Significant concerns have been raised about the order, and the failure to obtain a sufficient balance between creditors’ rights to recover debts and safeguards for defendants. The Brussels office explains

While legislative developments recently slowed in Brussels due to the election of a new European parliament at the end of May, and the nomination of a new European Commission, some important legislative developments have occurred, that have a particular impact on in-house lawyers.

One major development has been the adoption of a regulation establishing a procedure for a European account preservation order (EAPO), that entered into force in July 2014.

The aim of the EAPO is to provide a uniform mechanism across the EU for the application and enforcement of cross-border debt recovery, making it easier for companies to recover cross-border claims.

The adoption of the EAPO will enable creditors to preserve funds in bank accounts under the same conditions in all EU member states that are signatories to the regulation.

An EAPO raised in one member state would automatically be recognised and enforced in another. It is to be considered as an interim protection order for the creditor who will always need to obtain a final judgment under national law, with national systems for preserving funds not changing. The EAPO will block the debtor’s account without allowing the creditor to be paid the money.

Once adopted, the regulation will be directly applicable in all member states apart from the United Kingdom, which has not opted in, and Denmark which has an opt-out in this area.

While the UK government welcomed the overall objective of the Commission’s proposal in 2011, the proposal was met with some resistance by stakeholders. Significant concerns arose regarding the failure of the Commission’s proposal to obtain a sufficient balance between creditors’ rights to recover debts and safeguards for defendants.

With regard to safeguards, a low threshold was proposed for a creditor obtaining the order and no requirement was introduced to compensate a debtor for the losses suffered from the wrongful grant of an order. Moreover, courts were provided with little discretion in the proposal for deciding on the issuance and sum of the order.

Fears were also raised for companies in the process of rescue or restructuring since the apparent ease for freezing a bank account could possibly undermine the rescue and thus make insolvency more probable. Access to information on bank accounts also raised major concerns due to the significant burdens placed on UK banks and their accounts and the data protection issues associated with such access.

Due to the concerns raised, the UK government decided not to opt in to the proposal. However, many of the issues were resolved in the compromise agreement reached between the European parliament and the Council in March 2014.

A limitation of the possibility for creditors to obtain information on debtors’ accounts was introduced as well as a requirement for the applicant to provide security when requesting an order in order to avoid unjustified claims and protect the debtor. Moreover, a rule on creditor liability for damage was introduced.

While the UK will not participate in the EAPO, it will have an impact. Many obligations are imposed on banks operating in participating member states. Under Article 24, banks will be obliged to implement the preservation order without delay. They shall also be required to produce declarations to the competent authorities, under Article 25, concerning the preservation of funds within three days of the implementation of the order.

Under Article 17, banks may also be required to search for and provide information about a debtor’s account in relation to post-judgment orders. With regard to liability, the law of the member state of enforcement will apply where a bank’s liability arises for failure to comply with its obligations. This provision may cause complications upon application due to the differences in liability regimes existing in member states.

Conflicts between participating and non-participating member states might also arise with the introduction of Recital 48 of the regulation which provides that the ‘regulation should apply only to those member states which are bound by it in accordance with the treaties’.

The procedure for obtaining an EAPO ‘should therefore be available only to creditors who are domiciled in a member state bound’ by the regulation and ‘orders issued under this regulation should only relate to the preservation of bank accounts which are maintained in such a member state’.

This provision appears to introduce a nationality requirement for any claimant seeking relief under the instrument. British and Danish claimants could therefore be adversely affected by the agreed text. For example, the nationality requirement in place would mean that a British and Danish claimant in French proceedings would not be entitled to such relief though its French co-claimant would be.

Similar restrictions would apply to claimants from third countries such as the US. It remains to be seen how this provision will be used in practice, to the detriment, or benefit of the parties.

While the regulation has now entered into force, it seems that a ‘sit-and-wait’ exercise will follow to ascertain how the EAPO will work in practice and how some of the provisions in the regulation will be used, and interpreted, by parties to the EAPO.

The Law Society’s Brussels Office will closely monitor the application of the EAPO including any developments on the interpretation of its provisions.