Creditors have now obtained a new – and important – tool for ‘freezing’ their debtor’s bank accounts throughout Europe with one single order.
EU Regulation 655/2014 of 15 May 2014 establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters (‘EAPO Regulation’) came into force on 17 July 2014 and applies from 18 January 2017.
In summary: the EAPO Regulation establishes a procedure that allows a creditor to freeze a debtor’s bank accounts up to a specified amount anywhere in the European Union (with the exception of Denmark and the United Kingdom, which have opted out) with one single application.
The European Commission proposed this new legislation after it had estimated that about 600m EUR debts were being written-off because businesses did not see any benefit in initiating recovery proceedings in other Member States.
In launching the EAPO proposal, the European Commission sought to assist SMEs pursuing debt recovery by avoiding the need to go through complex and costly proceedings in several jurisdictions and instead using only one single application, the EAPO.
Scope of application
The Regulation applies to commercial and civil cross-border cases only, i.e. where the relevant bank accounts to be ‘frozen’ are held in an EU Member State other than (i) the Member State of the court receiving the application for an EAPO or (ii) the Member State in which the creditor is domiciled.
The scope of the bank accounts is limited to cash accounts. The EAPO is available for claimants both pre-judgment (prior to or during proceedings) and post-judgment.
An important advantage of the EAPO is that it can come into operation (long) before the termination of the underlying legal proceedings. Before the EAPO Regulation, in many Member States, it was difficult or even impossible to obtain a ‘freezing’ order before legal proceedings had been initiated or before a final judgment had been obtained.
When applying for a pre-judgment EAPO, the creditor must convince the court that, based on the evidence submitted, the creditor is likely to succeed on the basis of its claim.
In both (pre- and post-judgment) cases the creditor must demonstrate that there is an urgent need for a protective measure (in the form of an EAPO) because there is a real risk that, without such a measure, the claim’s enforcement will be “impeded or made substantially more difficult”.
As a consequence of the opt-outs by the United Kingdom and Denmark, the EAPO Regulation will not apply to bank accounts held in the UK and Denmark and it is unavailable to claimants domiciled in these countries. However, UK and Danish entities and banks holding accounts or operating in participating Member States will be subject to the EAPO Regulation.
Procedure and safeguards for debtor’s rights
The application must be filed before the court exercising jurisdiction over the underlying legal dispute.
The EAPO procedure is ex parte, meaning that the debtor will not be informed of the application for and implementation of the EAPO.
The ex parte nature of the application for and the implementation of the EAPO do come with a few safeguards for debtor’s rights. For example, when the court is not satisfied that the application is justified based on the evidence submitted, it will refuse the EAPO. Also, the EAPO Regulation allows the court to require creditors to provide collateral sufficient to ensure that the debtor can be compensated at a later stage in the proceedings for any damage caused by the EAPO. EU Member States are also permitted to introduce or maintain national laws for creditor liability (next to the EAPO’s provisions).
Request for obtaining account information
The EAPO Regulation contains an important additional feature: it sets out a mechanism allowing creditors to search across Europe for bank accounts held by debtor(s). When the creditor has reason to believe that the debtor holds one or more accounts with a bank in a specific Member State, the creditor may request the court with which the application for an EAPO has been filed, to obtain the necessary information enabling the identification of the debtor’s accounts.
However, unfortunately, the scope of this mechanism’s application is limited: it is only available to a creditor who has obtained an enforceable judgment, court settlement or authentic instrument that requires the debtor to pay the creditor’s claim.
To maintain the EAPO’s effectiveness, the debtor will only be notified of the disclosure of his/her personal data after 30 days.
The EAPO Regulation is good news for claimants and is a potentially powerful tool. The expectations for the EAPO procedure are high as it should reduce barriers and costs when recovering cross-border debts.
However, several aspects are governed by national law (including, the enforcement of the order in a Member State), and so the EAPO Regulation’s practical use and importance remain unclear.
However, banks may be less pleased as the EAPO Regulation imposes significant administrative burdens on them. Given the time available to prepare, they should by now have processes in place to comply with the Regulation.