Sour Grapes For Freezing Orders ' English Court Of Appeal Addresses When "frozen" Assets May Be Used In The "ordinary And Proper Course Of Business"

• Published date: 25 August 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Directors and Officers, Trials & Appeals & Compensation, Shareholders
• Law Firm: Mayer Brown
• Author: Mr James Whitaker and Robert Slattery

So you have a freezing order against a start-up company, now what? Can that start-up use the assets which are the subject of your order, or any of its other assets, to continue to pursue its risky business, or must it stay idle and wait for the inevitable?

The Court of Appeal's recent decision in Organic Grape Spirit Ltd v Nueva IQT, SL¹ provides some useful guidance on this issue in the context of the "ordinary and proper course of business" exception to freezing injunctions, holding that a start-up may be able to use the subject assets in certain circumstances, and that the Court has no business assessing an appropriate or acceptable level of risk.

Background to the case

Nueva IQT, S.L. ("Nueva") is a Spanish company ultimately owned by members of the Bertolino family. Mr Michele Guilno Bertolino was, at the relevant time, one of two managing directors of Nueva. The Appellant, Organic Grape Spirit Limited ("OGSL"), is a British company incorporated in May 2019; its only issued shares are held by Michele's son, Mr Federico Gulino Camerero.

Between 23 September and 11 October 2019, sums totalling '12 million were transferred to OGSL from Nueva pursuant to a contract by which Nueva purportedly agreed to lend OGSL up to '20 million. According to Federico's witness statement, filed in the proceedings, the plan "is to produce spirits with tailored flavours that can meet the standard of different markets by, first producing the desired aromatic compounds in the fermented wine and then to separate them with extreme precision and to blend them subsequently into the final product" which he claimed to have followed almost exactly (the "Business Plan"). Since then, some '1.6 million had been spent setting up a plant and purchasing equipment - the main items being three warehouses in Kent and other items such as distillation columns, fermenters, a yeast inoculator and buffer tanks.

Following the removal of Michele, and another of Nueva's directors, at a general meeting, and with new directors in place, Nueva issued proceedings against OGSL in Spain challenging the validity of the loan on the basis that, amongst other things:

• Michele did not have authority to enter into the contract;
• the contract required the approval of Nueva's shareholders; and
• Michele had acted in bad faith.

On 13 March 2020, Nueva issued a claim for a worldwide freezing order². Mr Justice Nugee granted the injunction, effective until the end of the month. However, he explained that the order was not intended to prevent expenditure on the business that Federico was seeking to develop, stating that "[i]f you are genuinely trying to develop a new business, I do not regard that as dissipatory, even if the business may be imprudent, even if the business plan may be sketchy and somewhat shaky. Trying to develop a business is not the same as avoiding a judgment." Indeed...