On January 18 2017 EU Regulation 655/2014 establishing a European account preservation order (EAPO) procedure will enter into force, providing creditors with the opportunity to attach bank accounts throughout the European Union on the basis of a single application. The regulation also provides for the possibility to obtain information regarding a debtor's bank account.
The EAPO Regulation was driven by a European Commission study which showed that creditors encounter many difficulties when collecting outstanding claims in cases with cross-border implications because, among other things:
- the conditions for obtaining protective measures vary greatly among EU member states;
- courts without jurisdiction in the main proceedings of a case have the authority to decide on an application for protective measures only if the assets concerned are located in their jurisdiction; and
- judgments regarding protective measures are not automatically enforceable in other EU member states.
Companies are estimated to lose around 2.6% of their annual turnover due to claims that are considered uncollectable due to the above complications. Change was therefore needed to protect the functioning of the internal market and make it easier and cheaper to collect outstanding claims.
The recast EU Brussels I Regulation (1215/2012) made several improvements regarding the execution and enforcement of judgments involving protective measures rendered by courts having jurisdiction in the main proceedings. However, it requires that protective measures be served on the defendant before enforcement, which is sometimes impossible and can enable debtors to move assets. The European Commission therefore determined that another directly binding instrument was needed to provide creditors with greater asset preservation options.
The EAPO Regulation provides for the preservation of bank accounts only; other assets fall outside its scope. An application for a preservation order can be made before, during or after proceedings involving the substance of the matter. While the debtor does not have to be situated in the European Union, its bank accounts must be held with a bank which has a main office or branch in the European Union. The bank accounts should also be maintained in an EU member state other than that in which the creditor is domiciled or applied for the preservation order.
Claims for which bank accounts will be preserved should be monetary claims in civil or commercial matters, such as claims for unpaid invoices or breaches of contract. Claims regarding Customs, state liability for acts and omissions in the exercise of state authority, social security, arbitration and bankruptcy, among other things, are not covered by the regulation.
In general, the court with jurisdiction on the substance of the matter also has jurisdiction to issue a preservation order. Exceptions apply in case of consumer debtors and creditors which have already obtained a judgment. This implies that there will be situations in which creditors still have to go the court of another EU member state to obtain protective measures.
The application requirements for a preservation order are extensive and must include, among other things:
- a declaration as to whether the creditor has lodged applications for an equivalent national order with other courts or whether such an order has already been refused or implemented;
- evidence to satisfy the court that there is an urgent need for the preservation order because there is a real risk that, without such a measure, subsequent enforcement of the creditor's claim against the debtor will be impeded or made substantially more difficult; and
- a reference number to enable identification of the bank with which the debtor holds one or more accounts or a statement that a requirement for obtaining such information has been made.
If the creditor has not obtained an enforceable title, it must also submit sufficient evidence to satisfy the court that it is likely to succeed on the substance of its claim against the debtor.
Once an application for a preservation order has been made, the proceedings are – in theory – quick and easy. The court will render the preservation order without the debtor being informed and within several days of the application being made. The order is automatically recognised and enforceable in other EU member states. Banks receiving a preservation order should preserve the accounts only for the amount specified in the order and must do so without delay. Within three days of the preservation of the account, the bank must issue a declaration indicating whether and to what extent funds have been preserved
Creditors that obtain a preservation order before initiating proceedings on the substance of the matter must initiate such proceedings and provide proof thereof within 30 days from the date on which the order was applied for or 14 days from the date on which the order was issued, whichever is later.
Thus, creditors will generally be informed about the results of the attachment before they must start the main proceedings.
The competent authority for serving a preservation order on a bank and debtor will be determined by each member state.
The requirement to provide information for the identification of the debtor's bank account in the application for a preservation order will in many cases be burdensome, as many creditors are unaware of the bank account details of their debtors. The EAPO Regulation provides for a procedure to obtain this information; however, in principle, it is available only once the creditor has obtained an enforceable judgment, court settlement or authentic instrument in a member state requiring payment from the debtor.
There are various remedies available to debtors. For example, they can apply for:
- the revocation or modification of the order at the competent court of the member state where the order was rendered; and
- the termination or limitation of the enforcement of the order in the member state of enforcement.
A notable ground for revocation is preserving and not releasing sums which exceed the amount of the order.
The preservation order provided for by the EAPO Regulation is not available to all creditors and the procedure for obtaining one is extensive. The requirement to provide information about the debtor's bank account and the fact that account information can be obtained only if the creditor already has an enforceable title creates a burden for creditors that have yet to obtain such a title.
Therefore it might be easier and more efficient to execute and enforce a protective court measure from a creditor-friendly national system – such as the Netherlands – which has jurisdiction in the main proceedings on the basis of the EU Brussels I Regulation, than to apply for an EAPO.
Nonetheless, the fact that the European Union will now have a uniform procedure for protective measures concerning the preservation of bank accounts is a positive step. The preservation order is thus a welcome development for those engaged in international trade.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.