Court Appointed Receivership (“CAR”) is a flexible, protective measure under English law aimed at the securing, preserving, and potentially recovering assets of a company, an individual (or both) which are subject to Court proceedings.
The English Court has the jurisdiction to appoint a Court Appointed Receiver (“Receiver”) in all cases where it is persuaded that it is just and convenient to do so. This is a relatively low threshold test. Indeed, the Court may appoint a Receiver at an interlocutory stage of proceedings, or upon its final order or determination.
The power of the High Court to appoint a Receiver is contained in Section 37 of The Senior Courts Act 1981, which also deals with the Courts’ powers in respect of granting injunctions. The relevant statute is set out below and demonstrates how wide and flexible the procedure is:-
Powers of High Court with respect to injunctions and receivers
(1) The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.
(2) Any such order may be made either unconditionally or on such terms and conditions as the court thinks just.
(3) The power of the High Court under subsection (1) to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with, assets located within that jurisdiction shall be exercisable in cases where that party is, as well as in cases where he is not, domiciled, resident or present within that jurisdiction.
(4) The power of the High Court to appoint a receiver by way of equitable execution shall operate in relation to all legal estates and interests in land; and that power—
(a)may be exercised in relation to an estate or interest in land whether or not a charge has been imposed on that land under section 1 of the Charging Orders Act 1979 for the purpose of enforcing the judgment, order or award in question; and
(b)shall be in addition to, and not in derogation of, any power of any court to appoint a receiver in proceedings for enforcing such a charge.
(5) Where an order under the said section 1 imposing a charge for the purpose of enforcing a judgment, order or award has been, or has effect as if, registered under section 6 of the Land Charges Act 1972, subsection (4) of the said section 6 (effect of non-registration of writs and orders registrable under that section) shall not apply to an order appointing a receiver made either—
(a)in proceedings for enforcing the charge; or
(b)by way of equitable execution of the judgment, order or award or, as the case may be, of so much of it as requires payment of moneys secured by the charge.
In practice, injunctions and receiverships often work together as we will see, and develop, this in a subsequent article.
Judicial Approach to Opaque Asset Structures and Enforcement Risk
The way the defendants’ assets are held is likely to be key to any successful receivership appointment as “opaque” asset holding structures, in practice, have been found to render a worldwide freezing injunction as insufficient protection. As Robert Walker, J, said in the case of International Credit and Investment Co. (Overseas) Limited vs Adham [1998] BBC 134. “ it has become increasingly clear, as the English High Court regrettably has to deal more and more often with international fraud, that the court will, on appropriate occasions, take drastic action and will not allow its orders to be evaded by the manipulation of shadowy, offshore trusts and companies formed in jurisdictions where secrecy is highly prized and official regulation is at a low level”
The English Court will proceed with caution when looking to appoint a Receiver, especially at an interlocutory stage of the proceedings. That said, the Court can, and will, intervene in appropriate circumstances.
A seminal case in which the Court were persuaded to appoint a Receiver in such circumstances is the case of JSC BT bank v Ablyazov (a case in which the writer has particular knowledge, as he is the lead Receiver in that matter).
As Maurice Kay LJ said in the Ablyazov case ([2010] EWCA Civ 1141) “it is true that the appointment of a receiver is a very intrusive remedy. It is also expensive and not easily reversible. These considerations can, however, be ameliorated by an appropriately fortified undertaking in damages. A receivership order will no doubt be completely inappropriate in the ordinary, freezing order case where assets are constituted by money in bank accounts (in respect of which the relevant bank can be given notice) or by immovable property. The order will therefore only be appropriate in cases where an injunction is insufficient on its own. Such cases are only likely to arise where there is a measurable risk that, if it is not granted, a defendant will act in breach of the freezing order, or otherwise seek to ensure that his assets will not be available to satisfy any judgement, which may due course be given against him. If, therefore, the method by which defendant beneficially holds his assets is transparent, a receivership order may not be necessary. But if it is opaque and there is reasonable suspicion that such opacity will be used by a defendant to act in breach of a freezing order, it may well be the case that receivership order is appropriate.”
Indeed, the dealing with assets in breach of worldwide freezing order can be a particularly good reason to grant a Receivership order. As Teare J said in JSC BTA bank v Ablyazov ([2010] EWHC 1779 (Comm)) “In a case where there is evidence that defendant has breached or is about to breach the terms of a freezing order the court may well conclude that the freezing order does not provide the claimant with adequate protection against the risk that defendants assets may be dissipated before judgement. It was suggested that such evidence is the only evidence capable of founding such a conclusion. I disagree. There may be other circumstances which show that the defendant cannot be trusted to obey the freezing order. In the present case, reliance is placed on the defendant’s inadequate disclosure of his assets. In my judgement, inadequate disclosure may, depending on the circumstances of case, enable the court to conclude that a freeing order does not provide the claimant with adequate protection.”
And as Popplewell J stated in the same case (JSC BTA Bank v Ablyazov [2013] EWHC 1979 (Comm)) “Mr Ablyazov does not hold his assets in his own name. His modus operandi has been for a trusted associate to hold shares in a holding company, or on his behalf and, by that means, to control the shareholdings in a chain of other companies at the bottom of which chain is an operating business… The use of nominee companies registered in offshore jurisdictions in this way, makes it difficult to trace his assets. The structure enables Mr Ablyazov to instruct his nominee to dispose of an asset, or to transfer an asset from one offshore company controlled by the nominee to another also controlled by the nominee and in this way to make it difficult to identify the assets or for them to be available for enforcement.”
Creative counterparties spend a disproportionate (and often, very effective) amount of time designing structures and activities to thwart enforcement. Lawyers and asset recovery specialists must think and act creatively to be a step ahead.
As Abraham Maslow is often quoted as saying “If your only tool is a hammer then every problem looks like a nail”.
So, in our next article we will explore the framework and mechanics of how a Receiver can be appointed and how procedure can be used, with a laser type focus, to effect recovery of judgments and arbitral awards.
For the lawyer with only a hammer we will explore the wonders of the tool kit!
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