When a company goes into liquidation, it is not unusual for individuals associated with the company, often directors, to take steps to move or restructure assets to defeat creditors’ interests. This typically occurs when a director or another party is aware, or suspects, that the company or the liquidator has a potential claim against them.
So, what can a liquidator do to prevent the dissipation of assets? This article will discuss two possible remedies: the pre-judgment charging order and the freezing order.
Pre-judgment charging order
The pre-judgment charging order is a property-specific remedy that restricts dealings with the designated asset, and, in the case of land, can be registered against the title. An application for such an order is made under rule 17.41 of the High Court Rules 2016 (the Rules). The applicant must seek leave of the Court to issue the charging order, given it is sought pre-judgment.
To obtain such an order, the applicant must demonstrate that their claim against the defendant is genuine and has a reasonable prospect of success. Additionally, the application must be supported by solid evidence showing that the defendant is attempting to remove, conceal, or dispose of assets, or is leaving New Zealand, or planning to leave, with the intention of defeating creditors.
While a pre-judgment charging order is a powerful tool, given it provides stronger asset protection, it can be difficult to obtain given the high standard of proof required.
Freezing order
Another option available, which does not have such a high a standard of proof, is the freezing order. This is a remedy aimed at restraining a person or entity from disposing of assets subject to the order. To succeed in obtaining a freezing order, the applicant must meet three requirements. First, they must show they have a good arguable substantive claim against the defendant. Second, there must be assets owned by the defendant that can be subject to the freezing order. Third, the applicant must demonstrate a genuine risk that the defendant might remove, dispose of, or diminish the value of these assets. To apply for a freezing order, an application is made under rule 32.2 of the Rules. The High Court has accepted that a freezing order may be granted without the need to show the same nefarious intent to defeat creditors as is required with the pre-judgment charging order.
When applying to the Court, a liquidator may consider requesting both orders as alternatives. They could in the first instance seek a pre-judgment charging order, and if unsuccessful, it may still be that the necessary requirements have been met for the granting of a freezing order in the alternative.
If the freezing order relates to land, the liquidator could also request ancillary orders under rule 32.3 of the Rules, such as serving the Registrar-General of Land with the freezing order. This may ensure greater protection of the asset against non-compliance by the defendant with the order. In Royal v Zheng[1], the Court granted such an order, recognizing the risk of non-compliance with the freezing order and the potential for asset dissipation.
[1] Royal v Zheng [2025] NZHC 370.
