The Council of the European Union and the European Parliament are currently considering a proposed Regulation for a new European Account Preservation Order (EAPO), which will introduce a new and additional kind of bank freezing order available throughout the EU member States. The European Commission’s proposal was published in July 2011 and will undoubtedly have important implications for commerce and the financial services industry.

EAPO is defined as a procedural device available to creditors which, when implemented, freezes some or all of the funds within any bank accounts held by a debtor which are located within the EU. A creditor is entitled to freeze funds up to the value of its debt plus interest on the debt and (if it is a judgment creditor) costs. Once the EAPO attaches to a bank account, the bank is not permitted to withdraw or transfer funds from the bank account. However, if not all of the funds in the account are frozen, the surplus funds remain at the disposal of the debtor.

The discussion at EU level on the harmonisation of cross-border bank attachment is not something new. The Commission first suggested using banking seizures as a means of improving cross-border enforcement in its Communication ‘Towards greater efficiency in obtaining and enforcing judgments in the EU’. In 2000, the Council suggested establishing a European system for the attachment of bank accounts in its ‘Programme of measures for implementation of the principle of mutual recognition of decisions in civil and commercial matters’. The current proposal follows two Green Papers on improving the efficiency of the enforcement of judgments and the attachment of bank accounts, and on how to improve the transparency of debtors’ assets in the EU.

The overall objectives of this proposal are to contribute to the development of the EU’s internal market as outlined in the ‘Europe 2020 Strategy’ for growth and to the creation of a genuine European area of civil justice in the area of enforcement. In September 2011, during the Justice and Home Affairs Council Meeting, the 27 EU Ministers had the first opportunity to exchange views on the Draft Regulation.

The general objectives of this proposal are to facilitate the recovery of cross-border claims for citizens and businesses, in particular Small and Medium Enterprises (SMEs) and improve the efficiency of enforcement of judgments in civil and commercial matters concerning cross-border disputes, thereby reducing the risks involved in cross-border trade, increasing confidence of traders, improving payment behaviour of debtors in cross-border situations and encouraging more cross-border business activity.

The draft regulation mainly aims to enable creditors to obtain account preservation orders on the basis of the same conditions, irrespective of the country where the component court is located; allow creditors to obtain information on the whereabouts of their debtors’ bank accounts; and reduce costs and delays of creditors seeking to obtain and enforce an account preservation order in EU cross-border situations. At present, an order can be obtained in one country, but if the debtor then moves money to another country, then the expensive and time-consuming legal process must begin again. According to the Commission, EU companies lose about 2.6% of turnover every year to unrecovered debts – a total of €600m. About 60% of cross-border debt remains unrecovered every year.

The proposal was preceded by an extensive consultation with the interested public on the existing problems of the current system and possible solutions to it. The consultation process showed that there is wide support from both stakeholders and member states for the creation of a self-standing European procedure for the preservation of bank accounts. Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters’ – widely known as the ‘Brussels I’ Regulation – ensures that a judgement delivered in one member state is recognised and enforceable in another member state. However, Regulation (EC) 44/2001 and even its proposed revised version do not regulate how judgements are actually enforced. Enforcement of judgements is regulated under national law.

In this context, MEUSAC and the Ministry for Justice, Dialogue and the Family organised a consultation session in December 2011 with the Bankers’ Association, the Chamber of Advocates, the Malta Chamber of Commerce, Enterprise and Industry, and the Malta Business Bureau. During the session, stakeholders had the opportunity to discuss the implications of the proposal with Ministry officials drafting the position to be taken by the Maltese government on the proposal in the Council of the EU. In Malta, protective measures similar to the EAPO already exist and are affected through precautionary warrants. Such legal tools can be used by any person, without the necessity of obtaining any previous judgment in order to secure one’s rights. These precautionary acts are issued and carried into effect under the responsibility of the person suing out the act as envisaged under Article 829 of the Code of Organisation and Civil Procedure (Chapter 12).

The position of the Maltese government on this issue is that the issuance of freezing orders should not be too easy as this may lead to bank accounts being frozen frivolously, risking negative impacts on the financial sector of the member states involved. In the case of an application for an EAPO, the Court should examine whether the requirements as listed in the proposed Regulation are met, and if in the affirmative, the Court would then proceed with the issuance of the EAPO and its implementation. The Maltese government intends to seek further clarification on some issues of the proposal, such as whether the court would need to investigate the case and whether it would have to address the EAPO to, for example, all the banks in a particular member state.

Call out: The overall objectives of this proposal are to contribute to the development of the EU’s internal market as outlined in the Europe 2020 Strategy for growth and to the creation of a genuine European area of civil justice in the area of enforcement.

Brenda Azzopardi – Executive, EU Policy & Legislation, MEUSAC