Last March, I wrote an article entitled "New Uniform Asset-Freezing Orders Act Has Rocky Start In Colorado", which related concerns by some practitioners that the new Act, which goes by the acronym "UAFOA", failed to adequately protect the interests of those parties that were affected by orders issued under the Act.
These concerns did not fall on deaf ears. The National Conference of Commissioners on Uniform State Law ("NCCUSL") quickly reviewed the various criticisms to the UAFOA, and made two major changes.
First, the Prefatory Note, i.e., the Introduction to the Act, was completely re-written to highlight the history background of the Act and the protection for parties served by a Freeze Order.
Second, the Official Comments, which give substantial guidance to the Courts as to how the Act is to be interpreted and implemented, were very significantly revised to give greater protection to parties served by a Freeze Order.
For instance, a party that receives a Freeze Order, i.e., is told to freeze certain assets pending the outcome of litigation, may seek the following relief:
- A party against which an asset-freezing order is entered may apply for relief from the order by posting a bond or other security in the amount of the damages sought or in an amount determined by the court [Section 4(c)].
- On at least 24 hours’ notice to the party that obtained the asset-freezing order, a party against which the order is issued may apply for an order permitting it to pay its ordinary living expenses, business expenses and legal representation [Section 4(d)].
- The court may limit an asset-freezing order to a certain amount or type of assets and may order appropriate accounting requirements [Section 4(e)].
- In the case of an asset-freezing order issued without notice, the party against which the order is issued may move to dissolve or modify the order and may apply for relief under Sections 4(c) and (d) [Section 5(d)].
- The court may require security from a party on whose behalf an asset-freezing order is issued to pay for costs and damages sustained by the party against which the order is issued if the order is later determined to have been improvidently granted [Section 7(a)].
But even beyond these protections, a party that receives a Freeze Order is given additional comfort:
- A nonparty is required to freeze the assets of a party only if the nonparty is served with the order [Section 6(b)].
- A nonparty served with an asset-freezing order may move to dissolve or modify the order [Section 6(e)].
- A party on whose behalf and asset-freezing order is entered shall indemnify a nonparty for the reasonable costs of compliance with the order and compensate for any loss caused by the order [Section 7(b)].
While no business likes to be involved in an asset freeze situation, these protections for parties served with Freeze Orders substantially mitigate the pain of compliance, and are more than reasonable to protect the rights of victims and parties that are the beneficiaries of Freeze Orders.
Creditor rights attorneys should open welcome the UAFOA and work towards its enactment in their states. The Act protects legitimate creditors by keeping scam artists, finally distressed debtors, and others from dissipating their assets before the judgment can be enforced against them. The Act creates an excellent construct for interstate and, to some extent, even cross-border actions to freeze a wrongdoer's assets.
With these additional protections, the UAFOA should now be adopted by every state. I strongly encourage this.
Having said that, I still have one minor problem with the UAFOA, being that annoying hyphen between "Asset" and "Freezing". Is that really necessary? Somebody needs to tell the Grammar Police to take a hike.
Other than that, the UAFOA is now ready to roll.
More information on the UAFOA is available at http://uniformlaws.org/Act.aspx?title=Asset-Freezing%20Orders%20Act
This article at http://onforb.es/1eVASDB and http://goo.gl/sgCD4D
