Client Alert
Ex Parte European Bank Account Freezing Order Now Available in EU Member States: What Banks and Their Clients Should Know
January 18, 2017
By Francesca Petronio & Fabio Cozzi
On January 18, 2017, the Regulation (EU) No. 655/2014 (the “Regulation”) establishing a European Account Preservation Order (“EAPO”) procedure to facilitate cross-border debt recovery in civil and commercial matters entered into force.
The procedure set forth by the Regulation is designed to assist creditors to pursue debts without the need for complex and costly proceedings in several jurisdictions. The new tool allows creditors to obtain—filing a standard application form and on the basis of an ex parte procedure—a protective measure (a freezing order of the cash held on bank accounts located in the EU, including those of European branches of non-EU banks) preventing the transfer or withdrawal of funds if there is the risk that, without such a measure, the subsequent enforcement of their claims will be impeded or made substantially more difficult.
The Regulation, from one side, introduces an effective instrument for creditors, but on the other side, implies obligations and liabilities for banks, which have to implement the order according to the common rules set forth in the Regulation as well as taking into account the relevant domestic provisions concerning the enforcement.
The Regulation applies to all Member States with the exception of the United Kingdom and Denmark.
Scope of Application and Exclusions
The Regulation creates a mechanism applicable to all civil and commercial matters apart from certain well defined exceptions such as claims against a debtor in insolvency proceedings, social security and arbitration. Moreover, it only applies to accounts held by credit institutions whose business is to take deposits or other repayable funds from the public, with the exclusion of those held by or with central banks acting in their capacity as monetary authorities and other accounts immune from seizure under the law of the Member State where they are maintained.
Furthermore, the EAPO does not affect the amounts exempt from seizure under the law of the Member State of enforcement, such as those necessary to ensure the livelihood of the debtor and his family.
Such a procedure applies to cross-border cases only, defined as those situations where the bank accounts to be frozen are located in a Member State other than (i) that of the court seized of the EAPO application or (ii) that where the creditor is domiciled. It follows that EAPOs cannot be granted over accounts in a court’s own jurisdiction. In such a case, only local remedies are available. In fact, EAPO is a free-standing remedy with its own requirements and effects, and it will co-exist together with national law remedies.
When an EAPO Application Can Be Filed
The procedure is only available to secure claims already fallen due or not yet due but only as long as they arise from transactions or events already occurred and their amount can be determined. Creditors can lodge EAPO applications in two different moments:
Before initiating proceedings against the debtor on the substance of the matter or at any time during such proceedings up until the issuing of the judgment or the approval or conclusion of the court settlement; and
After having obtained a judgment, court settlement, or authentic instrument which requires the debtor to pay the creditor’s claim.
In the circumstance sub (i) above, the creditor has to initiate the proceedings on the merits and provide proof of such an initiation to the court in charge of the EAPO application within 30 days of the date he lodged such an application or within 14 days of the day the Order is issued, whichever date is the later. Failing this, the EAPO shall be revoked or terminated.
Competent Court
In case the creditor has not yet obtained a judgment (or a court settlement, or an authentic instrument), the application for an EAPO shall be filed with the courts of the Member State which have jurisdiction on the merits of the dispute, according with the applicable rules on jurisdiction. This does not apply to consumers: an EAPO against a consumer can only be issued by the courts of the Member State in which he/she is domiciled.
Where the creditor has already obtained a judgment in his favor, he can file the application for an EAPO only with the courts of the Member State in which the judgment was issued.
Conditions for Granting an EAPO
A key feature of the procedure is the chance for the creditor to obtain the order with no notice to the creditor. Therefore, the competent Court will decide only on the basis of the arguments and evidence the creditor is able to provide. This makes the EAPO a potentially very effective measure, due to the surprise effect that can prevent the debtor from hiding or dissipating the funds once informed of the imminent enforcement of the measure. However, the Regulation aims at assuring an appropriate balance between the interest of the creditor and that of the debtor.
Consequently, the competent Court has to evaluate both the actual need for the measure (i.e., the risk that the debtor, or any other person that can access the bank account, may hide or dissipate the funds) and the actual ground of the claim. In particular:
The creditor must submit sufficient evidence to satisfy the court that his claim is in urgent need of judicial protection because without the order, the enforcement may be impeded or made substantially more difficult (e.g., evidence can relate to the debtor’s conduct in respect of the creditor’s claim or in a previous dispute between the parties, to the debtor’s credit history, or to the nature of the debtor’s assets). On the contrary, the mere non-payment or contesting of the claim, the fact that the debtor has more than one creditor, or the fact that the financial circumstances of the debtor are poor or deteriorating, are not, per se, sufficient grounds for the issuing of an EAPO, even if they may be considered relevant factors in the overall assessment of the existence of the risk.
Where the creditor has not yet obtained a judgment, he also has to submit sufficient evidence to satisfy the court that he is likely to succeed on the substance of his claim against the debtor.
The court takes its decision by written procedure on the basis of the documents submitted by the creditor or by taking other evidence available under national law. If, on the basis of such evidence, it is not satisfied that the freezing of the bank account in question is justified, it does not issue the order.
Where the creditor has not yet obtained a judgment, court settlement, or authentic instrument, the court must require him to provide security as a condition to obtain the EAPO unless it considers such a security inappropriate in the circumstances of the case. On the contrary, if the creditor has already obtained a judgment, court settlement, or authentic instrument, the court has the discretionary power to decide to order so. The security will be in an amount sufficient to prevent abuse of the procedure and to ensure compensation for any damage suffered by the debtor.
Timing for Issuing an EAPO and Effects of the Measure
Decisions on the issuing of the EAPO must be taken within the strict time limits set forth by the Regulation. In particular, the court shall issue its decision:
By the end of the fifth working day after the filing of the relevant application, where the creditor has already obtained a judgment, court settlement, or authentic instrument.
By the end of the tenth working day after the filing of the application, where the creditor is acting before obtaining a judgment, court settlement, or authentic instrument.
Enforcement of an EAPO
The EAPO shall be recognized and enforced in every EU Member State without any special procedure being required. However, the enforcement has to follow the procedure applicable in the Member State where the bank account to be frozen is located. The Regulation provides for some general rules to be applied, such as the duty of the competent authorities to act without delay and the formal requirements to be followed (e.g., the transmission of the relevant forms to the competent authorities, the need to add a translation of the EAPO).
The Regulation also provides that EAPOs must have the same rank as their equivalent order under that national law.
What a Bank Is Required to Do if Served with an EAPO
When served with an EAPO, the bank must implement it without delay. In particular, depending on the method available under the law of the Member State of enforcement for equivalent national orders, it must preserve the amount specified in the EAPO either:
By ensuring that the amount is not transferred or withdrawn from the account;[1] or
By transferring that amount to an account dedicated for preservation purposes, where national law so provides.
If the funds held in the frozen account exceed the amount specified in the order, they must remain unaffected by the implementation of the EAPO. On the contrary, where the funds are insufficient to preserve the full amount specified, the implementation must cover only the amount available in the account.
At the request of the debtor, the bank can release funds preserved and transfer them to the creditor’s account in order to satisfy its claim. The transfer is possible only if the following conditions are met:
The creditor has indicated an account in its EAPO application and has specifically authorized the bank to release and transfer funds up to the amount specified in the order;
The law of the Member State of enforcement allows for such release and transfer; and
There are no competing EAPOs with regard to the account concerned.
If the EAPO only provides the name or other details of the debtor, with no indication regarding the number of the debtor’s account, it is up to the bank or to another entity responsible for enforcing the EAPO to identify the account held by the debtor with the bank. If such identification is not possible, the bank must not implement the EAPO unless the number of the account to be preserved was obtained by request to the information authority of the Member State of enforcement; in such case, the bank must obtain the account number from such an authority.
By the end of the third working day following the implementation of the EAPO, the bank must issue a declaration indicating whether and to what extent funds have been preserved and to which date the Order was implemented. Upon request by the debtor, or, in the absence of such a request, on a voluntary basis the bank can disclose to the debtor the details of the EAPO.
Eventually, the Regulation provides that any liability of the bank for failure to comply with its obligations is governed by the law of the Member State of enforcement.
Remedies Available to the Creditor and to the Debtor
In the event the application for an EAPO is rejected, in all or in part, the creditor is entitled to appeal the relevant decision of the court within a 30-day term, starting from the date he receives the communication concerning the partial or full rejection of the application. In this respect, each Member State has identified the competent court for the appeal.
On the other side, within 14 days of the preservation of the account, the debtor must be served with the EAPO and copies of all documents submitted by the creditor to the court. Since the debtor will be served with an EAPO only after its implementation, the Regulation sets forth some provisions concerning defendants’ protection. In particular, it provides that debtors must always be able to request a review of the EAPO, particularly if the conditions or requirements set for by the Regulation were not met or the circumstances have changed in such a way that the EAPO is no longer needed.[2]
The debtor may also obtain that the enforcement of an EAPO is limited (in case certain amounts in the account are exempt from the seizure) or even terminated where the account is excluded from the scope of the Regulation (indeed, as already said above, the Regulation does not apply to accounts exempt from seizure under the law of the Member State in which the account is maintained).
Moreover, debtors have the right to apply for the release of frozen accounts if they provide appropriate alternative security, such as a bank guarantee or a mortgage.
How the Creditor Can Get Information on Debtor’s Bank Accounts
One of the most important provisions set forth by the new Regulation concerns the request for the obtaining of account information. Indeed, in order to overcome existing practical difficulties in finding information about the whereabouts of the debtor’s bank account, Article 14 sets forth a mechanism allowing the creditor to request that the information needed to identify the debtor’s account be obtained by the court.
After having obtained an enforceable judgment, court settlement, or authentic instrument, the creditor who has reasons to believe that the debtor holds an account with a bank in a specific Member State, but knows neither the name nor address of the bank nor the IBAN, BIC, or another bank number allowing the bank to be identified, can nonetheless request the court to obtain such information from the information authority of the Member State of enforcement.
The creditor may make the same request even where the judgment, court settlement, or authentic instrument is not yet enforceable if:
The amount to be preserved is substantial; and
He has submitted sufficient evidence to satisfy the court that there is an urgent need for account information because, without such information, the subsequent enforcement of his claim is likely to be jeopardized.
In its request the creditor must provide the court with all the relevant information available to him about the debtor and the account to be preserved. The court transmits the request for information to the competent authority only if it is satisfied that the request is well substantiated and the conditions to issue an EAPO are met; otherwise, it rejects it.
Storage of Personal Data
The Regulation sets forth specific conditions for access to personal data and for the use and transmission of such data. In particular, it provides that personal data obtained, processed, or transmitted under the EAPO procedure must be adequate to the purpose for which they were obtained and used only for that purpose.
Authorities involved in the procedure and any other entity responsible for enforcing the order cannot store such personal data beyond six months after the completion of the proceedings and during such period the appropriate protection of the data must be endured.
Reimbursement of the Costs Incurred by Banks
Banks are entitled to obtain payment or reimbursement from the creditor or the debtor of the costs incurred in implementing the EAPO, but only if they have such right under the law of the Member State of enforcement in relation to equivalent national orders.
Fees charged by banks to cover such costs or the costs of providing account information must be determined to take into consideration the complexity of the implementation of the EAPO and cannot be higher that the fees charged for the implementation of equivalent national orders.
Advantages and Critical Issues which May Arise from the Application of the Regulation
The Regulation provides for a tool that can be potentially very effective for creditors in the need to obtain an ex parte precautionary measure to be easily enforced across the EU. The new provisions complete the European legal framework concerning the recognition and enforcement of decisions in civil and commercial matters, superseding the previous limitations that emerged since the Denilauler case (Case 125/79), where the ECJ basically stated that provisional measures cannot be recognized and enforced under the Brussels Convention if the debtor has not been granted the right to be heard (the principle had been applied also in connection with the Brussels I Regulation.[3]) Therefore, it is now much easier and faster to have a freezing order issued in a Member State recognized and enforced in another Member State without the need to have the debtor informed: this obviously strengths the effectiveness of the measure.
However, the Regulation does not completely supersede the procedural differences within the EU area. In particular, local rules still play a role in connection to several sensitive issues, such as the seizure of joint and nominee accounts or the exempted amounts, both to be determined in light of the law of the Member State of enforcement, and thus subject to different rules across Europe. Moreover, some commentators already highlighted that the Regulation does not provide for clear provisions for the treatment of pledged accounts, and that the EAPO has the same ranking of an “equivalent national order” of the State of enforcement (therefore—at least in theory—other domestic orders or measures may have a higher ranking and thus prevail over the EAPO).
An additional issue for banks is the possible conflict between the ex parte nature of the EAPO and the duty of care and prompt information that banks usually have vis-à-vis their clients. Since the legal regime of a bank’s liability is governed by the law of the place of enforcement, the courts of each Member State will likely have to address this sensitive issue, and—from a general standpoint—evaluate the standard of due diligence required to the banks dealing with the implementation of EAPOs.
[1] If the EAPO covers several accounts held by the debtor with the same bank and such accounts contain funds that exceed the amount specified in the EAPO, the bank must implement the Order in the following order of priority: (i) savings accounts in the sole name of the debtor; (ii) current accounts in the sole name of the debtor; (iii) savings accounts in joint names; and (iv) current accounts in joint names.
[2] In particular, an EAPO shall be revoked or amended, where applicable, when (i) the conditions or requirements set out in the Regulation were not met; (ii) the order, the Declaration by the bank concerning the preservation of funds, or the other documents which must be served on the debtor were not served within 14 days of the preservation of his account or accounts; (iii) the documents served on the debtor did not meet the language requirements; (iv) preserved amounts exceeding the amount of the order were not released; (v) the claim the enforcement of which the creditor was seeking to secure by means of the order has been paid in full or in part; (vi) a judgment on the substance of the matter has dismissed the claim the enforcement of which the creditor was seeking to secure by means of the order; or (vii) the judgment on the substance of the matter, or the court settlement, or authentic instrument, the enforcement of which the creditor was seeking to secure by means of the order has been set aside or, as the case may be, annulled.
[3] See, for instance, German Federal Supreme Court (2006, IX ZB 150/05), Swiss Federal Court (2003, BGE 129, III, 626, Uzan v. Motorola Credit Corporation) and French Cour de Cassation (Cass. 1re civ., 30 juin 2004, Stolzenberg, Rev. crit. DIP 2004, p.815, JDI 2005, p. 112).