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Freezing Debtor Bank Accounts Across the Continent in a Single
Fraud victims and their legal counsel have gained an important, new tool for reaching across the Continent with a single ex parte order that will freeze bank accounts in multiple EU countries: the new European Account Preservation Order. Under the EAPO, with a single freeze order, courts in any member state may, as part of any civil or commercial proceeding, freeze a debtors’ bank accounts up to a specified amount, EU-wide, with the exception of opt-outs Denmark and the UK.
The new regulation only applies in cross-border cases where the bank account(s) to be “preserved” are maintained in an EU member state other than: 1) the member state of the court receiving the application for the Preservation Order or 2) the member state in which the creditor is domiciled. The EAPO is available as an alternative to instruments already existing under the national laws of member states.
To ensure a close link between the proceedings for the EAPO and proceedings on the underlying matter before the court, jurisdiction to issue this international freeze Order resides with the court exercising jurisdiction over the underlying dispute. This encompasses any proceedings aimed at obtaining an enforceable order on the underlying claim, including, for instance, summary proceedings to obtain restitution or payment.
Ex Parte Balancing of Creditor & Debtor Rights
Because the EAPO procedure is ex parte, debtors will not be informed of creditors’ applications, or be notified prior to the issue of the EAPO or its implementation. Obviously, the advantage of “surprise” is essential for the Order to be effective in freezing and preserving targeted bank accounts while adjudication is in process—or after a judgment has been obtained but is in the process of enforcement. At the same time, the ex parte nature of the EAPO comes with specific safeguards for debtors’ rights.
For example, when the court is not satisfied that freezing the account(s) in question is justified based on the evidence and information supplied by the creditor, an EAPO will not be issued. Furthermore, the Regulation allows the court to require creditors to provide collateral sufficient to ensure that the debtor can be compensated at a later stage in the proceeding for any damage caused by the EAPO.
Still another feature in the Regulation that strikes a balance between creditors’ and debtors’ interests is the provision for creditor liability in the case of any EAPO-related damage caused to the debtor by the creditor’s fault. EU member states additionally are permitted to maintain or introduce into their national laws grounds for creditor liability other than the ones specified in EAPO Regulation. (Conflict-of-laws provisions governing creditor liability favour the member state of enforcement, and when there are several states of enforcement, the state where the debtor is habitually resident).
Pre-Judgment Freeze Orders
One of the chief advantages of the EAPO, besides its simultaneous, ex parte reach across the continent, is the fact that it can be obtained long before the conclusion of proceedings on the underlying matter. In many EU member states, it is difficult or impossible under national laws to obtain an ex parte freezing order before the proceedings on the substance of the matter have been initiated--or during the proceedings but before final judgment has been rendered.
Yet under the EAPO’s implementing regulations, such an order can be obtained either prior to judgment on the substance of the matter or after such judgement has been rendered. When the creditor applies for an EAPO prior to obtaining a judgment, the court must be satisfied, based on the evidence submitted, that the creditor is likely to succeed on the substance of its claim. Furthermore, the creditor must demonstrate, either pre- or post-judgment, that its claim requires urgent judicial protection because without an EAPO, enforcement of an existing or future judgment is at risk of the debtor dissipating, concealing or destroying its assets (including disposing of them under-value, to an unusual extent, or through unusual action).
The mere non-payment or contesting of an underlying claim--or the mere fact that the debtor has more than one creditor--is not sufficient evidence of the degree of payment risk necessary to justify the issuing of an EAPO. The same goes for the mere fact that the financial circumstances of the debtor are poor or deteriorating. However, the court may take such factors into account in its overall assessment of risk to the creditor’s ability to be remunerated.
Using the 'Home' Court to Access Foreign Bank Account Info
Particularly worth mentioning is that the Regulation sets out a mechanism allowing creditors to petition the courts to secure debtor bank account information from the designated information authority of the member state(s) in which the creditor believes the debtor holds accounts. The creditor must substantiate why it believes that the debtor holds one or more accounts with a specified bank or banks in the specified member state(s), for instance, because the debtor works or conducts professional activities in the member state(s) or owns property there. The creditor also must provide the court all relevant information available to it about the debtor and the account or accounts to be preserved by the EAPO.
This new legal mechanism is intended to overcome existing obstacles to obtaining information about the whereabouts of a debtor’s bank accounts within a cross-border context. (In the Netherlands, bailiffs are the designated information authorities competent to obtain from banks domiciled in the Netherlands the information necessary to allow debtor's bank accounts to be identified.)
Balancing EAPO Effectiveness with Debtor Data Privacy
When foreign information authorities contacted by the competent court obtain the bank account information being sought, notifying the debtor of such disclosure shall be deferred for 30 days, in order to prevent such notification from jeopardising the effectiveness of the EAPO. Yet personal data protection for the debtor is also built into the process, with disclosure of bank account information limited to the requesting court, not the creditor.
Given the exceptional powers of this mechanism for accessing private and personal data across borders, it can only be employed when the creditor has already obtained an enforceable judgment. However, an exception to this exclusion can be requested if the amount to be located and protected is substantial, and if there is an urgent need for the account information due to a substantial risk of unenforceability of a pending judgment and a subsequent deterioration in the creditor’s financial situation.
Expectations for the new EAPO procedure are high because it should reduce the complexity and cost of pursuing debtor bank accounts across the EU. In many cases, the new Regulation will also make it possible to use the power of the courts to reach across the continent and override bank secrecy and personal data protections to identify debtors’ bank accounts wherever they are located. Hopefully, this will be an important step towards levelling the playing field between victims of fraud and perpetrators who hide their ill-gotten assets in EU banks.
Cathalijne van der Plas is an associate partner at Höcker Advocaten. Cathalijne’s practice is international in nature, consisting in large part of civil fraud and asset recovery matters.She also has extensive experience in international judgment enforcement matters.Furthermore, she is often called on by other lawyers to provide advice on complex private international law issues and represents parties in international commercial disputes, including in arbitration.
ICC FraudNet is an international network of independent lawyers who are leading civil asset recovery specialists in each country. Recognized by Chambers Global as the world’s leading asset recovery legal network, our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit.