DIARY

Account Freezing Orders: Challenging Them and Recovering Costs

May 2026

What is an Account Freezing Order?

An Account Freezing Order (“AFO”) is a civil order made by the Magistrates’ Court under Part 5 Chapter 3B of the Proceeds of Crime Act 2002 (“POCA”), principally section 303Z3. An AFO permits the freezing of all or part of the funds held in a bank or building society account where an enforcement authority — such as the police, HMRC, the National Crime Agency, or another accredited agency — has reasonable grounds to suspect that the money represents the proceeds of unlawful conduct or is intended for use in unlawful conduct.

The statutory threshold for obtaining an AFO is relatively low. The enforcement authority need only establish reasonable grounds for suspicion; no criminal charge or conviction is required. Applications are frequently made without notice to the account holder, particularly where prior notice is said to risk prejudicing the investigation or any anticipated forfeiture proceedings. In practice, many account holders first become aware of the order only when informed by their bank that access to funds has been restricted.

Although an AFO applies only to the account or accounts specified in the order, banks may in practice impose wider restrictions on related accounts as part of their own anti-money laundering and compliance procedures. The commercial consequences can be severe, particularly for trading businesses dependent upon uninterrupted cashflow, payroll, or supplier payments.

AFOs were introduced in 2018 and have become an increasingly prominent enforcement tool. Official statistics published by the UK Government in September 2025 recorded 2,182 AFOs processed in the financial year ending March 2025 — a six-year high, representing an 18% increase on the 1,847 orders made the previous year. The volume of applications has increased every year since the regime was introduced, apart from a slight dip between 2020/21 and 2021/22. It appears these orders are now a mainstream rather than exceptional measure.

2,182 Account Freezing Orders were processed in the year ending March 2025 — a six-year high, and an 18% increase on the previous year. The volume has grown every year since the power was introduced.

 

Challenging an AFO: Variation and Set-Aside

Where an AFO has been made, there are two principal forms of challenge available under Chapter 3B of POCA: an application to vary the order or an application to set the order aside entirely.

Applications are made to the Magistrates’ Court under section 303Z4 POCA. In either case, the enforcement authority will be served with the application and afforded the opportunity to respond.

A variation application commonly seeks the release of funds required for specific purposes. In practice, this often involves seeking exclusions under section 303Z5 permitting access to funds for reasonable living expenses, legal expenses, or legitimate business outgoings during the course of the investigation.

A set-aside application challenges the continuation of the order itself, typically on the basis that the statutory threshold for reasonable suspicion is not adequately established on the evidence, or that the authority acted without proper basis in making the application.

Where an AFO is discharged and no forfeiture order is ultimately made, compensation may also be available under section 303Z18 POCA. However, compensation is available only in exceptional circumstances — a threshold which courts have consistently treated as demanding and which places a significant burden on the applicant.

Can Legal Costs Be Recovered?

The question of costs is frequently one of the most important practical issues in AFO litigation. Contested proceedings can involve substantial expense, particularly where business records, forensic accounting evidence, or detailed tracing evidence are required. Historically, even successful applicants often struggled to recover their legal costs from the enforcement authority.

Neither Chapter 3B of POCA nor the Magistrates’ Courts (Freezing and Forfeiture of Money in Bank and Building Society Accounts) Rules 2017 contains any express costs provision. The court’s jurisdiction to award costs is generally understood to derive from section 64 of the Magistrates’ Courts Act 1980, which confers a broad discretion to make such order as to costs as the court considers just and reasonable. Whether section 64 strictly applies to AFO proceedings — which are not formally constituted as complaints in the manner of cash forfeiture cases — is a point that has not been authoritatively resolved at appellate level, but courts have proceeded on the basis that a costs jurisdiction exists.

The more difficult issue has historically concerned the principles governing how that discretion should be exercised.

The Perinpanathan Approach: Why Success Did Not Automatically Lead to a Costs Order

The leading authority in this area is R (Perinpanathan) v City of Westminster Magistrates’ Court [2010] EWCA Civ 40, a Court of Appeal decision arising from POCA cash forfeiture proceedings.

The Court held that where a public authority has acted honestly, reasonably, and properly in the exercise of its public functions, the court may properly decline to award costs against it even where the private individual successfully resists the proceedings. The rationale was that enforcement authorities should not be deterred from bringing asset recovery proceedings in the public interest by the routine risk of adverse costs orders — the so-called “chilling effect” argument.

That approach represented a departure from the ordinary position in civil litigation, where costs generally follow the event and a successful party ordinarily recovers its costs. The practical consequence was that many successful applicants recovered their funds but nevertheless remained liable for their own legal costs — sometimes running to tens of thousands of pounds.

Many successful applicants recovered their funds but nevertheless remained liable for their own legal costs.

 

The Supreme Court’s Restatement: Flynn Pharma

The position was significantly clarified by the Supreme Court in Competition and Markets Authority v Flynn Pharma Ltd; Competition and Markets Authority v Pfizer Inc [2022] UKSC 14. I have relied upon this decision to recover costs in AFO proceedings, and it is now an essential authority in this developing area of law.

Giving the judgment of the Court, Lady Rose emphasised that earlier authorities such as City of Bradford Metropolitan District Council v Booth [2000] 164 JP 485 and Perinpanathan did not establish any automatic or universally applicable rule protecting public bodies from adverse costs orders.

Rather, the potential “chilling effect” upon the exercise of public functions is one relevant factor to be weighed in the exercise of the court’s discretion. Whether such a chilling effect genuinely arises is a fact-sensitive assessment for the court in the individual case — it cannot be assumed merely because the respondent is a public body acting in the public interest.

The significance of this restatement for AFO litigation is considerable. Courts may properly conclude, on the evidence before them, that an adverse costs order would have no realistic impact upon the proper discharge of enforcement functions. That conclusion is well-supported in the AFO context by the continued and substantial growth in the use of these powers: 2,182 orders were obtained in 2024/25 alone. A court asked to accept that a costs order in a clear case of unreasonable conduct would chill future enforcement activity faces a formidable evidential obstacle.

What Flynn Pharma establishes

In summary, there it may now realistically be argued that the following propositions are correct: there is no blanket immunity from adverse costs orders for enforcement authorities; the exercise of the costs discretion remains fact-sensitive in every case; the existence of any genuine chilling effect must be assessed on the evidence, not assumed; unreasonable conduct by an enforcement authority remains capable of justifying a costs order against it; the court hearing the case is best placed to assess whether any chilling effect is sufficiently plausible.

When Are Costs Likely to Be Awarded?

Even before Flynn Pharma, courts could award costs where an enforcement authority had acted unreasonably. That remains the clearest and most direct route to recovery. Examples drawn from the case law and practice include:

• obtaining an AFO on an insufficient evidential basis, where the statutory threshold of reasonable suspicion was not in fact met;
• failing to undertake basic investigative enquiries before making the application that would have revealed the legitimate provenance of the funds;
• failing to give full and frank disclosure to the court on a without-notice application;
• maintaining an AFO for an excessive period without meaningful investigative progress; and
• conduct which the court considers improper, unreasonable, or lacking proper foundation.

Where the enforcement authority ultimately does not oppose the discharge of the order, the court may treat that as a relevant factor when considering whether the continuation of the proceedings was reasonable and whether a costs order should follow. Non-opposition is difficult to reconcile with the stance of an authority that acted properly throughout.

Substantial financial hardship suffered by the account holder may likewise be relevant to the court’s overall assessment of what is just and reasonable in the circumstances of the particular case.

A Recent Case

I recently acted for a client whose business bank account was frozen following a without-notice application by the Metropolitan Police. The business was entirely legitimate, employing some 40 members of staff. The basis advanced for the AFO was that the business had made substantial payments to a firm of accountants linked to a fraud investigation.

No attempt had been made by the police to investigate the business itself, its trading activities, its contracts, or the commercial context of those payments before the application was made. The clincher, though, was that the business had only ever paid funds to the accountant.  A detailed and comprehensive application to set aside caused the Police to consent to the setting aside of the order.  Significantly for the client, the District Judge accepted that the grounds for reasonable suspicion were not properly established and that the application had been made unreasonably and a costs order was made against the Metropolitan Police who had argued that Perinpanathan protected them from an adverse costs order.

The case illustrates both the potential reach of AFO powers — capable of being deployed against businesses with no connection to criminality, on the basis of circumstances they could not have foreseen or controlled — and the importance of a properly prepared and focused challenge. A well-constructed costs application, drawing on the developing case law including Flynn Pharma, produced a result that many practitioners in this area would have considered unlikely even a few years ago.

The business was entirely legitimate, employed 40 staff, and had done nothing wrong. A properly prepared challenge resulted in the AFO being set aside and a costs order made against the Metropolitan Police.

 

Practical Steps

If an AFO has been made against you or your business, early specialist advice is essential. Important steps commonly include:

• obtaining the application notice and supporting evidence relied upon by the enforcement authority, to understand the precise basis on which the order was sought;
• assessing whether the statutory threshold for reasonable suspicion is properly established on that material;
• considering whether a variation application or full set-aside application is the more appropriate course, having regard to the strength of the authority’s evidence and your own circumstances;
• preserving evidence demonstrating the legitimate provenance of the funds — bank statements, business records, contracts, invoices, and relevant correspondence; and
• maintaining a detailed record of legal costs incurred throughout the proceedings, which will be required in support of any subsequent costs application.

The law governing Account Freezing Orders and the recovery of costs in these proceedings continues to develop. Outcomes remain highly fact-sensitive, and the conduct of the enforcement authority will often be central to the court’s ultimate exercise of discretion.

I accept instructions from solicitors and, under the Bar’s Public Access scheme, directly from individuals and businesses. If you require advice on challenging an Account Freezing Order, making an application for variation or set-aside, or recovering costs following a successful application, please contact me.