New mechanism introduced for freezing a debtor’s Bank accounts throughout the EU
By Ricky Kelly
19 January, 2017
The European Account Preservation Order Regulation 655/14 came into effect yesterday, 18 January 2017 throughout Europe except in the UK and Denmark - who have not adopted the regulation. The Regulation establishes a procedure which enables creditors from a participating member state to seek an Order preventing a debtor from dissipating assets until such time as the creditor’s proceedings for Judgement are determined and enforced. The Regulation relates to funds held in bank accounts only and is designed to reduce the time and costs for creditors attempting to preserve assets and ultimately enhance the prospect of recovering on foot of a judgement.
The regulation applies to all credit institutions whose business it is to take deposits or other repayable funds from the public and to grant credit for its own account. It extends to all branches of credit institutions which have their head office inside or outside the EU where the branch is located within the EU.
A preservation order can be sought in civil and commercial cross-border claims only and by way of application to the relevant Court in the participating member state, which in Ireland is dependent on the value of the claim. The Regulation specifically excludes claims in relation to property arising out of matrimonial relationships or others such relationships of comparable effect, probate, arbitration, social security and insolvency proceedings. The application can be made at any time during court proceedings including after judgement has been obtained or in fact prior to the commencement of the proceedings.
Before a Court can make a preservation order a creditor must first provide sufficient evidence of a real risk that the debtor will take steps to frustrate the enforcement of any judgement and/or that the subsequent enforcement of the judgement will be impeded or made substantially more difficult without the presence of the Order. Where judgement has not already been obtained the creditor must also submit sufficient evidence to satisfy the Court that they are likely to succeed in their claim against the debtor.
As the Order is obtained without notice to the debtor certain safeguards have been introduced to protect debtors including the requirement that creditors provide security to prevent abuse and to ensure compensation for any damaged suffered by the debtor as a result of the Order, in the event the creditor is found liable for that damage. A Court can dispense with the requirement to provide security however when it is considered inappropriate in the circumstances of the case. If security is required the Court must inform the creditor of the amount required and the forms of security acceptable. Creditors may be held liable for any damage caused to the debtor where the creditor is at fault. It will be for the Debtor to prove the fault of the creditor but that fault will be presumed when the creditor has failed to, amongst others, comply with the Regulation or it is found that the Order or the level of the Order granted was not appropriate.
When the identity of the credit institution where the debtor holds an account is not known an application can be made to Court to request the “relevant information authority”, which in Ireland is the Minister for Justice and Equality, to obtain the information required to identify the debtor’s accounts.
Once the Order has been granted, the bank to which it is addressed is required to implement it without delay. The credit institution responsible for implementing the Order is required to provide within three working days of its implementation a declaration on whether and to what extent funds of the debtor have been preserved. This period can be extended to eight working days in exceptional circumstances.
The Regulation provides that liability of a credit institution for its failure to comply with its obligations shall be governed by the law of each member state.
Following the granting of an Order and receipt of the declaration from the implementing credit institution the party responsible for service within the law of the member state is required within 3 days to serve the Order on the debtor. A number of remedies are available to debtors seeking to challenge an Order including the right to make an application for the unfreezing of their accounts if they provide security in the amount of the claim or alternatively provide an assurance in a form acceptable to the Court for a value equivalent to that amount.
Similarities to the Irish Mareva Injunction procedure are evident within the Regulation. The scope of the Regulation however is much broader and while it is good news for creditors operating on an EU wide basis, credit institutions may be less positive given that the Regulation imposes additional burdens in circumstances were a credit institution find itself holding a Defendant debtor’s Bank account(s).