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Overview
In July 2011, the European Commission released its proposed European Account Preservation Order (EAPO) Regulation, currently under consideration by the European Parliament and the Council of the EU. In October 2011, the UK government announced that it would not opt in at this stage but will participate in future negotiations with a view to opting into the Regulation in the future.
The proposed EAPO is designed to make it easier to recover debts in cross-border cases and will therefore create a new and additional type of freezing order, available throughout the EU to litigants in civil and commercial claims. It would broaden the range of tools available to enforce EU judgments and decisions including those obtained in construction disputes.
What is an EAPO?
It is important to stress that, at this stage, the draft Regulation has not yet become law, but potentially, its impact could be considerable.
An EAPO is a freezing order which allows a creditor to freeze funds in any bank accounts held by a debtor and located within the EU. This applies to cash as well as financial instruments held in those accounts, including joint accounts. The purpose of freezing funds would be to satisfy payment of a debt, damages, interest or costs.
The scope of an EAPO will apply to all monetary claims in civil and commercial matters where there is a cross-border issue. This would include if either party or any of the bank accounts are domiciled outside the jurisdiction where the application is being made.
At present, creditors are reliant on taking steps in the jurisdiction where the accounts are domiciled such as obtaining domestic freezing orders and third party debt orders or by seeking other forms of cross border enforcement such as using Worldwide Freezing Orders. These options require an undertaking to be given for any damages which might arise if the order should not have been granted.
How would an EAPO be granted?
An EAPO would be granted ex parte and a creditor could apply prior to or during its recovery action, or post-judgment as part of the enforcement process. The basic conditions for granting an EAPO are that the claim against the debtor “appears to be well founded” and that there is a “real risk” that the funds will be dispersed.
Unlike a freezing order, an EAPO would not grant a creditor disclosure from the debtor of its asset information. Instead, it is proposed that the state in which the application is made would obtain the debtor’s bank details either by asking all banks in the jurisdiction whether the debtor holds an account with them or by referring to a central register. While some EU states already hold central registers, the UK does not and this would be a radical expansion of the steps English courts could take in enforcement proceedings.
Once granted, an EAPO would be served on the debtor and the relevant bank. The bank would then be obliged to ensure that the amount specified in the order remains in that account.
Unlike similar orders currently available under English law, there is no duty for an EAPO applicant to give “full and frank disclosure” of all relevant facts or any undertaking as to damages. Further where a creditor already has an enforceable judgment against the debtor, there are almost no conditions to be met for the issue of an EAPO, making it much more pro-creditor than current enforcement tools.
Can an EAPO be challenged?
A debtor can challenge an EAPO on the basis that the Court did not have jurisdiction to make the order or that the creditor had failed to meet the basic conditions.
The EAPO proposal appears easier to obtain than to challenge. There is no discretion for the Court to refuse to grant the order if the basic conditions are met and it must do so within seven days of any application. In contrast, there is no tight timetable for dealing with challenges by a debtor who will be suffering from the effect of the freezing of its account. In England, the Courts are reluctant to issue a freezing order without hearing evidence from both parties.
The current UK view
As noted above, following a public consultation in January 2012, the UK government announced that it would not be opting in to the EAPO regime, although it would participate in the negotiations to agree the final wording of the Regulations.
One significant factor behind this decision was concern over the lack of adequate safeguards for defendants. There is currently no general requirement for a claimant to provide security for any issues that might follow for the granting of an unjustified order. Equally, the courts are not given sufficient discretion to decide whether to grant an order or even decide the the amount of any freezing order.
Accordingly, as currently drafted, the government felt that the procedure did not maintain an even balance between the rights of the creditor to recover debts and the provision of adequate protection for defendants.
How could an EAPO affect your business?
For EU employers and contractors, an EAPO could provide an additional and powerful tool for enforcement of judgments and debts. While the proposal specifically excludes arbitration awards, if an award was backed by a judgment in the court of a member state, a creditor could turn to an EAPO to enforce that award. For debtors, the limited grounds for challenging an EAPO mean that you should be vigilant to any judgment or decision obtained against you in EU courts.
At present, the proposals remain under consideration but if passed, possibly this year, it will be interesting to see how the EAPO regime is applied and whether the UK decides to opt in.