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Plans for a pan-European Freezing Order – an update

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Garvey Sarah
Sarah Garvey

Counsel

London

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01 October 2013

The Commission’s proposals for a Regulation introducing a European Account Preservation Order (EAPO) are now being progressed at an intense pace.

We understand that the Presidency aims to get an agreement on all key policy areas on this instrument by December 2013, with a view to getting text agreed by the European Parliament before it is dissolved in March 2014 (for elections in May 2014). This is a significant (and ambitious) acceleration in the timetable for this draft legislation, which remains highly controversial and complex.

The proposed Regulation allows Member State courts to grant (on an ex parte basis and without an oral hearing) a pan-European “freezing” order in respect of certain assets including bank accounts. The UK has not opted into this Regulation but, given its European reach, this instrument will be relevant to all financial institutions operating in the European Union, as well as any party involved in litigation in those Member States.

We have covered this proposal in previous Risk Notes. In short, the key points for banks are:

  • The test for getting an EAPO remains a concern – essentially it is thought to be too claimant friendly and offers insufficient protection for defendants. Will evidence of the potential economic vulnerability of a counterparty be enough to secure an EAPO against them? This is a particular concern given EAPOs will generally be issued on the basis of a paper application only, without a hearing to test the evidence (as would be the case in England).
  • EAPOs will generally be issued without notice to the defendant. Current proposals indicate there will be limited grounds upon which a defendant/debtor may seek to revoke or vary an EAPO.
  • The Regulation may allow the freezing of certain “financial instruments” pursuant to such an EAPO. Earlier indications were that this proposal had been dropped given the complex legal and practical difficulties involved, but the position now seems to have changed.
  • Administering EAPOs may be expensive and time consuming for banks across Member States. For example, the prescribed period within which a bank has to provide information about a defendant’s account is short. There is also uncertainty about the recovery of a bank’s costs incurred in administering such orders.
  • There remain significant uncertainties about important aspects of the proposal. For example, for a defendant with multiple accounts in multiple jurisdictions who will determine the priority of the amounts frozen and how will this assessment be made? How realistic is it that Competent Authorities in different Member States (who are tasked with administering EAPOs) will liaise with one another effectively and efficiently? How will Competent Authorities ensure not more than an amount specified in the order is frozen where a defendant has multiple accounts in multiple jurisdictions? What about data security? What about a bank’s rights of set off? Will there be a shift of funds to jurisdictions outside the scope of this instrument, for example, to Switzerland, Iceland, Norway and the UK?
  • Although the UK has not opted into the Regulation, there is a potential wrinkle. There is a view that EAPOs made in other Member States (and granted following an inter partes hearing) will be enforceable in the UK under the Brussels Regulation, just as other interim orders made by Member States might be. The law in this area is complex but this remains a possibility.

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