Introduction

As of January 2018, the EU regulation which established a new European Account Preservation Order (EAPO) procedure will have been effective and in force for one year. The regulation was introduced to provide creditors with a means to freeze the bank accounts of debtors across the European Union on the basis of a single decision by a court in an EU member state.

The regulation applies in all EU member states, except Denmark and the United Kingdom. In order to transpose the regulation into German law, the German legislature introduced Sections 946 to 959 of the Code of Civil Procedure. Over the past year, the German courts have had their first experiences with this new means of enforcement.

The most important conclusion which can be drawn from the past year is that the German courts are adopting EAPOs. However, as the procedure is still fairly new to the courts, it has taken time and effort on the part of creditors. The application for obtaining information about the whereabouts of a debtor's bank accounts has proven to be an effective tool.

This update explores how the EAPO procedure works under the German courts and the factors which creditors should be aware of.

Application

To initiate an EAPO procedure, creditors must make an application to a court in a participating EU state. In Germany, such an application must be made to the court that would be competent to hear the case in main proceedings. The application for an EAPO is, in particular, substantiated if the creditor can demonstrate that:

  • any attempt thus far to enforce its claim against the debtor has been unsuccessful; and
  • freezing the debtor's bank account is urgent in order to ensure the possibility of collecting the outstanding debt in the future.

The German courts have deemed applications urgent where the creditor has shown that the debtor tried to evade enforcement of a title by obstructing its service on several occasions.

Requirements

As to the formal and substantial requirements of an application, the creditor must first complete an application form, which is provided by the European Commission in EU Regulation 2016/1823. Since this application form provides insufficient space for a substantiated presentation of the reasons for an EAPO, it is worth drafting a cover letter which demonstrates that grounds exist for freezing the debtor's account. In that context, the creditor must provide sufficient evidence, which should be provided to the court together with the cover letter. Evidence can consist of documents or sworn affidavits. It is essential to demonstrate urgency irrespective of whether the creditor already has an enforceable title against its debtor. With regard to processing applications, the German courts have managed the different requirements successfully.

Obtaining information about debtors' accounts

In order to facilitate the recovery of debt, the EAPO regulation introduced a special procedure for obtaining information about a debtor's bank account located in another EU member state. This means that creditors can obtain information on bank accounts if they do not know the bank with which the debtor holds an account in a certain member state. The German courts require a basic degree of substantiation as to why a creditor assumes that its debtor holds bank accounts in a specific EU member state. As the European Commission did not provide a form for this procedure and the court must determine the responsible national authority for account information, the proceedings for obtaining account information are particularly time consuming. It adds that communication with the foreign authority will often not be in German and will therefore require translation.

Service of EAPO

If an application is successful, the competent German court orders the account preservation by using another form provided by the European Commission. The EAPO must be served on the debtor and the bank where the bank account was attached. Under German law, it is the creditor's responsibility to serve the EAPO on the bank and debtor. In that context, creditors should take the following into consideration:

  • A creditor must determine the competent authority in the EU member state where service will be effected.
  • A creditor must ensure that an EAPO is translated into an official language of the EU member state where the bank account is attached. As regards the documentation to be served on the debtor, this must be translated into the official language of the member state where the debtor is domiciled or another language which the debtor understands. The translation of the EAPO must be issued by the respective court. The translation of the documents to be served on the debtor is the creditor's responsibility.
  • A creditor must coordinate the service to the respective banks if it preserved accounts in different EU member states. With respect to these requirements, the creditor should carefully plan the delivery to guarantee successful enforcement. This is because the EAPO will be served on the creditor within three working days from the issuance of the bank's declaration on the preservation of funds.

Enforcement

After the delivery of an EAPO, the debtor's account is preliminarily preserved and frozen and the debtor and other creditors can no longer access the funds. However, the creditor in question also cannot access the account until final enforcement measures have been implemented in accordance with the national law of the member state where the account is located.

Comment

EAPOs are an effective way to enforce claims where the creditor runs the risk that the debtor will hide its assets. However, the entire procedure may be more time consuming than expected, as language barriers must be overcome and debtors, the courts and enforcement bodies still need a learning curve.

For further information on this topic please contact Tilmann Hertel at Herbert Smith Freehills Germany LLP by telephone (+49 69 222 282 400) or email (tilmann.hertel@hsf.com). The Herbert Smith Freehills Germany LLP website can be accessed at www.herbertsmithfreehills.com.

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