Thursday, 12 May 2016

Freezing Assets

If you have a breach of contract claim you may be eligible for an order freezing the other side’s assets until the case is over.  This does not come up in every contract case.  Some cases simply are not eligible for it.  For example, it needs to be a commercial claim.  So a credit card company will not be taking this action against a consumer.  (They used to be able to do this.)  Also the claim needs to be large enough to qualify – both as a matter of what the law provides for and also from a cost/benefit standpoint.  While it can be very important to tie up assets at an early stage of a case so you have a better chance at collecting, seeking this kind of order is a lot of work.  And you can understand why.  A judge is going to want to be pretty confident that you are going to win before making this kind of an order.  So you need a strong case. And it needs to be clearly presented so a judge can rule in your favor.

The more formal term for this process is “attachment”.  There are specific forms which must be correctly completed to apply for this kind of an order.  In addition to the mandated forms the party seeking an attachment must present legal authorities supporting the request as well as admissible evidence in support of the claim.  This will include declarations from eye witnesses as well as properly authenticated business records. 

An attachment can be requested on little or no notice.  This is called an ex parte application.  If there is an emergency, such as a sale of a business or evidence of assets being dissipated, then you might be able to get an order on a day’s notice or even in secret.  This is a very drastic request so you need a compelling situation to justify it.  If your showing falls short you may still be eligible for a temporary protective order to maintain the status quo until the application can be heard on regular notice.  That will be closer to a month.  Technically it is sixteen court days plus time for service.    

Another requirement for an attachment is that if it is allowed, you must post a bond in order to get papers issued to actually do something with the attachment.  Typically the bond is $10,000.  The premium for that will be a few hundred dollars per year.  It is important to know that a bond is not quite like an insurance policy.  If you lose the case then the other side can make a claim for damages for what will be seen as a wrongful attachment.  If the bonding company pays then they will want to be repaid.  So bonding companies will need some financial information and may run a credit report on you.  To avoid a lot of work for nothing I usually have my clients apply for the bond first to be sure they qualify.  Unfortunately I have seen people turned down. While that was unfortunate it was better to learn that early rather than after going to all the work.

Once an attachment is allowed you may tie up assets.  What exact form that will take will depend on what the asset is.  This does not mean that you get the money while the case is pending.  Instead the idea is that money, assets or other property are taken by the sheriff or otherwise subject to a lien such that they will not disappear while the case is pending.

An attachment is a powerful remedy.  It can make a dramatic difference in a case and improve your chances for collecting.  So instead of being frozen out by a breaching counter-party, see if you can freeze some assets instead.

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