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European Regulation on the freezing of bank accounts – are you ready?

 

06 December 2016

From 18 January 2017, claimants will be able to apply for a European Account Preservation Order (EAPO), a new, and potentially potent, weapon in their litigation armoury pursuant to the new European EAPO Regulation (Regulation (EU) 655/2014 of the European Parliament and of the Council of 15 May 2014 establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters).

EAPOs will enable a claimant to freeze funds in a defendant’s bank accounts across 26 Member States by submitting a standard form paper application to a court in one of those participating Member States. That application will then be considered on an ex parte basis (that is, without notice to the defendant). Once an EAPO is made, it will be transmitted ("passported") from the issuing court to other participating jurisdictions where relevant accounts may then be frozen.

More European accounts likely to be frozen?

A claimant faced with a defendant who has multiple accounts across Europe will no longer have to incur the cost and delay of making separate national freezing applications in each Member State. For example, a Belgian claimant in proceedings in Milan will be able to seek an EAPO from the Italian court, and that Italian order will be effective to freeze monies held in a defendant’s Spanish, German, Luxembourg and French bank accounts. The claimant no longer needs to go through the process of prioritising from which jurisdictions relief might most effectively and efficiently be sought. This may mean that more European accounts are frozen in future.

When may an EAPO be granted?

EAPOs will be available throughout the lifespan of a dispute; from before proceedings are initiated to after judgment is obtained. EAPOs cannot generally be used at the same time as a national protective measure, but rather they are an alternative to such measures in “cross-border” civil and commercial proceedings. “Cross-border” in this context means where a targeted bank account is located in a Member State other than where the court seised of the application is located or the claimant is domiciled.

EAPOs will only be issued where the court is satisfied that there is an urgent need for one because, without one, there is a real risk that subsequent enforcement will be impeded or made substantially more difficult. Pre-judgment, the claimant must also satisfy the court that he is likely to succeed on the substance of his claim against the defendant.

Risks and protections for defendants

Although the test for issuance was tightened up as the legislative process progressed (with the Recitals providing some helpful guidance), the EAPO Regulation may still pose a number of risks for defendants.

There may be concerns about the speed at which a wrongly granted EAPO may be set aside. National differences in the application of the EAPO regime may also mean that, in some jurisdictions, EAPOs are easier to obtain and cover more funds than in others.

Such national differences stem from the EAPO Regulation giving a significant degree of discretion to the Member State court when considering an EAPO application. Moreover, the process is further complicated by the EAPO Regulation reverting to Member State law on a number of important points (for example whether joint or nominee accounts can be frozen and the amounts that are exempt from seizure).

This lack of uniformity between jurisdictions in its application may be amplified by the fact that EAPOs will generally be granted by Member State courts on just a paper application, without an oral hearing. As is to be expected, EAPOs will also be granted before defendants are notified and have the opportunity to argue against the making of such orders.

There are, however, protections for the defendant built into the regime. The claimant will generally be required to provide security for pre-judgment EAPOs (and, occasionally, for post-judgment EAPOs). Again, there may be significant differences between jurisdictions as to the form and amount of security required. Further, a claimant must also, of course, have provided the court with “sufficient evidence” that there is an “urgent need” for such a measure and that, without it, there is a real risk that enforcement will be “impeded or made substantially more difficult”.

UK and Denmark

EAPOs will not be available to all claimants or from all Member State courts. The UK and Denmark took the decision not to opt into this regulation. Accordingly, the UK and Danish courts will not issue EAPOs, and bank accounts held in these jurisdictions will not be subject to these orders. Unusually, Recital 48 to the EAPO Regulation seeks to introduce a nationality restriction on the claimants who are able to obtain an EAPO. Only those claimants domiciled in participating Member States can apply for an EAPO (thereby excluding UK, Danish and non-EU claimants). However, the EAPO Regulation still impacts UK, Danish and non-EU businesses as their accounts in the 26 participating Member States may be frozen. The accounts of UK (at least pre-Brexit) and Danish consumers may not be subject to pre-judgment EAPOs.

Obligations on banks

Banks operating in the participating Member States will have to get to grips with implementing EAPOs. The administrative requirements and obligations on banks are potentially significant. They will be under an obligation to freeze accounts “without delay” and (unless there are exceptional circumstances) issue declarations as to compliance within three working days from implementation. For post-judgment EAPOs, banks may also be required to conduct searches in order to identify any accounts it holds for a defendant. Banks will therefore need to have an understanding of which accounts and funds may be caught in each participating Member State. As a result, banks will need to both review their customer terms and conditions and have robust internal processes in place to ensure compliance with any EAPOs or information requests received within quite tight time periods.

This burden is compounded by the fact that banks will not be able to adopt a uniform pan-European policy in response to this legislation due to its numerous references back to national law. Instead, specific local law advice will be required on the implementation and impact of the EAPO Regulation in different Member States with potentially the force of any EAPO granted varying from one jurisdiction to another.

Conclusion

The EAPO Regulation is complex. It spans 54 Articles, with some 51 Recitals (many of these Recitals contain text one might expect to find in operative provisions). It involves a complicated and delicate interplay between national and European law. The use of a single application process and standardised forms should not disguise the fact that this is an enormously detailed piece of legislation and one that may be difficult for litigants, banks and the courts to apply in practice.

The EAPO Regulation will undoubtedly enhance opportunities for claimants to track down and secure a defendant’s assets across participating Member States. However, the requirement for security for almost all pre-judgment EAPOs, coupled with the inherent complexity of the instrument may lessen its attractiveness. It may be that, particularly in the pre-judgment context, the available national remedies offer speedier, easier and less risky alternatives for a claimant.

Much of this ambitious legislation’s success will depend on the volume of EAPOs sought and the extent to which its potency is diluted or strengthened by national law and its application by Member State courts. The coming year will be very informative as to this European project’s success.

Where on the web

The provisions of the Regulation (EU) 655/2014 of the European Parliament and of the Council of 15 May 2014 establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters (the EAPO Regulation) will apply from 18 January 2017. The forms relevant to the procedure were published in the Commission Implementing Regulation (EU) 1823/2016 of 10 October 2016 establishing the forms referred to in this Regulation.

 

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