David Farnell and Ben Lowans look at one option open to lessors for recovering assets promptly
Lessors are familiar with the court’s power to order the delivery-up of goods which are, or may become, the subject of proceedings, otherwise known as an interim delivery-up order (IDO), an invaluable weapon for lessors seeking to recover assets promptly.
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Whenever lessors want to recover assets, they usually apply to the court for a return of goods order (ROG).
The lessor gives the lessee or third party in possession of the asset (the respondent) notice of the application, which the court might not hear for three months or more.
If in the meantime the respondent files a defence, the court may adjourn the hearing and draw the lessor into protracted litigation.
In an appropriate case the lessor can instead apply for an IDO before commencing proceedings and without notice to the respondent. For example, where:
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By GlobalData- The asset is mobile and the lessor has just acquired evidence that the respondent is likely to dispose of the asset, or has threatened to damage it;
- Following the lessee’s appointment of administrators, the lessor has just discovered that without prior consent the asset is in the hands of the respondent (who might for instance be the lessee’s former director/a phoenix company which has not purchased the asset from the administrators, or the lessee’s former contractor or sub-lessee)
- A lessee retains the asset after termination, but the lessor has evidence that the lessee’s financial position is weak.
The court may make an IDO even if the asset isn’t in jeopardy, but the court’s power is discretionary, so the lessor must present as strong an argument as possible that a later award of damages (for the asset’s loss) is unlikely to be a sufficient remedy.
Lessors should support applications with a full and frank witness statement, which explains all the salient facts and discloses all relevant documents.
If the court decides to make an IDO without notice to the respondent, then (as with other forms of injunction such as freezing and search orders) the court will demand that the lessor undertakes to pay damages to the respondent should it later transpire that the IDO shouldn’t have been made (eg because of the lessor’s non-disclosure of material facts when presenting the application to the court). Alternatively the court may prohibit the respondent from disposing of it without the court’s permission (Preservation Order).
The court will also list the matter for a return day, on notice to the respondent, for the purpose of hearing both parties and deciding whether the IDO or Preservation Order should continue. Invariably in our experience, service of the IDO or Preservation Order on respondents persuades them to negotiate and prompts a settlement before the return day. Applying for an IDO is therefore a highly effective way for the lessor to protect assets, resolve fledgling disputes and save costs. Compared to other types of injunction, the IDO is inexpensive. While ROG remains the standard way for lessors to recover assets, it’s perhaps surprising that the IDO isn’t used more often.
Ben Lowans is a partner and David Farnell a managing associate at Addleshaw Goddard
