An innovation of the the Civil Justice acquis of the EU, Regulation (EU) 655/2014 of the European Parliament and of The Council establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters (the “EAPO Regulation”) allows the freezing of the debtor’s bank account maintained in any EU Member state by a single order issued by another member state of the EU. The Regulation is binding in all EU member states except the UK and Denmark, who opted out.

Many international enterprises are housed under the heading of more than one business entity – such as in the case of a company having one or more subsidiaries in other regions; each of these companies would be able to shift assets quickly between the accounts of what actually constitutes the same organisation.  Additionally, today’s digital marketplace makes it exceedingly common for individual consumers to purchase goods or services from businesses in one country, this while having their capital housed in another.  Protective measures may therefore be necessary to maintain the financial relationship between creditors and debtors, and to prevent assets from disappearing across the borders of EU Member States.

Through the Lens of the Creditor

Let us assume that a creditor has a payment claim, supported by an enforcement order in one of the EU Member states. Thanks to the EAPO procedure, the new instrument of debt collection provided by the Regulation entered into force in January 2017, the creditor can easily request the order to be recognized and enforced in another member state in order to freeze the debtor’s bank account kept in any other member state of the EU.

Prior to the EAPO Regulation, there have been significant differences among the EU Member states considering the execution of such orders. From now on, the EAPO Regulation makes debt collection easier for banks, since this new tool of EU civil justice makes it relatively cheap and quick to execute the enforcement order in another EU Member state.

The EAPO regulation provides a higher degree of transparency at the EU level regarding debtors’ assets – often higher than what is provided under existing national laws in the different member states – , as well as enhances cooperation between banks.

However, the scope of the EAPO is limited. Firstly, the use of EAPO is limited to cross-border cases, meaning that the bank account in question on which the preservation order is to be executed must be maintained in a member state which is different from the member state where the order of the court was brought, or where the creditor has its domicile. Secondly, the EAPO concerns only the bank accounts of debtors, and does not apply to other assets.

In an attempt to balance the rights of both creditors and debtors under this new regime, anyone applying for an EAPO must navigate several hurdles prior to its implementation.  To prevent the abuse of the new system by creditors, tests must be satisfied to ensure the claim is worthwhile, and that the use of the order is something akin to a last resort.  The claim itself must be shown to have merit – in other words, that it’s likely to be successful.

Second, the need for the order must be shown to be urgent; the creditor must evidence a ‘real risk’ that not receiving the order could significantly challenge the ability of the crediting agency to be successful in recuperating the assets in question.

Further, debtors may need to be insured against abuse of EAPOs by the obligation of the claimant/creditor to provide reasonable security should the debtor’s interests suffer from issuing the order – aside from what is necessary to recoup what assets are sought under the claim.  The court through which the order is received would decide in what cases security may be needed to ensure debtors are reasonably protected from the misuse of an EAPO.

Through the Lens of the Debtor

A crucial element of EAPO is that the order must be issued without the debtor being heard so that the debtor cannot move the funds until the enforcement order is executed. However, the procedure also offers the debtor a guarantee that the frozen amount reflects the creditor’s legitimate claim as well as that the debtor has the opportunity to file an appeal against the order as soon as possible.

How Will it Work in Practice?

Let’s take the example of a creditor whose head office is located in Austria. The creditor has an enforcement order from the competent Austrian court ordering the debtor to pay 50,000 EUR. The debtor maintains bank accounts in Belgium and Luxembourg – in EU Member states which are also bound by the EAPO Regulation. The creditor intends to take legal steps to freeze the debtor’s accounts maintained in the other member states in order to recover the debt. For this, the creditor must submit the request to the Austrian court, where the enforcement order was also made. To meet the claims of the creditor, the debtor’s account in Luxembourg is frozen.

However, striving for a balance between creditors’ rights and safeguards for debtors, the EAPO Regulation also offers remedies concerning the execution of the preservation order. In some cases the EAPO shall be revoked or modified upon the request by the debtor to the competent court of the member state of origin. In the example, the debtor could provide proofs to the Austrian court that the claim requested by the creditor to be secured by the EAPO procedure has been paid. In this case, the EAPO is to be revoked.

How the New Procedure will be applied in Luxembourg

The EAPO Regulation has been implemented into Luxembourgish national law by Law of 17 May 2017 relating to the implementation of the EAPO Regulation, published on 23 May 2017. The new law declares that the EAPO Regulation shall be recognized and enforced in Luxembourg in the manner laid down in the Regulation.

According to the New Art 685-5 of the New Civil Procedure Code, an application for an EAPO for a claim not exceeding € 10,000 shall be brought by application before the Justice of Peace (Justice de Paix), while an application for an EAPO for a claim exceeding € 10,000 shall be brought by application before the president of the district court (Président du Tribunal d’Arrondissement).

An appeal against the decision of the Justice of Peace can be brought before the President of the District Court. An appeal against the decision of the President of the District Court is brought before the Court of Appeal.

Revocation, modification, limitation and/or termination of these orders must likewise be applied for through the same channels.

The new national law regulates that in Luxembourg the Commission for the Supervision of the Financial Sector (“CSSF”) shall act as the competent authority responsible for obtaining information, and by the means laid down in Art. 14 (5) (a) of the EAPO Regulation.

What difference with the pre-existing system?

A similar instrument, “attachment orders” (saisie-arrêt), are available under pre-existing Luxembourg law, which has allowed creditors with claims that satisfy certain requirements to freeze bank accounts until an enforceable title (arbitrary award, civil/commercial claim judgment or other ‘authentic’ instrument) entitles the creditor to be paid up the value of his or her claim.

One of the criticisms of attachment orders is that foreign creditors using the system are problematically made responsible for clarifying which third party (e.g. banks or financial institutions) may be holding assets targeted by claims.

Essentially, aside from the merit and possible security arrangements mentioned above, with the new EAPO system, the creditor in another Member State is only required to justify to the court why it believes the assets of the creditor are being held in a Luxembourg bank.  The CSSF will then make the request outlined above to the bank(s) holding the assets.  To add weight to the system, banks are prevented from notifying their clients of such a request for thirty days, significantly impairing the debtor’s ability to move their assets prior to judgment.

Conclusion

 The EAPO Regulation could represent a powerful new tool in the arsenal of creditors seeking to ensure debtors’ bank accounts have funds available after a successful judgment is handed down.  The time periods within which EAPOs would be implemented, for instance, are comparatively tighter than those of many domestic equivalents – thus removing some concerns as to whether debtors would be able to circumvent their civil obligations.  Further, the regulation should lead to enhanced cooperation between banks – who are mostly indemnified with regard to costs relevant to proceeding, crediting agencies and the greater EU banking infrastructure.