Asset recovery in times of turmoil
By Jon Felce
Jon Felce outlines adaptable strategies and legal tools for asset recovery in a changing geopolitical landscape
In the late 20th century, a prolonged period of peace and stability led to flourishing international relationships, transforming the world economy into a truly global entity. However, the gradual erosion of this world order poses new challenges for businesses and professionals, as they confront the potential breakdown of these relationships, the emergence of new conflicts and the impact of global events beyond their control. In such a landscape, disputes are inevitable.
The crucial questions then arise: how can a party assert its rights? What strategies are available for recovering from counterparties, whether sanctioned or not, located in warzones or regions experiencing political upheaval or other forms of turmoil?
While these scenarios undoubtedly present significant hurdles in asset recovery, they are not insurmountable. A combination of creativity, perseverance, and a well-devised, adaptable strategy can open pathways for at least partial asset recovery. This article delves into various considerations for navigating these complex situations.
It is important to recognise that, hopefully and over time, bad times give rise to good times. As soured relationships become restored and repaired, today’s pariahs or adversaries may be tomorrow’s allies. Resting on your laurels may be a false economy, not just because asset recovery may be possible at some point in the future, if not today.
But as there are time limits for commencing legal actions failing which such claims can become time-barred, with different jurisdictions having different rules in that regard. Helpfully, the English courts have recently confirmed that they can enter judgments and awards in favour of sanctioned parties.
The overarching climate does not necessarily mean that the parties cannot simply resolve the matter themselves. It is important not to lose sight that it may be possible for them to sort out an orderly end to a dispute. If that fails, then other options may be available.
Of course, it may be the case that the only assets are those in the affected jurisdictions. This was the position a Ukrainian client took earlier this year in relation to his asset position following a substantial arbitration award against him. However, if the recovery of assets in the impacted jurisdictions has become unrealistic, then it may be the case that the relevant party has assets elsewhere in locations where enforcement may be easier.
Sometimes it may be possible to target third parties, who may be located or have assets in a more stable jurisdiction. There are various ways in which this could manifest. For instance, third parties may hold assets on behalf of the real target, whether as nominee or in some other form of structure. This may be more likely in times of change, as parties try to mask their true ownership and control over assets to seek to reduce the risk of them being targeted by governments and the like.
Third parties may be targets in their own right, because they have been a party to or complicit in the complained-about activity.
Alternatively, innocent third parties, again based in a favourable jurisdiction, may have their own relationships with the target and this may present a route to recovery to the extent that information can be obtained, payments can be seized or goods intercepted. On a related note, a party may not simply be able to walk away from its obligations without placing its other trading relationships in jeopardy. That may encourage compliance with any obligations.
Notwithstanding any perceived difficulties in recovering assets from the jurisdictions in turmoil, there are a wealth of legal tools available which may help to identify, preserve and ultimately enforce against assets. The English courts are particularly adept in granting such orders. These tools can be extremely powerful, not least when supported by penal notices which mean that, if not complied with, they can lead to finding of contempt of court and potential imprisonment. These consequences can often encourage potential or actual debtors to comply.
By way of overview, some of the types of legal tools that can assist, whether in support of domestic or overseas enforcement, include:
- Disclosure and discovery orders: these are orders that compel the production of information or documentation. Not only can they be granted against those from whom recovery is sought, but also third parties. Typically, these include banks and other financial institutions, but they can encompass anyone who may be able to assist. Indeed, on one occasion I obtained such an order against a major department store where a judgment debtor had spent hundreds of thousands of pounds.
- Search and imaging orders: these orders require defendants to allow the applicant’s representatives to enter premises to search for, copy and remove material and to image electronic data.
- Worldwide freezing orders: together with search orders, one of the court’s so-called nuclear powers. These prohibit a party from dissipating assets. They are often supported by orders requiring disclosure of assets.
- Receiverships: a receiver can be appointed by the court to collect property over which it is appointed. These are increasingly used to protect assets and to enforce against them.
- Insolvency: insolvency procedures can often act as an effective tool for the recovery of assets.
- Criminal proceedings: in some jurisdictions, working with the criminal authorities can help to recover assets because of the tools available to them.
This is a non-exhaustive list of the types of relief that may assist. For example, in one of my prior cases we obtained orders permitting password cracking software to be run over electronic data, in order to seek to identify a debtor’s assets. A little creativity and an effective strategy can go a long way.
To the extent that actions at the state level impact investments in affected countries, there are various bilateral and multilateral conventions and treaties which can assist foreign investors to seek recompense for losses arising from them not being treated as fairly as nationals of the state in question.
Although we live in increasingly uncertain times, parties should not necessarily despair when faced with the prospect of a debtor in a jurisdiction undergoing significant change or instability or in the midst of a conflict. While extracting value may not be as simple as might otherwise be the case, it is not always beyond the realms of possibility.
Jon Felce is a partner at Cooke, Young & Keidan LLP