Suppose you were a German bank lending to a Spanish debtor under
a loan agreement governed by German law. Once your Spanish debtor
stops paying, the bank would have to obtain a German legal judgment
and would then have to enforce it in Spain. Any measure to secure
the debtor's assets in the meantime, is typically subject to
the jurisdiction where the asset is located, or subject to lengthy
recognition proceedings. Having to resort to local law measures
usually puts foreign creditors in a worse-off position than local
ones. Until the German bank has secured a Spanish lawyer,
understood possible security measures, and agreed on a course of
action, other local creditors may have already secured the majority
of the debtor's assets.´
The European Regulation on the freezing of bank accounts provides a
trans-EU tool, the European Account Preservation Order (EAPO), to
preserve a debtor's assets by freezing the debtor's
accounts until a final judgment is enforced. The Regulation, which
had been passed in 2014, came into force on
18 January 2017. It allows creditors to obtain an EAPO in
the jurisdiction governing the underlying claim which is directly
enforceable in all participating member states. Thus, the German
bank could obtain an EAPO from a competent German court which would
have to be enforced by the Spanish bank holding the accounts of the
Spanish debtor.
Applicability
The preservation order will be available in all EU countries
except for Denmark and the UK. Thus, UK and Danish courts cannot
issue EAPOs, and EAPOs will not be implemented with regard to bank
accounts held in the UK or in Denmark.
An EAPO can be obtained for pecuniary claims in civil or commercial
cross-border matters. It can be applied for before substantive
proceedings have been initiated, during proceedings and after a
final judgment has been issued. The definition of a
"cross-border" matter is wide, including any matters
where the accounts to be frozen are located in a country other than
the country of jurisdiction of the relevant substantive claim, or
other than the country where the debtor is domiciled.
Even though it is not necessary for an EAPO that a final judgment
or an authentic instrument has already been obtained, having such a
judgment or instrument provides the creditor with additional
rights.
"Authentic instruments" are directly enforceable deeds
such as a Polish enforcement order with a writ of execution
appended to it (tutył egzekucyjny zaopatrzony w
klauzulę wykonalności), a Croatian or Slovenian
directly enforceable notarial deed (ovrana
javnobilje~nička odluka; ovrana javnobilje~nička isprava
or neposredno izvraljiv notarski zapis), or a Czech notarial
deed on direct enforceability (notářský
zápis se svolením k vykonatelnosti).
Competent court
Before a final judgment or an authentic instrument is obtained,
the application has to be filed with the competent court for the
substantive matter. Where the defendant is a consumer, the courts
of the defendant's domicile will have jurisdiction. After
obtaining a final judgment the courts of the Member State where the
judgment was issued have jurisdiction.
Prior to a judgment, no EAPO can be issued with regard to accounts
held by Non-EU, Danish or UK consumers, even if the accounts are
located in for instance Germany, due to lack of jurisdiction of any
court. After a judgment has been obtained in a participating Member
State, such accounts could be blocked.
Proceedings
In order to obtain an EAPO the creditor has to provide
sufficient evidence to satisfy the court that there is a real risk
that without a protective measure the subsequent enforcement of the
claim "will be impeded or made substantially more
difficult" and, thus, there is an "urgent need for a
protective measure" (see Art 7). In cases where the creditor
has not yet obtained a judgment or another title, the creditor also
has to provide the court with sufficient evidence that he is
"likely to succeed on the substance of his
claim".
It is to be expected that at least in the first years, national
courts will interpret these requirements quite differently.
Creditors may start taking this into account when deciding on the
applicable law for their loan agreements.
Once the competent court has received a complete application it has
to decide on the EAPO within 10 working days in cases where no
judgment has been obtained and within 5 working days in cases where
a judgment already exists. If an EAPO is granted prior to the
opening of substantive proceedings, the creditor has to initiate
such proceedings within 30 days after applying for an EAPO or
within 14 days after issuance of an EAPO, whichever is the
later.
The debtor will not be notified prior to the issuance of an EAPO
but only once the EAPO has been issued and the account has been
blocked. While it is common in some European countries that debtors
are not heard prior to the issuance of interim measures, certain
jurisdictions such as Austria, Croatia and the Czech Republic, at
least provide for the option to hear the debtor prior to issuing
interim measures. The courts have no such option before issuing an
EAPO.
Implementation
After an EAPO has been granted, the court will deliver it to the
creditor and to the bank at which the account is held. The bank has
to execute the EAPO immediately by blocking the relevant account.
Failing to do so may cause damages claims by the creditor against
the bank. The extent of the bank's liability is governed by the
local law of the relevant member state and thus may differ
substantially.
The bank has to confirm the implementation of the EAPO within three
days upon receipt of the order. Only after such confirmation is the
debtor informed.
Remedies
The debtor may challenge the EAPO itself or only the enforcement
thereof. In most cases the debtor can file the appeal in the
country of enforcement, or may choose between filing in the country
of enforcement or in the country where the EAPO has been issued.
The notable exception is the application of the debtor to have the
whole EAPO reviewed. This application can be filed only with the
competent authority in the country of origin.
In the example above, this would mean that the Spanish debtor could
raise the fact that the documents served upon him have not been
properly translated in either Spanish or German courts. An appeal
against the EAPO itself, however, would have to be filed with the
German courts.
Information request
To apply for an EAPO, the creditor needs to know only the name
of the bank where the debtor holds its accounts. The creditor does
not have to provide an account number or IBAN.
Where a creditor has no information about which bank the debtor
holds its accounts with, the creditor can file an application with
the competent court to request such information from the
authorities of the state of enforcement. The application can only
be filed by a creditor that has obtained an enforceable judgment or
authentic instrument.
Thus, if the German creditor has already obtained a title but does
not know which bank the Spanish debtor's accounts are held in,
the German creditor can ask the German court to request such
information from the Spanish authorities.
Summary
The EAPO provides a new tool for creditors to secure their claims throughout the European Union. While the regulation is detailed, different practices in member states may render the instrument more useful in some member states than in others. Banks will have to ensure that EAPOs are properly implemented in order to avoid liability. And cross border restructurings may become more difficult when creditors start blocking accounts with foreign EAPOs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.