Asset-Preservation Orders Act Summary

The Uniform Asset-Preservation Orders Act (UAPOA) creates a uniform process for the issuance of asset preservation orders, which are in personam orders which presents assets of a defendant, by preventing their dissipation and imposing collateral restraint on nonparties such as the defendant’s bank, in order to preserve assets from dissipation, pending judgment.

In the United States, the primary remedy against asset dissipation has traditionally been an “in rem” order prohibiting the transfer of specific assets. Such pre-judgment attachments are based in equity and require particularized showings of fraud. On the other hand, some courts in this country have issued “in personam” asset preservqtion orders where those orders were necessary to prevent a defendant from dissipating assets where it appeared that no assets would be left to satisfy a potential judgment even if fraud did not underlie the claim.

The viability of asset-preservation orders was called into question by the decision of the United States Supreme Court in Grupo Mexicano de Dessarolo v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999). In that case, the trial court issued an in personam order restraining a Mexican company from dissipating assets which were pledged to satisfy notes held by American investors. The appellate court affirmed the order but the Supreme Court found that federal courts lacked the jurisdiction to issue asset preservation orders because they were not part of the common law at the time the federal court system was created. The court further noted that the decision whether to provide federal courts the power to issue asset-preservation orders was to be made by the legislature.

Although, the Grupo Mexicano decision involved the jurisdiction of the federal courts, it caused some confusion in the state court system over the propriety of asset-preservation orders. Some state supreme courts concluded, in the wake of that decision, that courts in their state lacked the authority to issue those types of orders. At least one state supreme court concluded the opposite. The UAPOA is designed to remedy this current lack of uniformity on the question of whether courts have the power to issue and recognize asset-preservation orders by providing states with a uniform act that authorizes the issuance of asset-preservation orders and provides for the recognition and enforcement of asset-preservation orders by other states and courts outside the United States.

An asset-preservation order is, by its very nature, an extraordinary remedy with potentially significant impact on the debtor whose assets are frozen and on third-parties holding those assets. Accordingly, it is extremely important that there be rigorous standards which must be met before such an order can be issued. The UAPOA provides appropriate procedural safeguards to both debtors and non-parties.

The UAPOA, in Sections 4, 5 and 7, provides a rigorous process for the issuance of an asset-preservation order with notice. The standards contained in those sections borrow heavily from the procedural protections found in two well-developed sources: the already existing law relating to asset preservations orders in England and Canada, and the already existing law in the United States relating to the issuance of Temporary Restraining Orders and Preliminary Injunctions.

Under the provisions of the Act, a party can obtain an asset-preservation order only if it establishes that there is substantial likelihood that the assets of a party against which the order is sought will be dissipated so that the party seeking the asset preservation order will be unable to receive satisfaction of the judgment (Section 4).

The Act also allows for the issuance of an asset-preservation order without notice (Section 5). The Act requires the party seeking the order to conduct a reasonable inquiry and disclose all material facts that weigh against the issuance of the order.

The UAPOA authorizes a court to require security to protect a party against the wrongful issuance of an asset-preservation order (Section 7). It also requires a party on whose behalf an asset preservation order has been entered to indemnify a nonparty for the reasonable costs of the compliance and to compensate the nonparty for any loss caused by the order. This requirement exists whether or not the motion for the order was properly granted.

Since asset-preservation orders also impact non-parties, it is important that the obligations of non-parties be set out with specificity. Those obligations are set out in the UAPOA. Under the provisions of the Act (Section 6), nonparties served with an asset-preservation order shall promptly take all necessary and appropriate actions to preserve the assets held on behalf of the party against which the order is issued. The nonparty is provided significant protection because a court, assessing the promptness of a nonparty’s response to as asset-preservation order, must take into account the manner, time of service and other factors that reasonably affect a nonparty’s ability to comply.

Lastly, the UAPOA also contains a mechanism for recognition and enforcement of asset-preservation orders issued by other states and from foreign courts (Sections 8 and 9). The recognition and enforcement mechanism borrows heavily from the Uniform Foreign Country Money Judgments Recognition Act. The UAPOA, thus, provides valuable protection for a citizen or business entity that has obtained an asset-preservation order from another state court or foreign court.