In the running of your business you may find that you have serious concerns about getting paid by a debtor.

You do not have to watch helplessly as your debtor wastes money or disappears while you wait for a Court order.

In certain circumstances the Court can make orders protecting a debtor’s assets which will secure a creditor’s position until a Final Judgment can be made about this debt.  In urgent situations the Court can make an order before you have time to put together all the documents needed for a full Court case against your debtor.

What follows are a couple of options available to creditors in protecting their position pre-Judgment.

An Injunction (known as a “Mareva” injunction) (Freezing Order)

This Court order freezes a debtor’s assets and prevents a debtor from selling or otherwise disposing of any property without the Court’s approval.  That includes bank accounts, land, vehicles, or any other assets.

An example is the Court freezing the assets of boxer David Tua’s management company.  Those assets were frozen until the dispute over Tua’s boxing income could be resolved.

A Court order freezing assets is an extremely useful tool for a creditor owed money and concerned about getting paid.  However, the Court is careful about making such an order because of the serious restrictions it imposes on people and the damage that could result to a business.

To get such an order creditors need to be able to show the Court that:

1. The debtor resides or carries on business in New Zealand.
2. The debtor owns assets in New Zealand.
3. They have a good arguable case that the debtor owes them money.
4. There is a risk that the debtor is going to dispose of the assets without paying the debt.
5. There is no good reason that the Court should not make an order.

A creditor will also need to satisfy the Court that they will be responsible for any unnecessary damage to the debtor that arises from the order freezing assets.  The Court will also want information about other people that might be affected by such an order, such as other creditors, or innocent parties to contracts signed by the debtor.

A Mareva injunction will not give a creditor any rights in the debtor’s property, nor any priority over other creditors.  Once Judgment is obtained, a creditor will need to enforce against the debtor’s assets by way of writ of sale or other procedure in the normal way.

Charging Order

This Court order charges a debtor’s specified assets with payment of the amount for which the creditor may later obtain Judgment, and is a useful tool in securing the creditor’s position pre-Judgment.  The Court is careful in making such an order because of the potential damage that it can cause.

To get such an order a creditor needs to be able to show the Court that:

1. They have a good case the debtor owes them money; and
2. There is a risk that the debtor is going to dispose of the assets without paying the debt.

A pre-Judgment Charging order will not give a creditor any priority over any other creditors.  Once Judgment is obtained it will be necessary for a creditor to enforce against the debtor’s property by way of writ of sale or other procedure.

If you believe you are owed money and that the debtor is going to dispose of assets or leave the country to avoid paying their debts always act quickly to protect your position.