The provisions of the EU Regulation establishing the new European Account Preservation Orders (Regulation No. 655/2014) will come into force on 18 January 2017. It will enable creditors domiciled in participating EU Member States (which includes all Member States except for the UK and Denmark) to apply to freeze funds in a debtor's bank account in any other participating Member State using a single application form.
The UK opted out of the Regulation amid concerns that it weighed too heavily in favour of creditors and may give rise to potential injustice and forum shopping. The fact that the UK has not adopted the Regulation however does not mean that it has no impact on UK based businesses with commercial interests in the EU. Although bank accounts in the UK cannot be the subject of an EAPO and no person/entity domiciled in the UK can apply for one, parties domiciled in the UK with accounts in other Member States can still be subject to an EAPO.
Below is a summary of the new EAPOs and an outline of the possible implications for UK based businesses.
Summary of the new EAPO measures
- An EAPO is an order made by the Court of a participating Member State upon application by a creditor to prevent the transfer or withdrawal of funds up to a specified amount held by a debtor in a bank account in another Member State. It is designed to protect claimants in the modern environment where funds can disappear at the touch of a button.
- An EAPO can in principle be obtained before proceedings have been initiated, during proceedings or after judgment has been given. Parties can apply without notice to the defendant so as to ensure that the defendant cannot move funds to frustrate any order.
- Creditors will be able to apply for an EAPO by submitting a single standard form application, even where they are applying in relation to multiple bank accounts or accounts in multiple jurisdictions within the participating Member States. Where a judgment has been obtained already, the application must be made to the Court in the Member State in which the judgment was granted. Where an application is made prior to the initiation of proceedings or prior to judgment, to the courts of the Member State with jurisdiction to rule on the substance of the claim.
- EAPOs will be granted only where a creditor submits "sufficient evidence" to satisfy the court that there is an urgent need for an EAPO because there is a real risk that, without one, the enforcement of the creditor's claim against the debtor will be impeded or made substantially more difficult. Where an application is made pre-judgment, a creditor will also need to satisfy a court that he is likely to succeed in the substance of his claim against the debtor. Debtors will have the right to apply to have an EAPO revoked or modified.
- Once granted, an EAPO will impose obligations on the relevant bank(s) at which the debtor's account(s) are held. Banks must implement the terms of the EAPO without delay and must provide a declaration that the funds covered by the EAPO have been preserved.
- Inevitably there is a real risk that different jurisdictions will adopt differing tests of what amounts to "sufficient evidence" to grant EAPOs.
What does this mean for UK based businesses?
For those seeking to freeze UK bank accounts, applications have to be made in accordance with current domestic law requirements. Although ordered, the burden of proof to obtain a freezing order remains high.
It is unfortunate to say the least that the protection of the UK opting out of the Regulation does not extend to accounts held by those domiciled in the UK with accounts in participating Member States.
A UK based business could therefore find itself subject to an EAPO where it has a bank account located in a participating Member State and becomes involved in a cross-border matter falling within the jurisdiction of the court of a participating Member State. In such cases, a UK business could indeed have its bank accounts frozen under an EAPO. In practice, this could paralyse that company's business. A business could not, for example, pay out third party contractors. Given that an EAPO is made without any representation from the defendant, the Court granting it has to consider any applications to set aside/appeals from them. However, how quickly appeals will be dealt with will depend on the speed of Court in the different Member States, where some are slow moving. Further, the fact that there is no clear test of "sufficient evidence" could impact upon UK based businesses that are made the subject of an EAPO. The clear message is that, if you are affected by an EAPO, apply to appeal it with all haste with the best possible documentary support and local legal representation.
What of UK Banks?
With banks already having onerous burdens upon them in modern times, the Regulation is going to heap on them further challenges. Banks with branches in participating Member States served with EAPOs will be required to preserve funds and provide declarations of compliance with the EAPO within 3 days of implementation. For post-judgment EAPOs, banks may be required to conduct searches and provide details of accounts. There are obvious questions as to joint or nominee accounts - Banks served with an EAPO have to determine whether funds are held not exclusively by the defendant, held by a third party on behalf of the debtor or vice versa. What is apparent is that banks will need to keep up to date records so as to be able to deal with any EAPO and ensure compliance with it.
The ability of banks to recover their costs of dealing with EAPOs will inevitably differ as between Member States as will the sanctions for non-compliance. Banks should take legal advice in each relevant jurisdiction to ensure compliance with the EAPO given that they will be liable for any failure to comply with the Regulation in accordance with national law.