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New European Regulation on the freezing of bank accounts

A new Regulation1 establishing a European Account Preservation Order (EAPO) came into force on 17 July 2014, but will not be applied by participating Member State courts until 18 January 2017. This instrument allows a claimant to seek an order to secure ("freeze") monies in a defendant's bank accounts across Europe.

The UK and Denmark have not opted into this Regulation and, accordingly, are not bound by it. However, account holders (including UK account holders) in participating Member States (ie all Member Sates save for the UK and Denmark) will be impacted, as will banks operating in participating Member States.

The Regulation is complex. It spans 54 articles, with some 51 Recitals (and as with other recent EU instruments, many of these Recitals contain text one might expect to find in operative provisions). The use of standard forms for the application process for an EAPO should not disguise the fact that this is an enormously detailed piece of legislation, and one that may be difficult to apply in practice.

Under the EAPO procedure, a claimant will be able to make an application to the courts of the Member State where it has started or intends to start proceedings (or where it has obtained a judgment) for an EAPO that will freeze monies held by a defendant in bank accounts in all participating Member States, without further applications being required. This means a claimant in proceedings in Milan would be able to seek an EAPO from the Italian court which would be effective to freeze monies held in a defendant's bank accounts in Spain, Germany and France. The claimant would no longer have to seek three separate orders from the relevant courts of those Member States.

Although the test for issuance of an EAPO was tightened up as the legislative process progressed, the Regulation raises risks for defendants. A defendant's accounts may be wrongly frozen and getting any order set aside or varied may be problematic.

The application procedure for an EAPO will generally be ex parte (ie without notice) and on paper. The Regulation provides a significant degree of discretion for the Member State court when assessing whether or not to grant such an order, although a claimant will generally be required to provide security for pre-judgment EAPOs. A claimant must provide "sufficient evidence" that there is an "urgent need" for such a measure, as without it there is a risk that enforcement will be "impeded or made substantially more difficult". One can anticipate a degree of variation in approach to this test across Member State courts, at least until there is a good body of CJEU case law established.

EAPOs are intended to be an alternative to protective measures available under national laws. They will be available before substantive proceedings are initiated, during proceedings or after a judgment is obtained. EAPOs can be sought in cross-border civil and commercial proceedings (subject to exclusions) before the courts of all participating Member States. Controversially, the Regulation seeks to limit their availability to claimants in those proceedings domiciled in participating Member States (ie excluding UK and Danish litigants, as well as non-EU litigants).

This is another piece of European legislation that imposes extensive obligations on banks. Banks will be under an obligation to freeze accounts subject to an EAPO without delay. Banks may also have to carry out certain searches in respect of a defendant's bank accounts, as the Regulation introduces a mechanism by which a claimant may make a preliminary information request to identify a defendant's accounts (this searching mechanism is only available for post-judgment EAPO applications).

Significantly, the Regulation involves a delicate (and somewhat complicated) interplay between national and European law. This mixture of EU and national law has the practical effect that banks will not be able to adopt a uniform pan-European response to this legislation and instead may require specific local law advice as to its implementation and impact in different Member States.

Footnotes 

1 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: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:JOL_2014_189_R_0004.

Legal and Regulatory Risk Note
Europe