Blocking of debtor accounts abroad
By approving the Regulation No. 655/2014 of the European Parliament and of the Council of 15 May 2014 establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters, which will directly apply in all Member states (except in United Kingdom and Denmark), the ministers of EU Member States made cross-border debt recovery easier. Although the Regulation entered into force in July, it will not apply before 18 January 2017, with the exception of Article 50. Article 50 of the Regulation which lists the information that will be provided by Member States will apply on 18 July 2016. The application of the Regulation is limited to cross-border disputes, meaning that it will only apply in cases, where a bank account is opened and maintained in a Member State other than a Member State of the court seised of the application for the issuance of the Preservation Order or a Member State, in which the creditor is domiciled.
The Regulation is a new step towards the better payment discipline, since it will enable creditors to block, through the court proceeding, debtor’s accounts in the EU without debtor's prior knowledge, thus preventing debtor to transfer the funds to some other state. The European Account Preservation Order (hereinafter: the Preservation Order) is protective in nature, meaning that a debtor's account will be blocked, but a creditor will not be repaid. The latter will be possible after the court renders the final decision. The Regulation provides for standard forms for obtaining the Preservation Order in all EU languages, thus lowering translation costs.
The aim of the Regulation is to enable creditors to:
- obtain a Preservation Order on the basis of the same conditions irrespective of the Member State where the competent court is located and
- obtain information regarding the bank accounts of their debtors.
The Preservation Order is available in two cases:
a) before the creditor initiates proceedings in a Member State against the debtor on the substance of the matter or any stage during such proceedings up until the issuing of the judgment or the approval or conclusion of a court settlement;
b) after the creditor obtains a judgement, court settlement or authentic instrument ordering the debtor to repay the creditor's claim.
In case the creditor requests the issuance of the Preservation Order before obtaining an instrument permitting enforcement, he will have to prove that he is likely to succeed on the substance of his claim against the debtor, i.e. his claim will have to be justified by sufficient evidence. In both cases (under a) and b) above) the creditor will have to prove that there is an urgent need for a protective measure in the form of a Preservation Order because there is a real risk that, without such a measure, the subsequent enforcement of the creditor’s claim against the debtor will be impeded or made substantially more difficult. The Preamble states that merely the withdrawal of funds from an account, debtor's expenses to sustain the normal course of business, recurrent family expenses or poor financial situation are not unusual and should not be considered sufficient evidence to justify the issuing of the Preservation Order. Whenever the creditor has not yet obtained an instrument permitting enforcement, the court, in order to prevent the abuse of proceedings for the issuance of the Preservation Order, requires the creditor to provide security deposit to compensate for any damage suffered by the debtor in case the Preservation Order is subsequently revoked or its execution terminated for reasons attributed to the creditor (therefore, if the creditor is liable for damage). Where the creditor has already obtained an instrument permitting enforcement, the court may require the creditor to provide security deposit if it considers this necessary and appropriate given the circumstances of the case.
The creditor shall be liable for any damage caused to the debtor by the Preservation Order due to fault on the creditor’s part. The burden of proof shall lie with the debtor.
The Preservation Order issued in one Member State is recognised in other Member States, without any special procedure being required, and is enforceable in other Member States, without the need for a declaration of enforceability. Whenever a creditor obtains the Preservation Order, the court sends the Preservation Order to the banks in all Member States where the debtor has opened bank accounts. The bank blocks the account or preserves part of the funds on the account, while the remaining funds remain available to the debtor. Creditor must obtain final instruments permitting enforcement (in accordance with the national legislation) if he wants to be repaid from the debtor's funds.
Where the creditor has obtained an instrument permitting enforcement and there are reasonable grounds for believing that the debtor holds one or more accounts with a bank in a specific Member State, but the creditor does not have information about the name of the bank and/or account number or other information allowing the bank to be identified, he may request the court (where the application for the Preservation Order is lodged) to request the required information from the information authority of the Member State where the Preservation Order is to be executed. Hovwere, in case of an unenforceable court decision, a creditor may only make such request if the amount to be preserved is substantial and the creditor has submitted sufficient evidence that the information is urgent as there is a risk that without such information the subsequent enforcement of the creditor's claim against the debtor is likely to be jeopardised and that this could consequently lead to a substantial deterioration of the creditor’s financial situation. The creditor shall make the request together with the application for the Preservation Order. The information authority in the Member State where the order is to be enforced obtains the requested information through procedures available in accordance with the national legislation.
Only after the accounts are blocked, can the debtor request an assessment of the merits of the Preservation Order at the court of the Member State of origin. If the debtor’s appeal is deemed justified, the court will withdraw the blockade, otherwise the blockade remains. A different jurisdiction rule applies to specific categories of debtors, which are generally deemed to be "weaker party" in a dispute - such as consumers, employees and insured persons. These types of debtors are able to raise any objections against the Preservation Order before the courts in Member State of their domicile.
The Preservation Order thus represents advance protective measure, whenever the creditor is likely to succeed in judicial proceedings against the debtor, giving the creditor an opportunity to secure its claim before the debtor's assets are transferred to another EU Member State.