When can a creditor freeze a third party’s assets?

Getting a judgment is one thing. Getting paid is another.

One tool in a creditor’s toolbox is to seek a freezing order to stop the dissipation of assets prior to judgment.

But what happens if the assets are not owned by the defendant, but by an associated company or other third party?

On 13 February 2026, the High Court in Da Costa Enterprises Ltd v Mellow made an order freezing a third party’s assets on the basis that:¹

The third party owed a debt to the defendant and the plaintiff could, in due course, use court processes to require the third party to pay its debt to the defendant (for the ultimate benefit of the plaintiff); and
The plaintiff could establish a risk that the third party would dissipate its assets.

The judgment represents an important development in New Zealand law in both respects. It will be of interest to any creditor considering a freezing order or dealing with a debtor who uses corporate structures to hold assets.

Facts

The plaintiffs were a group of property development companies. They alleged that their accountant (Mr Mellow) was liable for losses arising from tax compliance issues. Mr Mellow had recently died, so the plaintiffs brought a claim against his estate and obtained a freezing order against its executors (Mr Mellow’s widow and brother).

Mr Mellow (and now his estate) was also the sole shareholder of a company, Melbros Limited (Melbros). Melbros was a sole-purpose vehicle which owned a residential property in Hamilton. A company in the plaintiff group was contractually obliged to buy the property from Melbros for NZ$820,000.

The plaintiffs applied for a freezing order against Melbros to freeze the sale proceeds once the transaction completed.

Freezing orders against defendants and third parties

A freezing order can be obtained against a defendant if there is a good arguable case on the substantive claim, assets to which the order can apply, and a real risk that the defendant will dissipate those assets prior to judgment.

According to the New Zealand High Court Rules, a freezing order can also be made against a third party where:

there is a danger that the judgment will be unsatisfied because the third party: (a) has a power of disposition over assets of the defendant; or (b) is in possession of, or in a position of control or influence concerning, assets of the defendant (r 32.5(5)(a)); or
a court process is (or may ultimately be) available as a result of the anticipated judgment, under which the third party may be obliged “to disgorge assets or contribute toward satisfying the judgment” (r 32.5(5)(b)).

The first category is straightforward: if the third party is holding the defendant’s assets (for example, as trustee) or has a power to dispose of the defendant’s assets (for example, via a power of attorney), then the court can make a freezing order.²

But what about the second category? This was the focus of the Court’s decision in Da Costa.³

Court’s analysis and decision

The Court adopted a broad interpretation of r 32.5(5)(b). It traced the origin of the rule to the High Court of Australia in Cardile v LED Builders Pty Ltd.⁴ The majority in that case held that what was needed was:

“some process, ultimately enforceable by the courts, … available to the [plaintiff] as a consequence of a judgment against [the defendant], pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the [defendant] to help satisfy the judgment against the [defendant]”.

It did not matter that the insolvency procedures depended on the exercise of discretion by an insolvency practitioner. However, the process needed to be “realistic, as opposed to fanciful or theoretical”.⁵

In Da Costa, that test was satisfied:⁶

First, the Court was prepared to infer that Melbros was funded by Mr Mellow by way of shareholder advances and, as a result, was a debtor of Mr Mellow. As a result, if the plaintiffs obtained judgment against Mr Mellow’s estate either:

1. That judgment might lead to the estate’s insolvency following which the assignee would be able to pursue a claim against Melbros for the debt owing to the estate; or
2. The Court could appoint a receiver in aid of execution of the judgment against the estate, which could then enforce the debt owed by Melbros.
  
  In either case, this was a “process” which satisfied the requirements for r 32.5(5)(b).
Second, even if there was no debt owing from Melbros, Mr Mellow’s estate was the shareholder of Melbros. The assignee or receiver could exercise rights over the shares for the benefit of the plaintiffs. Again, r 32.5(5)(b) was satisfied.

The Court went on to consider whether a risk of dissipation needed to be shown. It noted that previous cases had suggested that there was no such requirement, based on a literal reading of r 32.5(5)(b) (the terms of which contrast with r 32.5(5)(a)).⁷ However, the Court concluded that, whether or not required by the terms of the rule, a risk of dissipation would need to be shown before the Court would exercise its jurisdiction to make an order under r 32.5(5)(b).⁸

On the facts, the Court found (narrowly) that there was a risk of dissipation and granted the injunction. It did, however, emphasise the highly invasive nature of a freezing order, especially against a third party, and made it clear that it would not have made the order if Melbros was not sufficiently connected with Mr Mellow.⁹

Comment

Creditors will welcome the Court’s confirmation of its broad jurisdiction to freeze third parties’ assets.

In particular, the judgment holds (it appears for the first time)¹⁰ that r 32.5(5)(b) can be engaged where a third party simply owes a pre-existing debt to – or is owned by – the defendant, provided there is a “realistic” prospect that a liquidator, assignee or receiver would take legal action for the benefit of the plaintiff.¹¹

On the other hand, the Court also reinforced that it would be cautious before exercising its broad jurisdiction. However, in the right case, a freezing order against a third party will be a powerful weapon to deploy to maximise recoveries.

If you have any questions about this article, please get in touch with the contacts listed or your usual Bell Gully adviser

^1.Da Costa Enterprises Ltd v Mellow [2026] NZHC 214.
^2. As examples, see Monasterio v Bujak HC Christchurch CIV-2008-509-001901, 21 August 2009 (power of attorney); and Gracewood International Limited v Zhan [2023] NZHC 307 (allegation of trust).
^3. A submission was made that r 32.5(5)(a) was also satisfied, but this was swiftly dismissed at [21].
^4.Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 405.
^5. At [24].
^6. At [25]-[26].
^7. See Official Assignee v 22 O’Shannessey Limited [2022] NZHC 2930 at [71]; and Tian v Xu [2023] NZHC 2443 at [33].
^8. At [29]-[32].
^9. At [39(b)].
^10. In Allen v Commissioner of Inland Revenue (2004) 21 NZTC 18,718 (CA) at [108], the Court of Appeal raised the possibility of freezing a third party’s assets on the basis that the third party owed a debt to the defendant, but did not resolve the issue.
^11. In previous cases, plaintiffs have alleged that the third party could face claims under s 348 of the Property Law Act 2007 (e.g. Official Assignee v 22 O’Shannessey Limited [2022] NZHC 2930; Tian v Xu [2023] NZHC 2443) or under s 292 of the Companies Act 1993 (e.g. Frimley Estate Limited v Stonewall Homes Ltd HC Napier CIV-2009-441-237, 23 December 2010).

Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.