a claimant decide whether litigation is commercially worthwhile. Insolvency office-holders have no special exemption from these requirements. Where prolonged delay is not counterbalanced by other circumstances, the order should be discharged.

The claimant, the liquidator of Online Corporate Services Ltd, obtained and maintained a freezing order against the defendant, a former director, in proceedings concerning alleged misappropriation of company assets and related claims. The principal asset had been vested in the liquidator, but the substantive claims were not progressed for approximately five years.

The defendant applied to discharge or vary the order. The liquidator relied on the continuing risk of dissipation, outstanding costs liabilities, the need for updated disclosure of assets, and his duties to creditors. The central issues were whether the delay justified discharge and whether the freezing order and disclosure could properly be retained while the liquidator decided whether to continue.

1. Application granted. The freezing order was discharged, subject only to remaining in force until judgment was handed down. The proposed variation therefore did not arise. The liquidator was given an opportunity to propose appropriate directions for the remaining proceedings; absent such directions, those claims would be dismissed.
2. A claimant who obtains a freezing order must progress the action as rapidly as reasonably possible and must not simply retain the injunction. Failure to progress the action is a ground on which the court may discharge the order, as recognised in Lloyd’s Bowmakers Ltd v Britannia Arrow Ltd [1988] 1 W.L.R. 1337, Comdel Commodities Ltd v Siporex Trade SA [1997] 1 Lloyd’s Rep. 424, and Town and Country Building Society v Daisystar The Times, October 16, 1989.
3. The discretion is governed by all the circumstances. Relevant matters included the reasons for delay and the defendant’s behaviour. Here, the liquidator had done nothing to advance the misappropriation claims for about five years. The delay was substantial, continuing and unjustified. The defendant’s obstructive and dishonest conduct did not excuse it.
4. A freezing order and associated disclosure protect claims which the claimant has decided to bring. A claimant cannot retain them primarily to discover whether the defendant has assets sufficient to make the claim worth pursuing. That would be an improper use of the procedure. Insolvency office-holders must take a commercial view for creditors, but are subject to the same obligation as other claimants to progress proceedings under a freezing order.
5. The risk of dissipation remained real, but it did not counterbalance the prolonged delay. The order could not be justified by the already-completed vesting of the share portfolio or by unassessed costs orders which the liquidator had failed to pursue.