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Legal Alert - EUROPEAN ACCOUNT PRESERVATION ORDER

 

Adopted in an EU regulation (EU) No 655/2014, a brand new procedure named European Account Preservation Order (“EAPO” or “Preservation Order”) came into force on 18 January 2017. The regulation will not apply in the United Kingdom and Denmark.

Тhe objective of thе procedure is to serve as a protective measure, which enables a creditor to obtain a Preservation Order. Such order aims to avoid threats to the subsequent enforcement of the creditor’s claim such as from the transfer or withdrawal of funds held by the debtor in a bank account within the European Union. Thus, EAPO allows a creditor to effectively freeze his debtor’s monies up to a certain amount in any bank within the European Union. A Preservation Order issued in one Member State will apply directly in the other Member State without the need for any additional recognition or enforcement procedures or declarations of enforceability.

EAPO is an alternative to the procedures, which exist under the national laws of the Member States such as freezing orders and attachments. It is intended to provide additional protection for the cross-EU civil and commercial transactions.

Scope

At this time, EAPO does not apply to financial instruments as well as to claims against a debtor in insolvency proceedings.

The scope of EAPO is limited to cash accounts in any currency, or accounts with similar claims for the repayment of money, such as money market deposits. The scope is further limited to cross-border civil and commercial cases. Matters such as tax, social security, matrimonial property, wills, succession arbitration are specifically excluded from the scope of EAPO.

In order to be qualified as a cross-border case, it should be one in which the bank account or accounts to be preserved by the Preservation Order are maintained in a Member State other than:

(а)

the Member State of the court seised of the application for the Preservation Order; or

(b)

the Member State in which the creditor is domiciled.

 Applicability

Any creditor, which is individual or corporation domiciled in a Member State of the EU is entitled to apply for the issuance of a Preservation Order. The creditor must have a legal standing (locus standi) for court proceeding in the Member State where the application for a Preservation Order is submitted.

The creditor can apply for a Preservation Order both:

·         prior to initiating proceedings;

·         during such proceedings; and

·        after having obtained a judgment, court settlement or any authentic instrument requiring the debtor to pay the creditor’s claim.                                                                                                    

The competence for issuing a Preservation Order lies with the court, which has jurisdiction to adjudicate on the substance of the dispute. Such competence is based on the applicable rules for defining the competent jurisdiction.

However, the Preservation Order can only freeze the debtor’s account but cannot serve as a ground for enforcement. Enforcement would continue to be based on the respective national procedural laws.

The application procedure for an EAPO will generally be ex parte (ie without notice to the counteparty).  The application and supporting documents may be submitted by any means of communication, including electronic, however, such means of communication should be generally accepted under the procedural rules of the Member State in which the application is lodged.

The procedure is also intended to be fast as the EAPO is to be issued within tight deadlines as of the application for its issuance and provided that some other requirements are met, where applicable (e.g. provision of a security by the creditor). 

Notwithstanding the above, the mere submission of an application does not mean that the desirable result by the creditor will be achieved. That is because the competent EU courts will apply a test in the process of issuing an EAPO. Under this test the respective claimant must provide “sufficient evidence” that there is an “urgent need” for issuing Preservation Order, for reasons that without it, there is a risk that enforcement will be “impeded or made substantially more difficult”. In addition, where the creditor has not yet obtained in a Member State a judgment or an equivalent, which requires the debtor to pay the creditor’s claim, the creditor shall also submit sufficient evidence to satisfy the court that she or he is likely to succeed on the merits of his claim against the debtor.

It is worth noting, that the Regulation provides a significant degree of discretion to the competent court when assessing whether the above tests are passed or not.

Safeguards

The new regulation has introduced a number of provisions safeguarding the debtor. The latter stem from potential consequences likely to result from a preservation, and also serves against a malicious intent of the creditor. Under certain circumstances, the creditor has to provide a security as a supplement to his claim for EAPO.

The regulation also imposes liability on the creditor if he is at fault.

The debtor is entitled to challenge either the granting of the Preservation Order or the implementation of the Order. In line with the above, the debtor may apply to the issuing court to revoke or modify the EAPO. The debtor may also apply to the issuing court or to the  enforcement authority in the Member State of enforcement to limit or terminate the enforcement.

Furthermore, the debtor can apply to have its funds released in exchange for providing a different security.

Creditors are also provided with some remedies, particularly they can appeal the decision dismissing the application for issuing the Preservation Order.

The EAPO and the recent amendments of the Bulgarian Civil Procedure Code

As per the recent amendments to the Bulgarian Civil Procedure code (published in State Gazzete № 13 dated 07 February 2017) if the application for EAPO is lodged prior to initiating proceedings, it will be examined by the respective first instance court which is competent to adjudicate on the substance of the dispute. The creditor can also lodge applications for issuing an EAPO during any phase of the dispute with the court which is examining the case, including when it is at its cassation phase. In the latter case, the competent court to issue the preservation order is the lower court.

As per the Civil Procedure Code the competent authorities designated to enforce the EAPO are the Bulgarian private or state enforcement agents. The enforcement agents are also designated to receive, transmit or serve the EAPOs under the respective articles of the Regulation.

The new regulation and banks

The EAPO rules relate to banks within the EU as well as to branches of non-EU banks which are established in the EU.

Banks will be subject to extensive information and reporting obligations under the regulation.

When a bank receives a Preservation Order, it ought to freeze the debtor’s accounts immediately, or where the law of the Member State of enforcement so provides, after a corresponding instruction to implement the Order.

Considering the fact that a significant number of provisions refer back to national laws, similarly to creditors, banks will also need to obtain a multi-jurisdictional advice on how to proceed under the new EAPO rules. In the majority of the cases, banks will need to act based on a document issued by a court from a jurisdiction other than that of their establishment.

Banks, which do not comply with the new rules, will be subject to penalties as provided under the national law of the member states of enforcement.

By providing additional option to the creditors, the new regulation beyond any doubt will facilitate debt collection within the EU, thus improving the proper functioning of the European single market. However, EAPO is designed to be an alternative to instruments existing under national law.  That is why, it is advisable for a creditor to choose on a case by case basis which is the better path to follow.