New EU regulations were adopted on 13 May 2014, to introduce an EU wide procedure for European Account Preservation Orders (“EUPOs”) which enables the preservation (i.e. freezing) of a debtor’s EU bank account/s pending final judgment of a creditor’s substantive claim against the debtor. The EUPO regime is to be an optional alternative to the existing measures available under national law.
EUPOs are intended to assist EU domiciled individuals and businesses recover cross-border debt and thereby boost confidence in doing business in the EU. According to an EU press release, small to medium enterprises (SMEs) make up 99% of businesses in the EU and around 1 million of those face problems with cross-border debts, with up to €600 million a year written off because current means for pursing cross-border debt are too expensive and/or confusing. Introducing a regime that allows creditors to more quickly and easily freeze monies in any bank account in a participating EU state held by a debtor1 should reduce the risk of a debtor dissipating assets whilst proceedings to obtain and enforce judgment against it are ongoing, increasing the likelihood the creditor will ultimately recover the debt. The EU Justice Commissioner has said that the introduction of EUPOs will mean “small businesses will no longer be forced to pursue expensive and confusing lawsuits in foreign countries.”.
The new EUPO regulation sets out common rules for EUPOs including jurisdiction, conditions and procedure for issuing EUPOs, orders for disclosure of bank or account information, enforcement by national courts, and debtor remedies and protections (such as the taking of security). The new regulation will be in force and directly applicable to all participating EU states - the UK and Denmark have opted-out of the regime2 - 30 months after the date of its publication in the Official Journal (expected June 2014).
A creditor can apply for an EUPO before judgment is obtained against the debtor (including both before the substantive proceedings are commenced or during ongoing proceedings) or after judgment has been obtained3. In certain circumstances, a creditor may also obtain information about what banks and accounts the debtor holds in a participating EU state4.
The EUPO regime is focused in particular on ensuring swift access to protection: there are tight timetables for determining applications; an EUPO will be immediately recognised and enforceable in all participating EU states without the need for any special procedure or declaration of enforceability5; and banks served with EUPOs must implement them “without delay”. The introduction of this new regime is therefore a significant, positive development for EU business.
EUPOs are applicable only to “cross-border” claims, i.e. where (1) the court dealing with the EUPO application (i.e. a court with jurisdiction over the substantive dispute or which gave a judgment against the debtor) is in a different participating EU state to where the bank account is maintained6; or (2) the creditor is domiciled in a different participating EU state to the bank account and to the court dealing with the application. So, for example, a company domiciled in France seeking to freeze funds a debtor holds in an Italian bank account would be able to apply to the French Court for an EUPO. But a French company would not be able to apply for an EUPO to freeze funds in a French bank – in those circumstances, the creditor would have to apply under local French law.
As the UK and Denmark have opted out of the EUPO regime companies domiciled in those countries (or for that matter US or non-EU countries) will not be able to use this new procedure; a real blow to creditors in those jurisdictions. Equally, creditors will not be able to apply for an EUPO over bank accounts held in the UK or Denmark. It will remain to be seen whether companies seek to structure their assets to either fall within or, perhaps more likely, outside this regime.
The new rules are detailed (running to 83 pages7) so this alert does not seek to cover them in full. An overview of key provisions however is set out below.
Overview of key provisions
- EUPOs apply to money claims in civil and commercial matters, in cross-border cases in any court or tribunal. Though arbitration is expressly excluded. (Art. 2).
- “Claim” means any claim for payment of a specific or determinable amount of money either due or arising from a transaction/event that has already occurred (Art. 4(5)). It includes contractual claims, claims in tort, delict/ quasi-delict, and civil claims for damages/restitution based on an act giving rise to criminal proceedings (Recital 12). Certain matters or types of claims are excluded, for example, claims against debtors where insolvency proceedings have commenced. (See Art. 2 for the full list of excluded matters.)
- If a creditor applies for an EUPO before proceedings are commenced for the substantive claim, they must commence proceedings within 30 days of applying or within 14 days of the date of the EUPO, whichever is later, otherwise it will be revoked or terminated (Art. 10).
- Prior to judgment/settlement of the substantive claim, any courts with jurisdiction to rule over the that claim (under the normal rules of jurisdiction) may issue an EUPO. After judgment or settlement, only the court in which judgment was issued or settlement was approved or concluded has jurisdiction to do so.(Article 6)8
- An application for an EUPO will normally be determined on paper (Art. 9) and issued on an ex parte basis, i.e. without the debtor knowing about the application or being heard prior to the order being made (Art. 11). The debtor will only be served with the EUPO, application and supporting evidence 3 working days after the creditor has received a declaration that the monies have been preserved (Art. 28).
- The creditor must satisfy the court of an urgent need for the EUPO because of a real risk that, without it, enforcement of the creditor's substantive claim will be “impeded or made substantially more difficult” (Art. 7). If the creditor has not obtained judgment or settlement against the debtor, it must also satisfy the court its claim is “likely to succeed” (Art. 7).
- If the creditor has not obtained judgment or settlement against the debtor, it must provide security in an amount “sufficient to prevent abuse” of EUPO procedures and to cover damage suffered by the debtor as a result of the EUPO (this may be waived if the court considers security “inappropriate”) (Art. 12). Security is not required where a judgment/settlement has been obtained, unless the court considers it “necessary and appropriate” (Art. 12).
- Timing: if the creditor obtained judgment/settlement of its substantive claim against the debtor then the court must issue its decision on the EUPO application within 5 working days after it was lodged; if no judgment/settlement has yet been obtained then the court must issue its decision within 10 working days (Art. 18).9
- Arts. 33 and 34 set out a debtor’s primary remedies, including the right to apply to revoke or modify an EUPO. A debtor may also elect to provide security in lieu, in which case the court may release the funds preserved (Art. 38).
- Either party may apply to modify or revoke an order if circumstances change (Art. 35).
- The creditor will be liable to the debtor for damage caused to the debtor10 by the order “due to fault on the creditor's part” (Art. 13). The burden of proof lies with the debtor, there are certain circumstances where there is a (rebuttable) presumption of liability (Art. 13(2) & (3)). Otherwise liability is determined per the national law of the EU member state of enforcement.
- Banks may recover costs incurred in implementing EUPOs (Art. 43). Other rights of third parties are expressly not dealt with by the regulations; these are to be determined by national laws (either where the EUPO originated or was enforced) (Art. 39).