What does a freezing order mean for businesses?
Roman Abramovich has owned Chelsea F.C since 2003 and under his ownership, the football club has enjoyed the most successful period in its history. However, the club is now in a state of limbo after the UK government froze the Chelsea owner’s assets due to links to Russian President Vladimir Putin. So, to find out what freezing orders could mean for businesses and Abramovich, Business Leader to spoke to Keith Tully, a Partner at Real Business Rescue.
What is a freezing order and why are they used?
An asset freeze prevents any UK citizen, or any business in the UK, from dealing with any funds or economic resources which are owned, held or controlled by the designated person and which are held in the UK. It will also prevent funds or economic resources being provided to or for the benefit of the designated person.
When can a freezing order be made?
To obtain a freezing order, your creditor must have a ‘substantive cause of action’ and a good, arguable case that can be backed up with solid evidence.
They may have made numerous attempts to collect the money owed, and faced with non-payment or non-response, and fear that you will take aversive action to prevent business assets from being sold in order to recoup the debt.
A freezing order is likely to immediately precede or run alongside further court action, and can be issued ‘with notice’ or ‘without notice.’
What to do if you’ve been issued with a freezing order?
You may or may not have received notice of the application – a freezing order ‘without notice’ leaves you very little time to prepare. You will need to comply with the court’s requests, which might include providing a detailed list of company assets, or possibly gathering together other financial information.
A penal notice is included on the front page of a freezing injunction, and this means that you could face prison if you deal with the assets stated, or ignore court instructions.
What happens if you fail to comply with a freezing order?
A Freezing Order is an incredibly powerful tool, often used in the fight against fraud and to stop individuals moving assets across multiple jurisdictions. As with any Court Order, if you fail to comply with a Freezing Order, you’d be held in contempt of Court and would suffer severe consequences, including criminal prosecution or a monetary penalty – or both.
Russian nationals who have recently been sanctioned in the UK will be unequivocally aware that breaching the terms of their sanctions is a serious offence punishable by a maximum of seven years’ imprisonment on conviction.
What will happen to Roman Abramovich and other oligarchs who have recently been issued freezing orders?
Following yesterday’s news that a further seven Russian oligarchs have been sanctioned by the UK Government based on their links to Vladimir Putin, it was unsurprising that media focus turned to one individual in particular – Chelsea FC owner Roman Abramovich. Like his compatriots, Abramovich was deemed to be a ‘designated person’ and targeted with an asset freeze and a travel ban.
Reports state that Abramovich has had £3.2billion of UK assets frozen, preventing him carrying out a fire sale of Chelsea FC and his London homes. The same would apply to other oligarchs with UK assets, which cannot be sold without a special licence – which are practically impossible to obtain. Any cash held by these ‘designated persons’ are now frozen in accounts and any shares on the London Stock Exchange cannot be sold and will pay no dividends.
Crucially, Abramovich’s plans to sell Chelsea FC have been thwarted – for now. Technically a sale could still go through provided the Government issues a licence on request, but it seems inconceivable that the oligarch’s original asking price, believed to be in excess of £3 billion, will be met – particularly as the Russian will not be allowed to profit personally from the sale of the club.
As for how long these sanctions will last is anyone’s guess – it could range from months to years. For Chelsea – who will be unable to process any new transactions while sanctions are imposed upon their owner – this could have absolutely devastating consequences and potentially lead to the club entering administration as running costs are likely to far outweigh their decimated revenue streams.