A new EU Regulation will come into force tomorrow establishing a European Account Preservation Order (EAPO) procedure to facilitate cross-border debt recovery in civil and commercial matters (Regulation (EU) 655/2014). The main provisions will not however apply until January 2017.
Under the new procedure, a creditor will be able to obtain an EAPO which effectively freezes the debtor’s funds in an EU bank account up to a specified amount. It will apply only in cross-border cases, i.e. where the relevant bank account is held in a different Member State to where the EAPO application is made or the creditor is domiciled.
Certain safeguards have been introduced, including a requirement for the creditor to provide security in certain circumstances, and a provision that the creditor shall be liable for damage caused to the debtor by the EAPO where the creditor is at fault.
The Regulation does not apply to the UK and Denmark, which have opted out. This means the procedure will not be available for bank accounts held in those Member States or, it seems, to creditors domiciled in those Member States. Concerns have been raised that this provision may be discriminatory on grounds of nationality, contrary to fundamental principles of EU law (see “The European Account Preservation Order: the discrimination concerns” in Brussels Agenda, June 2014).
The government yesterday announced that the UK would not be opting in to the proposed Regulation establishing a Europe-wide bank account freezing order (click here for our summary of the proposals).
Although the government recognises the benefits of the proposal in facilitating cross-border debt-recovery, responses to its consultation on the proposal highlighted concerns over a lack of adequate safeguards for defendants, such as: too low a threshold for obtaining an order; insufficient discretion for courts in deciding whether to grant an order or in what amount; and no general requirement for a claimant to provide security for any damage that might be suffered by the defendant if the order was unjustified (though the court has a discretion to require security). Fears were also expressed that the grant of an order might undermine the process of company restructuring or rescue and make insolvency more likely.
The consultation also highlighted concerns over the burdens that would be placed on both banks and the government, in particular through the provisions enabling a claimant to request a “competent authority” in the Member State of enforcement to obtain the bank details of the debtor. This could be accomplished either by the relevant authority making enquiries of all banks in the Member State to identify whether the debtor holds an account with them, or by establishing a central register which could be interrogated by the authority as and when required. The UK has no such system at present, so setting this up would involve significant work and cost for both the government and financial institutions.
Although the UK has decided not to opt in to the proposal at this stage, it has stated that it intends to participate fully in negotiations with the hope that sufficient changes will be made to enable an opt-in after the proposal is adopted.
On 25 July 2011, the European Commission released the proposed European Account Preservation Order (EAPO) Regulation, which has been submitted for consideration by the European Parliament and the Council of the EU. Whilst it is likely to be several years before the regulation comes into force, it is likely that the infrastructure which will be required in order to administer the regime within the UK will be set up in the near future. Robert Hunter, Lucy Hopkins and Emily Lew comment.