Secured creditors entitled to enforce security over assets despite freezing order

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In Taylor v Van Dutch Marine Holding Ltd and others [2017] EWHC 636 (Ch), the High Court confirmed that a secured creditor is entitled to enforce its security over assets which are subject to a freezing order without the blessing of the court, clarifying the position following the case of Gangway Ltd v Caledonian Park Investments (Jersey) Limited [2001] 2 Lloyds Rep 215.

A freezing order acts to restrain a party (the defendant) from dealing with or disposing of its assets. In Gangway, it was held that where a bank holds security over assets subject to a freezing order, the bank is entitled to exercise its rights “in accordance with its own commercial judgment, provided always that it does nothing inconsistent with the underlying purpose of the injunction”. The court held in that case that the bank had adopted the correct approach in applying to vary the freezing order to permit it to realise the secured assets which were subject to the order.

In Taylor, Mr Taylor had the benefit of a freezing order over the assets of a debtor. TCA held a debenture over assets of the debtor which were subject to the freezing order, and sought Taylor’s consent to enforce its security which Taylor refused. TCA therefore made an application for an amendment to a freezing order along the lines set out in Gangway, i.e. to permit TCA to enforce its rights as a secured creditor over assets which were caught by the order.

The High Court determined that, in a normal security enforcement situation, a secured creditor is entitled to enforce its security over charged assets caught by a freezing order without permission of the court. The purpose of the freezing order is to prevent a defendant from dissipating or disposing of his assets and therefore, in the absence of collusion or fraud, enforcement of security by a third party would not be prohibited by a freezing order. Accordingly, TCA did not need to apply to vary the freezing order to enforce its security.

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