Freezing orders: applicants (including liquidators) face high hurdle to justify cap on cross-undertaking in damages

The Court of Appeal has set aside a freezing order obtained by a provisional liquidator within winding up proceedings, on the basis that the cross-undertaking in damages given by him was inadequate because it was limited to the amount recovered for the estate. The liquidator had not discharged the burden of showing good reason to depart from the “default position” that a cross-undertaking should be unlimited in amount: Hunt v Ubhi [2023] EWCA Civ 417.

The decision provides useful Court of Appeal guidance as to the matters that any applicant for a freezing order who proposes a limited cross-undertaking should be prepared to address, supported by evidence to the extent possible. They include: whether there are other interested entities (such as creditors in an insolvency) who have a sufficient stake in the proceedings and the financial means to support an unlimited cross-undertaking; any other potential source of funding; the possibility of insurance; and the practical value of the proposed undertaking in the particular circumstances.

The decision is also of particular interest for the confirmation that the default position described above applies equally in an insolvency context, and the fact that an insolvency office holder is seeking the freezing order for the benefit of others will not on its own justify a cap on their cross-undertaking.

For more information on the decision see this post on our Civil Fraud and Asset Tracing Notes blog.