By Lubomir Lesko*
Regulation (EU) No 655/2014 of the European Parliament and of the Council of 15 May 2014 establishing the European Account Preservation Order procedure (“Regulation”) should facilitate cross-border debt recovery in civil and commercial matters. National procedures for obtaining protective measures such as account preservation orders exist in all Member States, but the conditions for the granting of such measures and the efficiency of their implementation vary considerably between the Member States. Moreover, the recourse offered by national protective measures can be regarded as cumbersome in cases involving a cross-border element. It is in these cases where a creditor seeks to preserve several accounts located in different Member States, that the possibility of closer and more effective judicial cooperation among Member States will be beneficial.
The Regulation establishes a procedure designed to be an additional tool for creditors to use to recover debt. The tool is simply an option and Creditors remain free to choose any other procedure for obtaining an equivalent measure under national law.
The European Account Preservation Order (hereinafter as the “EAPO”) is a protective measure that prevents the transfer or withdrawal of funds held by a debtor in a bank account maintained in a Member State, if there is a risk that without such a measure, the enforcement of a claim against a debtor would be substantially more difficult. The preservation of funds held in a debtor’s account has the effect of preventing a debtor, and also persons authorized by the debtor, from making payments through that account (i.e. preserving funds prevents the debtor or its authorised agents from making direct debit payments or using a credit card).
Scope of the Regulation
The Regulation applies to pecuniary claims in civil and commercial matters, notwithstanding the nature of the court or tribunal concerned.
EAPO does not apply to following matters:
The Regulation is applied to cross-border cases only in the following situations. The first situation is when a debtor’s bank account is located within Member State A and the court having the jurisdiction according to the Regulation seized of the application, is located in Member State B. The second scenario is when a debtor’s bank account is located within Member State A but a creditor is domiciled within Member State B. In practice, this should mean that a creditor domiciled within Member State A can preserve the funds of its debtor domiciled in, and located in a bank account in, Member State B and also in a bank account located in Member State C, if applicable.
Procedure for obtaining preservation order
Application for EAPO
The application procedure for obtaining an EAPO is available to creditors seeking to secure the enforcement of a later judgment on the substance of a matter, and is available either before the creditor initiates proceedings in a Member State against the debtor on the substance of the matter, or at any stage during such proceedings up until the issuing of the judgment or the approval or conclusion of a court settlement. Nevertheless, it does not affect the opportunity of the creditor, who has already obtained a judgment, court settlement or authentic instrument requiring the debtor to pay the creditor’s claim, to also apply for and use the EAPO.
The EAPO is available for the purpose of securing claims that have already fallen due, as well as claims that are not yet due. As regards not-yet-due claims, the decisive factor in determining whether an EAPO is available to a creditor stems from whether a claim arises from a transaction or an event that has already occurred. Another key factor is the amount which can be determined, including a claim relating to tort, delict or quasi-delict and civil claim for damages or restitution which are based on an act giving rise to criminal proceedings.
The court shall issue the EAPO only when the creditor has submitted sufficient evidence to satisfy the court that there is an urgent need for a protective measure in a form as strong as provided by the EAPO. The creditor must prove the existence of a real risk that without the EAPO the enforcement of the creditor’s claim against the debtor would be impeded or made substantially more difficult.
To ensure that the EAPO is a useful and effective tool for creditors trying to recover debts from debtors in cross-border cases, the debtor wonʼt be informed about the creditor’s application nor be heard prior to the issue of the EAPO or notified of the EAPO prior to its implementation. If the court has any doubts, it will not issue the EAPO.
Security to be provided by creditor
In view of the absence of a prior hearing of the debtor, specific safeguards are provided in the Regulation in order to prevent abuse of the EAPO by creditors and to protect the debtor’s right to have their funds at their disposal.
In this sense, in cases where the creditor has not obtained a judgment, court settlement or authentic instrument requiring the debtor to pay the creditorʼs claim, the creditor must to provide security to ensure that the debtor can be compensated at a later stage for any damage caused by the creditorʼs application for the EAPO.
Another important element for ensuring an appropriate balance between the creditor’s and the debtor’s interests is a rule on the creditor’s liability for any damage caused to the debtor by the EAPO. In accordance with the Regulation, the creditor shall be liable for any damage caused to the debtor by the EAPO due to fault on the creditor’s part. The burden of proof shall lie with the debtor.
Where there are several Member States in which enforcement could be initiated, in accordance with the “conflict-of-laws rule” the law applicable is the law of the relevant Member State in which the debtor is habitually resident. If the debtor is not habitually resident in any of the relevant Member States, the law applicable is the law of the Member State of enforcement with which the case has the closest connection. In determining the closest connection, the size of the amount preserved in the different Member States can be one of the factors to be taken into account by the court.
In determining the liability of a creditor, the applicable law shall be the law of the relevant Member State where the enforcement is initiated by the creditor. If accounts are preserved in more than one Member State, the law applicable to the liability of the creditor shall be the law of the Member State of enforcement in which the debtor has habitual residence, or, failing that, which has the closest connection with the case.
Obtaining account information
To overcome the existing practical difficulties in obtaining information about a debtor’s bank account in a cross-border context, the Regulation sets out a mechanism allowing the creditor to request the information needed to identify the debtor’s account to be obtained by the court, before the EAPO is issued, using the authority of the Member State in which the creditor believes that the debtor holds an account. Pursuant to this rule, a particular Member State shall impose the obligation on all banks in the Member State to disclose whether the debtor holds an account with them.
Issuance of preservation order
Depending on the method available under the law of the Member State of enforcement for equivalent national orders, the EAPO is implemented by blocking the preserved amount in a debtor’s account or, where national law so provides, by transferring that amount to an account dedicated for preservation purposes, which could be an account held by either the competent enforcement authority, the court, the bank with which the debtor holds an account or a bank designated as a coordinating entity for the preservation in a given case.
Time limits for initiation of proceedings
When the creditor has applied for the EAPO before initiating proceedings, it shall initiate those proceedings and provide proof of such initiation to the court where the application for the EAPO was lodged within (i) 30 days of the date on which it filed the application or (ii) within 14 days of the date of the issuance of the EAPO, whichever date is the later. If the court has not received any proof of the initiation of proceedings within the referred time period, the EAPO shall be revoked, or shall terminate, and the parties shall be informed accordingly.
Form of preservation order
The EAPO shall be issued using the form established by means of implementing acts adopted in accordance with the advisory procedure referred to in the Regulation and shall bear a stamp, a signature and/or any other authentication of the court and fulfil other requirements of the Regulation and national law.
Duration of preservation
Funds preserved by an EAPO will remain preserved as provided for in the EAPO, or any subsequent modification or limitation of that EAPO until the EAPO is revoked, or the enforcement of the EAPO is terminated. Funds shall remain preserved also until a measure to enforce a judgment, court settlement or authentic instrument obtained by the creditor relating to the claim which the EAPO was aimed at securing, has taken effect with respect to the funds preserved by the EAPO.
Remedies of debtor against preservation order
The debtor may request a review of the EAPO, if the conditions or requirements set out in the Regulation were not met, or if the circumstances that led to the issuance of the EAPO have changed in such a way that the issuance of the EAPO would no longer be founded. A remedy is available to the debtor if the case did not constitute a cross-border case, if the creditor did not initiate proceedings on the substance of the matter within the period of time provided for in this Regulation and where the court did not, as a consequence, revoke the EAPO or the EAPO did not terminate automatically. A debtor may also request a review of the EAPO when the urgent protection provided by the EAPO is not necessary due to their being no risk of the claim being enforced.
An application from a debtor to review an EAPO on the ground that the EAPO or other necessary documents were not served on the debtor within 14 days of the preservation of its account or accounts, or these documents did not meet the language requirements, will result in the EAPO being revoked or modified.. The EAPO shall also be revoked or modified on the ground that the claim the creditor was seeking to secure has been paid in full, or preserved amounts exceeding the amount of the EAPO have not been released.
Any decision of the court dealing with the debtorʼs remedy shall be issued without delay, and in any event, no later than 21 days after the court or, where provided by national law, the competent enforcement authority has received all of the information necessary for its decision. The decision shall be brought to the notice of the parties. The decision revoking or modifying the EAPO, and the decision limiting or terminating the enforcement of the EAPO, shall then be enforceable immediately.
The debtor has the right to apply for the release of the preserved funds if the debt has not yet been paid and if it provides appropriate alternative security. Such alternative security could be provided in the form of a security deposit or an alternative assurance, such as a bank guarantee or a mortgage.
To be effective, the EAPO needs to be enforced in accordance with the national law of the Member State where enforcement is sought. On many occasions, the Regulation explicitly refers to the applicability of a Member State’s national law. As a consequence, slight differences in application and enforcement may arise due to differences in the various Member States’ laws. On 1 April 2017, a new Slovak law, Act No. 54/2017 Coll. on the European Account Preservation Order comes into effect. This Act aims to ensure the correct implementation of the Regulation in Slovakia.
The Regulation introduced a new procedure allowing the effective and prompt blocking of funds held in bank accounts in different Member States in cross-border cases. Implementation of the Regulation will not cause the abandonment of existing national procedures for securing funds in an account, but instead, the creditors in cross-border matters will have the option of choosing between the EAPO and the existing national procedures.
The Regulation represents the more invasive European device in civil procedural law for the majority of Member States, which have so far retained great control of the requirements for granting and enforcing protective measures in their territories.
The unified procedure of securing funds in accounts for the enforcement of claims in cross-border commercial and civil matters should certainly enable a faster, simpler, more economical and more accessible way of debt collection for creditors, and a more secure environment for conducting business operations for entities doing business in different Member States.
*Lubomir Lesko is a managing associate in the Bratislava office of PETERKA & PARTNERS advokatska kancelaria s.r.o. organizacna zlozka. Mr. Lesko can be contacted at email@example.com.