On 17 July 2014, the European Account Preservation Order (“EAPO”) Regulation came into force. It will apply in EU Member States except the UK and Denmark from 18 January 2017. The EAPO is intended to provide an alternative to domestic remedies and permit creditors in one participating Member State to freeze the assets of debtors held in bank accounts located in another participating Member State without first obtaining a court order within that state. For example, this would allow a creditor in France to freeze the assets of a German debtor which are held in a Spanish bank account.
Although the UK’s opt-out from the Regulation means that bank accounts in the UK will not be subject to EAPOs, it will still be possible for a creditor in a participating Member State to apply for an EAPO against the bank account of a British entity which is located in another participating Member State.
When will an EAPO be available?
The EAPO Regulation contains two major limitations on the availability of orders. Firstly, it only applies to “cross-border cases”, that is, situations where the bank account to be frozen is located in a Member State other than the country of the court hearing the EAPO application and the Member State where the applying creditor is domiciled. For example, if a Belgian creditor brings a claim against an Italian debtor in the Italian courts, he cannot seek an EAPO from the Italian court to freeze bank accounts in either Belgium or Italy, but he can obtain an EAPO in respect of accounts in Germany.
Secondly, the Regulation requires creditors seeking an EAPO to be domiciled in a participating Member State. This means that creditors domiciled in the UK or Denmark (or, for that matter, outside of the EU) will not be able to apply to the court of a participating Member State for an EAPO. The effect of this is that a British creditor will not be able to obtain an EAPO in France, whereas a German creditor will.
It will be possible for a creditor to apply for an EAPO without first obtaining judgment in its substantive claim, although, as explained below, the requirements for a pre-judgment EAPO are more stringent.
Applying for an EAPO
An application for an EAPO will usually be made without notice, so the debtor will not be aware of it. The application will generally be made on paper, without the need for a hearing.
What will a creditor need to show?
On all applications (regardless of whether the creditor has already obtained a judgment), the creditor will need to submit “sufficient evidence to satisfy the court that there is an urgent need for protective measures in the form of [an EAPO] because there is a real risk that, without such a measure, the subsequent enforcement of the creditor’s claim against the debtor will be impeded or made substantially more difficult” (Article 7(1)). The recitals to the EAPO Regulation make it clear that the creditor will have to show a real risk that the debtor will conceal or dissipate its assets “to an unusual extent” or “through unusual action”; non-payment of the claim or evidence of the debtor’s financial difficulties will not be enough.
Where the creditor has not yet obtained judgment, it must also “submit sufficient evidence to satisfy the court that [it] is likely to succeed on the substance of [its] claim against the debtor” (Article 7(2)). It is unclear what “likely” would mean in this context, for example whether the creditor has to show a greater than 50% chance of success.
In order for a creditor to successfully obtain an EAPO, it will first need to know the details of the debtor’s account in which funds are to be preserved. Where the creditor has already obtained judgment, it may request that the court to which it has applied for an EAPO obtain from the information authority of the Member State where the account is thought to be located the necessary bank information for the debtor’s account to be identified and the relevant sum preserved. The power to request such information does not, however, extend to a creditor who is yet to obtain judgment on its claim. This means that a pre-judgment EAPO will only be available to a creditor who knows where the debtor’s accounts are located.
The EAPO Regulation prohibits a creditor from submitting parallel applications in numerous jurisdictions securing the same claim. The applying creditor must state within its application whether or not it has lodged with the court or any other authority an application for an equivalent national order against the same debtor aimed at securing the same debt.
Will the creditor need to provide security?
Where a creditor has not yet obtained judgment, the court will require the creditor to provide security in an amount sufficient to ensure that the debtor will be compensated for any damage it suffers as a result of the EAPO. Even if the creditor has already obtained judgment, the court may still require it to provide such security. It will be for the court to determine the form the security should take (for example the deposit of funds at court or a bank guarantee). The requirement to provide security is likely to deter some creditors from applying for EAPOs.
The impact upon banks
The EAPO Regulation impose somewhat arduous obligations upon the banks at which a debtor’s account will be frozen.
The bank to which an EAPO is addressed must implement it “without delay”. The bank must preserve the amount specified in the EAPO by ensuring that it is not transferred or withdrawn from the account(s) indicated in the order. Alternatively, if the national law of the Member State so provides, the bank must transfer the amount specified in the EAPO to an account dedicated for preservation purposes.
Where an EAPO covers several accounts held by a debtor with the same bank and those accounts contain funds exceeding the amount specified in the EAPO, the order will be implemented in the following order of priority:
- savings accounts in the sole name of the debtor;
- current accounts in the sole name of the debtor;
- savings accounts in joint names, but only to the extent where this is permissible under the law of the Member State where the account is located; and
- current accounts in joint names (again, only to the extent this is permitted under local law).
The bank holding an account subject to an EAPO is required by the end of the third working day following the implementation of an EAPO to issue a declaration indicating whether and to what extent funds in the debtor’s account(s) have been preserved. If, in exceptional circumstances, it is not possible for the bank to do this within three days, the bank has until the eighth working day to implement the terms of the order.
The liability of a bank that fails to comply with its obligations under the EAPO Regulation will be governed by the law of the Member State in which the account is located.
Service on the debtor
Where a debtor is domiciled in the Member State of the court which granted the EAPO, the court or creditor (as appropriate) must serve the EAPO on the debtor in accordance with the laws of that Member State. Service is to be effected by end of the third working day following receipt of the declaration from the relevant bank or financial entity confirming the amount preserved. Where the debtor is domiciled in another Member State, the EAPO must be transmitted to the relevant authority in that Member State, which must take all necessary steps to serve it on the debtor without delay. Service is to be effected in accordance with the law of the Member State in which the debtor is domiciled.
As the EAPO is made without notice, the debtor will not be aware of the EAPO until after the funds in its account have been preserved.
The EAPO Regulation does not provide for reasonable living expenses or legal costs to be excluded from the sums frozen. This is instead governed by the law of the Member State in which the bank account is located. If that law does not automatically exclude such expenses and costs from the sum frozen, it will be up to the debtor to apply for them to be excluded.
If the debtor wishes to challenge the EAPO, it must apply to the court which originally made the order. Article 33 of the EAPO Regulation lists the grounds upon which the debtor may base its application for the removal of an EAPO. These include that the requirements for making an order were not satisfied and that the creditor’s substantive claim has been dismissed. Notably, the EAPO Regulation does not provide for an automatic release where a debtor has paid its debt in full. This lends support to the argument that the EAPO Regulation favours creditors, as it means a debtor will have to apply to a foreign court for its funds to be released. In addition, as it can be assumed that the application will need to be made in the language of the court which originally granted the EAPO, it is highly likely that the debtor seeking release from the EAPO will need to have its application translated.
Following a consultation conducted by the Ministry of Justice, the UK decided not to opt into the EAPO Regulation. The Government was concerned that the EAPO Regulation was weighted too heavily in favour of creditors and that debtors were not provided with sufficient protection, despite the requirement for creditors to provide security.
As a consequence of the Government’s opt out, the EAPO Regulation will not apply to banks in the UK. However, the bank account of a UK-domiciled individual or entity which is located in a participating Member State could be subject to an EAPO. In addition, the UK courts will not be able to grant EAPOs and, as the EAPO Regulation requires creditors seeking an EAPO to be domiciled in a participating Member State, a British entity will not be able to apply to the court of another Member State either. This means that a British creditor will not be able to obtain an EAPO in France whereas a German creditor will.
It will be interesting to see what the take up of EAPOs is across the EU. The Regulation certainly raises a number of issues which may limit their use in practice, including the restriction to “cross-border” cases, the domicile requirement and the need for a creditor to provide security in most cases. In addition, the fact that many aspects of EAPO procedure are to be governed by the law of the relevant Member States means that the effect of EAPOs will not be uniform across the EU.