Cross-border Debt Recovery in Civil and Commercial Matters

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Friday, May 20, 2016 11.30AM / ILO Banking

New EU legislation proposed to facilitate cross-border debt recovery in civil and commercial matters

Introduction

On July 17 2014 EU Regulation 655/2014 came into force. The regulation, which from January 18 2017 will apply to all participating member states (the United Kingdom and Denmark have opted out), enables a new procedure known as a European account preservation order (EAPO). The EAPO constitutes a single mechanism enabling creditors to freeze a debtor's bank accounts in all participating member states. Since the EAPO will be applicable to cross-border debt situations, it will widen creditors' options to freeze bank accounts.

 

EAPO process

The EAPO process enables a creditor to apply to a member state's courts for an order to obtain an EAPO, effectively freezing all moneys held by the defendant in the banks of all participating member states and deterring the withdrawal or transfer of the defendant's assets, preventing dissipation of assets. A bank's head office does not have to be in any of the participating member states; having a branch is sufficient for that branch's accounts to be affected by the regulation. Although the United Kingdom and Denmark have opted out of the regulation, UK and Danish banks and account holders in participating member states will be affected. Accordingly, the regulation simplifies the debt recovery process, avoiding the need for costly and complex proceedings in several jurisdictions.

 

The EAPO has a wide scope. It is available to a creditor:

  • before a proceeding is initiated;
  • at any stage during such a proceeding up until the issuing of the judgment; or
  • after the creditor has obtained a judgment, court settlement or authentic instrument in a participating member state that requires the debtor to pay the creditor's claim.

 

However, the regulation is not applicable to arbitration proceedings or awards.

 

To receive an EAPO, the claimant must apply to a court in a participating member state, which will issue the EAPO if certain conditions are met. The court will decide by means of a written procedure on the basis of the information and evidence presented by the claimant. The procedure is ex parte and the defendant will not be heard from or notified until the EAPO has been issued.

 

Impact

Regulation 655/2014 will be directly applicable from January 18 2017 and in order to enable its application, each participating member state must establish – among other things – procedural rules and regulations. In addition, participating member states must establish which authority will serve as the information authority and be responsible for obtaining the relevant information on a debtor's bank accounts.

 

The proposed Swedish legislation designates the Swedish Enforcement Authority to act as the information authority.( Prop 2015/16:148.) This means that after a creditor has received an EAPO from a court, the Swedish Enforcement Authority will take all necessary steps to have the EAPO enforced. If requested by the Swedish Enforcement Authority, a bank must disclose if a debtor holds any accounts with it.

 

Such a request can be combined with administrative penalties to ensure compliance. A bank is not obliged to disclose any outstanding amounts or what type of account the debtor holds. The Swedish Enforcement Authority is also responsible for the transmission of an EAPO obtained in a court in Sweden regarding accounts held by a debtor in another member state.

 

Comment

By granting creditors the right to freeze several bank accounts throughout the European Union via a single application, Regulation 655/2014 and the proposed Swedish legislation will significantly improve creditors' abilities to recover their debts.

 

The regulation and the proposed Swedish legislation constitute further examples of legislation implemented since the financial crisis that inflicts wider obligations on banks. Under an EAPO, banks must – without delay – freeze accounts and cooperate with requests from the information authorities to avoid the risk of administrative penalties. This further requires banks to have all necessary internal processes in place before January 2017.

 

In addition to the rather extensive requirements on banks, the national authorities deemed to be responsible in each participating member state must also adapt to the new regulatory environment – with an ever-increasing set of tasks that accompanies the harmonisation process.

 

For further information on this topic please contact Ola Wallman at Advokatfirman Törngren Magnell KB by email (ola.wallman@torngrenmagnell.com).  

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