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Creditors can seize funds despite Mareva injunction

2018-02-21

Marlin Horst head shot

While a Mareva injunction is an effective tool to stop another party from dissipating their assets, a recent Ontario Court of Appeal (OCA) ruling confirms that it will not keep a creditor from being able to access those funds, Toronto corporate and commercial lawyer Marlin Horst tells AdvocateDaily.com.

In the case, one company was granted a Mareva injunction against another. However, a creditor later applied to vary the injunction, so that it could seize money in the second company’s account under a properly issued writ of seizure and sale.

While the company appealed the motion judge’s decision to vary the Mareva injunction, the OCA dismissed the appeal, noting: “... the appellant’s Mareva injunction gives it no proprietary interest in the funds in 701. It has been unable to date to prove or establish its claim in respect to account number 701. There is no basis for the third party, [the creditor], to suffer prejudice as a result.”

Horst, a partner with Shibley Righton LLP, says the ruling shows the courts will not stand in the way of a party who has received judgment from executing against funds in a bank account, even if a Mareva injunction is in place.

In addition, he says, if a party had been given security over their assets, a Mareva injunction would not stop the secured party from having the right to realize on those assets.

“If you’re looking to get a Mareva injunction, what you have to remember is that it’s a court order that stops the person you’re getting the injunction against from dissipating their funds. You’re not freezing those assets. It doesn’t mean that other creditors don’t have access to those assets — they do,” says Horst, who was not involved in the matter and comments generally.

“Of course they have to get a court order, but the court will generally grant the right to seize those assets if they are a legitimate creditor, even if there is a Mareva injunction,” he adds.

In this case, for example, the creditor took the correct procedural route, including proceeding with an action, receiving a judgment and going to the sheriff.

“At the last minute, there was a Mareva injunction in their way of realizing on the assets that were available to them. The appeal court ruled it is not going to stop a creditor from being able to access those funds,” Horst says.

While the ruling will not likely stop individuals from seeking a Mareva injunction in the right circumstances — generally, in the early stages of a lawsuit when one party thinks another may breach an agreement and they want to make sure that the assets aren’t dissipated before they have a chance to bring their action — Horst says it shouldn’t be viewed as a ‘freezing’ of the assets.

“It’s just an injunction against the specific person using those assets themselves.

“It’s important for someone getting that injunction to recognize all they’re doing is stopping the other party from using the assets, they’re not stopping the other creditors from having access,” he says.

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2018-02-21