As part of the London International Disputes Week, Howard Kennedy hosted a panel discussion on the complex realities of cross-border asset recovery in the aftermath of fraud. In "Show Me the Money: Strategies for Beating Recalcitrant Debtors", the panel delved into the legal, commercial, and practical challenges of enforcing international judgments against debtors that go to great lengths to conceal assets or frustrate enforcement efforts.
Joel Leigh, Partner at Howard Kennedy LLP, chaired the panel discussion. He was joined by:
Alexandra Campbell – Senior Associate at Howard Kennedy LLP.
We have provided our key takeaways from the session below.
1. Consider the available processes and nature of the case
The panel reminded us of the principal goals of asset recovery: (1) finding and securing assets during legal proceedings at the pre-judgment stage; and (2) enforcement of a judgement against a party. The panel then considered - where should an asset recovery team begin on a typical case? What are the legal processes available? What are the key considerations when commencing a claim?
The panel determined that:
As a starting point, practitioners should understand how a fraud was achieved, as this will inform and assist with identifying and locating the recalcitrant debtor and potentially their assets.
Practitioners should then consider the tools available and assess which are likely to be the most effective. The panel discussed Bankers Trust Orders (enabling the client to trace funds through accounts), Norwich Pharmacal Orders (requiring a third party to disclose documents or information necessary to pursue the claim), Freezing Injunctions, Disclosure Orders (requiring respondents to provide full disclosure of their assets within the jurisdiction) and Passport Orders (requiring an intended Defendant to surrender their travel documents). Andy provided a valuable US perspective on the effectiveness on the US approach, including §1782 applications.
Practitioners should then assess the nature of the case intended to be brought (civil v criminal; national v international). This has a substantial impact on how the case progresses (e.g. costs, control, timing, and the burden of proof). While costs will tend to be lower for criminal proceedings, there is a resulting loss of control for the client. The burden of proof is generally higher for criminal proceedings, although in some circumstances they may be faster. The pros and cons of each route should be considered, understood, and weighed against each other.
The panel then touched on various challenges to enforcement that may result where debtors are acting internationally and using tactics to frustrate enforcement efforts. Where corporate structures have been designed to obscure asset ownership, the ability of courts to look behind these and 'pierce the corporate veil' is vital. In this context, Andy discussed enforcement proceedings against a sovereign state, which can be particularly tricky given sovereign immunity can protect it from legal action. Here, establishing pervasive control of an alter ego entity can be a powerful tool for claimants/creditors. Lily provided colour on how investigative work can complement these actions, revealing the depth of integration and control by a state, and potentially reveal strong enough connections to hold states accountable via their corporate arms.
2. Look to create leverage for settlement and effective recovery
With the groundwork established, the panel proceeded to discuss ways the ways asset recovery professionals can create leverage and ultimately force a recalcitrant debtor to the negotiating table. The panel discussed information, which is useful for discovering and assessing debtor weaknesses, and how that information can be used to create a position of strength.
Alex provided an overview of the different types of information which are useful. This includes the basic commercial facts (Where are the assets? What jurisdictions do they operate in?) in addition to more personal information (What details do we have in relation to their family i.e. are their children in private school? What details do we have of their social life and online presence?). Litigation can be incredibly expensive; cultural or societal pressure points may present a much faster and more effective route to recovery.
Andy provided detail on how some of this information can be discovered, specifically reflecting on the usefulness and breadth of post-judgment asset discovery in the United States. A key point is that the U.S. will allow creditors to pursue discovery regarding a sovereign debtor’s assets not only in the United States, but globally.
Once the relevant information is obtained, the asset recovery professional needs to make an assessment as to whether or not the debtor is going to engage with proceedings: will the debtor try to negotiate, will they become elusive, or will they instruct lawyers and try to delay through an appeals process? This will likely influence the jurisdictional strategy of enforcement, such as whether to focus on low-hanging fruit jurisdictions in the first instance.
Reputational considerations and non-legalistic options available
The panel then reflected on how to bring this pressure to focus, with particular attention paid to reputational considerations and how to best use the media to a practitioner's advantage. Lily provided a number of practical examples of the impact of media scrutiny on asset recovery, with the other panellists providing further colour from their own experiences.
Our takeaways were:
Ensure you have a good understanding of which media in which jurisdictions, need to be taken into account, whether these organisations are likely to have a position on your case, and what they will have access to in terms of documentation.
If privacy is a key concern and the client would prefer to avoid media scrutiny, some jurisdictions may be more preferrable than others (i.e. initiating proceedings in smaller European jurisdictions may better than in London where there is significant tabloid coverage).
Media can help settlement efforts enormously, but only when you are able to exert control over the narrative and use it to enhance and support litigation strategy. This requires a properly scoped out communications strategy, which really needs to be in place from the outset.
Stakeholder engagement and commercial pressure can be instrumental in bringing parties to the table. Business reputation is something that certain parties are very mindful of (consider Warren Buffet and Berkshire Hathaway – reputation was a big factor in his business success!).
The event concluded with several more colourful stories from the panellists and a Q&A from the audience.
Recording of the panel discussion
If you missed our panel discussion, or would like to watch it again, it's not too late! You can find a recording of the discussion here.
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