European Account Preservation Order
On the 18th of January 2017, the European Account Preservation Order (hereinafter referred to as the EAPO) was established by EU Regulation 655/2014. The EAPO is a protective measure which facilitates cross-border debt recovery in civil and commercial matters. It acts as a freezing order allowing creditors to chase debts across the borders of participating EU Member States. The UK and Denmark are the only countries who have not opted into this new Regulation.
The Regulation was established due to the European Commission’s desire to maintain and develop an area of freedom, security and justice in which the free movement of persons is ensured. The EAPO is a protective measure which allows a creditor to apply to the court in another participating Member State to prevent the transfer or withdrawal of funds in a bank account if there is a real risk that, without such a measure, the funds owed to him may dissipate. The aim of the European Commission in creating the Order, was to ensure mutual recognition and enforcement of judgments and to prevent the disappearance of assets.
The EAPO may be applied for by creditors at any stage of the legal process. A creditor can apply for an EAPO prior to debt recovery proceedings being initiated, during debt recovery proceedings or after obtaining judgment against a debtor. Another benefit of the EAPO is that creditors can apply to the court even if the claim is not yet due but has arisen from a transaction or event that already occurred and so the debt is easily quantified.
The application for an EAPO should be made in the participating Member State where substantive matter will be heard or where judgment has been obtained.
How can a creditor succeed in an application for EAPO?
In order to succeed in an application, a creditor must prove an urgent need of the courts protection. It must be proved that there is a real risk the debtor will conceal or destroy his assets or have them disposed of under value. Once an EAPO is granted the Bank must freeze the account “without delay”. The court must take a balanced approach before granting an EAPO. The court must consider the debtor’s previous history, the relationship between the parties and the nature of the assets. It would not be sufficient to only show that the debtor is in a poor financial situation.
In a situation where an EAPO is being applied for pre-judgment, the court may require the creditor provide security as compensation for any damage caused to the debtor from the order.
An application for an EAPO is made without notice to the debtor. While the debtor is not made aware of the application, in order to ensure its effectiveness, the debtor may contest the Order once it is granted. To safeguard the debtor’s right to a fair trial and right to an effective remedy, a copy of the Order must be served on the debtor after the implementation of the Order.
The EAPO affords a further level of protections for creditors and an additional method to recover debts. An EAPO makes it more difficult for a debtor with various bank accounts to conceal assets in another participating Member State.
The effect of the EAPO is to prevent, not only the debtor himself, but any third party authorised by the debtor to make payments through an account, from using the funds (for example a Standing Order or Direct Debit) The restrictions on the debtor’s bank account, won’t be such that they will be prevented from dispensing ordinary transactions or family obligations. The Regulation does not apply to debtors in insolvency proceedings.
Although the UK have opted out of the Regulation, UK companies may still be subject to an EAPO if they hold bank accounts in participating Member States and participate in cross-border trade.
The Order ensures the efficient enforcement of a judgment when the debtor has several accounts in different participating Member States. While national measures to prevent the disappearance of assets exist in all Member States, conditions to grant such orders and effectiveness vary. With Regulation 655/2014, creditors now have an additional and more efficient method with which to recover cross-border debts.