When Can the Ordinary Business Expenses Exception to a Freezing Order Be Limited?

Last Updated on 24/07/2026 by Damin Murdock and Malak Amgad

Plaintiffs resort to freezing orders to preserve assets so that any judgment ultimately obtained by them is not worthless. However, freezing orders are not designed to harm businesses and bring them to a standstill. This is why, normally, the respondent is allowed to continue dealing with assets in the ordinary and proper course of business. This usually includes paying employees, suppliers, rent, utilities, taxation liabilities and other genuine trading expenses.

However, just because a respondent claims that some assets are ordinary business expenses doesn’t mean that they will have unrestricted access to them. In fact, courts have recognised that when the payments made are not genuine business liabilities, where the plaintiff asserts a proprietary interest in the assets, or where permitting the payments would undermine the purpose of the freezing order, the ordinary business expense exception is restricted.

In this article, we examine how NSW courts approach the ordinary business expenses exception and the circumstances in which it may not apply.

The general rule: Courts generally do not interfere with genuine business expenses

The NSW Court of Appeal recently considered the principles governing freezing orders in Aqualand North Sydney Lavender Developments Pty Ltd v The Owners – Strata Plan No 102081 [2025] NSWCA 143.

Although the case concerned whether a freezing order should be granted rather than the wording of its exceptions, the Court recognised that respondents are ordinarily entitled to continue conducting their businesses in the usual way. Ordinary commercial dealings are not restrained merely because they reduce the assets ultimately available to satisfy a judgment.

The authorities approved by the Court explain that there is generally no objection to a respondent continuing to pay genuine business expenses or trade with creditors in the ordinary course of business, even if those dealings reduce the practical value of the freezing order.

This reflects the fundamental distinction between preserving assets from illegitimate dissipation and preventing legitimate commercial activity.

When may the exception be restricted?

Although the ordinary business expenses exception is interpreted broadly, NSW courts recognise that different considerations arise in particular circumstances.

Where the plaintiff asserts a proprietary claim

One of the most significant exceptions arises when the plaintiff claims ownership of or a proprietary interest in the relevant assets.

In National Australia Bank Ltd v Human Group Pty Ltd (No 2) [2020] NSWSC 1900, Henry J recognised that different considerations apply where the assets sought to be used are themselves the subject of a proprietary claim.

Ordinarily, a respondent is entitled to use their own assets for legitimate purposes pending trial. However, where the plaintiff alleges that the frozen assets beneficially belong to the plaintiff, there may be little justification for permitting those assets to be used to fund the respondent’s living expenses, business operations or legal costs before ownership has been determined.

The decision demonstrates that the nature of the plaintiff’s claim is highly relevant when determining the scope of any exception.

Where the payment is not a genuine business liability

The ordinary business expenses exception protects genuine commercial obligations. It does not automatically protect every payment made from a company’s bank account.

This distinction becomes particularly important where directors transfer company funds to themselves.

If there is no employment agreement, approved remuneration, declared dividend, loan agreement, reimbursement entitlement or other lawful corporate obligation supporting the payment, it may be difficult to characterise the payment as a business expense bona fide and properly incurred.

Whether a payment genuinely falls within the ordinary course of business depends upon its legal character, not simply the description given to it by the respondent.

Where the alleged payment forms part of the wrongdoing

Another important consideration is whether the very payments sought to be protected are themselves alleged to constitute the misconduct in issue.

In ASIC v Adler [2002] NSWSC 171, Santow J confirmed that directors owe fiduciary and statutory duties requiring company assets to be used for proper corporate purposes.

Although ASIC v Adler was not a freezing order case, it remains one of Australia’s leading authorities concerning the misuse of company funds by directors.

Where proceedings allege that company funds have been improperly diverted for a director’s personal benefit, the respondent may face considerable difficulty establishing that further payments of the same nature constitute genuine business expenses falling within the standard exception.

Rather than protecting ordinary trading liabilities, the Court may conclude that the proposed payments are themselves part of the alleged dissipation of assets.

Different considerations apply to trust property

NSW courts have also recognised that trust property raises additional considerations.

In In the matter of Courtenay House Capital Trading Group Pty Limited (in liquidation) [2018] NSWSC 1918, the Court observed that there is no general presumption that trust assets should be available to fund a respondent’s personal living expenses or legal costs.

Where trust property is involved, the Court may adopt a more restrictive approach than would ordinarily apply to assets beneficially owned by the respondent.

Practical considerations when relying upon the exception

Respondents should not assume that every outgoing payment will fall within the ordinary business expenses exception.

Courts will generally expect payments to be supported by objective evidence demonstrating that they are genuine commercial liabilities properly incurred.

This may include employment agreements, board resolutions approving remuneration, loan documentation, invoices, taxation obligations, supplier contracts or other contemporaneous records demonstrating that the payment arises from a legitimate corporate obligation.

Where there is genuine uncertainty, the prudent course is often to seek the Court’s approval or a variation of the freezing order rather than risk allegations of contempt.

Key lessons from the authorities

The NSW authorities demonstrate several important principles.

First, freezing orders are designed to preserve assets rather than provide security for a plaintiff’s claim.

Secondly, respondents will generally be permitted to continue paying genuine business expenses incurred in the ordinary and proper course of business.

Thirdly, the exception is not absolute. It may be restricted where the plaintiff asserts a proprietary interest in the assets, where trust property is involved, or where the payments themselves are alleged to constitute the wrongful diversion of assets.

Finally, directors cannot assume that payments made to themselves will qualify as ordinary business expenses merely because they control the company’s bank accounts. The Court will examine whether there is a genuine legal entitlement supporting those payments.

How Leo Lawyers Can Help

Freezing orders frequently arise in shareholder disputes, director disputes, fraud claims, insolvency proceedings and commercial litigation. Whether a particular payment falls within the ordinary business expenses exception can significantly affect both the preservation of assets and the ongoing operation of a business.

Leo Lawyers regularly acts for applicants and respondents in urgent injunction proceedings, freezing orders and complex commercial disputes. If you require advice regarding a freezing order or asset preservation proceedings,  feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our newsletter via our Website, and subscribe to our YouTube, LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favorable Google review.  

DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article, and if you require specific legal advice, please contact us.