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EAPO: Luxembourg banks, are you ready?

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Thomas Berger

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Luxembourg

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22 December 2016

From 18 January 2017, the courts in the EU Member States will apply Regulation (EC) No 655/2014 (the EAPO Regulation) establishing a European account preservation order (EAPO), which will represent a new (and potentially powerful) tool in a claimant’s armoury. The EAPO procedure is a significant development in European law in that it will enable a claimant to freeze funds in a defendant’s bank accounts across the EU Member States bound by the Regulation1, without further individual applications being required.

The EAPO Regulation was adopted as part of the civil judicial cooperation within the European Union. It aims at providing for protective measures in order to avoid the disappearance of assets before the enforcement of a claim, and to submit appropriate proposals to improve the efficiency of the enforcement of judgments within the EU concerning bank accounts and debtor’s assets. Creditors seeking to enforce a court order in another EU Member State will no longer have to incur the cost and suffer from the delays of making separate national freezing applications.

The administrative requirements and obligations imposed on banks in the context of an EAPO are important (and differ from the obligations that banks must comply with as attached third-party in the context of the common attachment procedure under Luxembourg law (saisie-arrêt)). Banks will have to freeze accounts subject to an EAPO “without delay” and 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 they hold for a defendant. Banks will therefore need to understand which accounts and funds may be caught by the EAPO Regulation and set up robust internal processes to comply with these new obligations.

The EAPO Regulation entails a delicate interplay between national and European law. In order to add references to the EAPO Regulation under Luxembourg law, a bill n° 7083 proposes to complete the new code of civil proceedings (nouveau code de procédure civile) by a new article 685-5 and appoints the Commission de surveillance du service financier (CSSF) as the competent authority in charge of obtaining from the banks the relevant information necessary to allow the debtor’s account to be identified. 

1. Key features of the EAPO

EAPOs are intended to be an alternative to protective measures available under national laws. EAPOs will be available throughout the lifespan of a dispute. As from before proceedings are initiated until after a judgment is obtained. EAPOs can generally not be used at the same time as a national protective measure. 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 that where the court seized of the application or the defendant is domiciled. We have prepared a detailed guide to the EAPO Regulation. Please contact us to request a copy. 

2. What does it mean for banks? 

A bank served with an EAPO is subject to a number of obligations, which must be satisfied without delay.

In short, the main obligations for a bank are as follows: 

(A) Identification of the account and preservation of the funds 

The bank must promptly identify the account(s) subject to the EAPO.

  • Unlike in a saisie-arrêt scenario, only “funds”, defined as “money credited to an account in any currency, or similar claims for the repayment of money, such as money market deposits” are targeted by the EAPO. Financial instruments are excluded. 

  • It is believed that this will be done via IBAN numbers. Where the EAPO does not specify the relevant account number(s) and it is not possible to identify with certainty an account of the defendant, as a matter of principle, the bank shall not implement the EAPO. However, in limited circumstances, the bank may be required to request information from the relevant information authority (Article 24). Currently, it is proposed that the CSSF should do this (as it is the best placed to collect information about bank accounts). 

  • Once the relevant accounts are identified, the bank must promptly preserve the amount specified in the EAPO either (a) by ensuring that that amount is not transferred or withdrawn from specified/identified account(s) or (b) where national law so provides, by transferring that amount to an account dedicated for preservation purposes (Article 24). It is worth noticing that in the context of a saisie-arrêt, it is not uncommon that the money that is unavailable following the saisie-arrêt is transferred to a sub-account in order to allow the account to operate normally and receive funds that are subsequent to the protective measure. 

  • Unlike in a saisie-arrêt scenario, the bank shall implement the order only up to the amount specified in the EAPO. 

  • The EAPO Regulation provides for a hierarchy of attachments. Savings accounts in the defendant’s sole name are to be attached first, followed by current accounts in the defendant’s sole name. Joint accounts are then to be attached, with savings accounts being attached first, followed by current accounts. 

  • The final amount preserved may be subject to the settlement of transactions, which are already pending at the moment when the EAPO (or corresponding instruction) is received by the bank. However, such pending transactions may only be taken into account when they are settled before the bank issues its declaration of preservation (see below); 

(B) Declaration of the preservation 

The recipient bank then has three working days from implementation of an EAPO to issue a declaration indicating whether and to what extent funds in the defendant’s account(s) have been preserved and, if so, on what date(s). This differs materially from the current regime of the saisie-arrêt. Under the saisie-arrêt regime, the affirmative declaration (déclaration affirmative) occurs at a later stage (unless the claimant holds an authentic deed, only once the saisie-arrêt has been validated by the court), in accordance with a specific procedure and the new code of civil proceedings does not provide any fixed timeframe to make the affirmative declaration (déclaration affirmative); 

(C) Duration of preservation 

The funds preserved by the EAPO will remain preserved as provided for in the EAPO until the EAPO is revoked, its enforcement is terminated or the judgment to which it relates has been successfully enforced; 

(D) Costs and fees 

The bank is entitled to seek payment or reimbursement from the creditor or the debtor of the costs incurred in implementing an EAPO to the extent it is entitled to such payment or reimbursement in relation to equivalent national orders. In this context, scholars traditionally admit, in the context of the saisie-arrêt, that a bank shall not bear the costs relating to the implementation and enforcement of an order. Recoverable costs must take into account the complexity of the implementation of the EAPO and shall not be higher than the fees that would be charged for the implementation of equivalent national orders (such as saisie-arrêt). 

3. Information about bank accounts 

The EAPO Regulation allows claimants post-judgment to make a preliminary request for information about the defendant’s bank account(s).

If the claimant is not able to identify the bank(s) with which the defendant holds account(s), he/she can request in the EAPO application form that such information is obtained by the relevant court from the information authority in the EU Member State of the proposed enforcement (this would, according to the above bill, be the CSSF).

Basically:

  • Upon request of the relevant court, the CSSF shall “expeditiously” attempt to obtain the relevant information from the banks. Luxembourg would elect for a regime that imposes an obligation for all the banks on its territory to declare, upon request of the CSSF, whether the debtor has any bank account with it (bill n° 7083, Art. 3 §2). 

  • Information obtained in this way is not provided directly to the claimant, but only to the requesting court. It is proposed that the CSSF will pass on this information to the chief public prosecutor, who will forward the information to the requesting court (bill n° 7083, Art. 3 §3). 

  • Any notification of the defendant is to be deferred for 30 days to avoid jeopardising the effect of the EAPO. Banks are likely to have to adapt their general terms and conditions to that end. 

  • Banks are also entitled to charge a fee to cover the costs of providing account information. The fee must not be higher than the costs actually incurred and (where applicable) not higher than the fees charged for the equivalent national orders. 

4. Bank liability 

Banks may potentially be held liable towards the claimant and/or the defendant for performing their obligations under the EAPO Regulation defectively (e.g. by erroneously preserving more funds than specified in the EAPO or preserving the wrong funds or incorrectly issuing its declaration of implementation). Any liability of the bank for failure to comply with its obligation under the EAPO Regulation is governed by the law of the Member State of enforcement (that is Luxembourg law so far as Luxembourg banks are concerned).

1 All EU Member States except U.K and Denmark