Coming Week: EU Bank Account Attachment Measures
As of 18 January 2017, an EU Regulation and a related Dutch Act enabling the attachments of foreign bank accounts will be applicable. The Regulation (EU 655/2014) introduces a procedure to obtain leave for such attachment, to be granted by means of a European Account Preservation Order (EAPO). It will be available in cross-border cases throughout the EU, except for Denmark and the UK. Existing remedies under national laws remain in place. An example is the possibility under Dutch law of a pre-judgment attachment of a debtor's positive balance on its bank account.
This Client Alert covers the background and scope of the Regulation. Further, it describes the procedure and criteria for the granting of an EAPO as well as the main characteristics thereof. Finally, it highlights a few notable differences between the EAPO and the pre-judgment attachment order under existing common Dutch law. This Client Alert is relevant for creditors, debtors, and banks active within the EU.
According to a study published by the European Commission (EC), creditors encounter various difficulties in cross-border cases. One of the causes identified by the EC is that conditions for obtaining protective measures vary greatly among the EU Member States. Internationally operating companies are estimated to miss out on around 2.6% of their annual revenues due to the fact that claims are assessed to be uncollectable. Now, the EAPO is being introduced in order to make recourse easier and cheaper.
The EAPO is available for monetary claims in civil or commercial matters, such as claims regarding invoices or claims for monetary tortious damages. An EAPO cannot be obtained in a number of situations. An example is the situation in which insolvency proceedings regarding the debtor are pending. An EAPO will not be granted either if and to the extent that the national law of the relevant Member State exempts certain funds from attachment. One could think of, for example, funds below the subsistence level of an individual.
when and where?
At all times an application for an EAPO can be made: either before, during or after the main proceedings resulting in a judgment obliging the debtor to pay. Prior to the main proceedings, the creditor may turn to the competent court in any Member State that will have jurisdiction in the main proceedings. In the event that a favourable judgment has already been rendered in main proceedings, the creditor is bound to apply to the competent court in that same jurisdiction. In business-to-consumer cases, the creditor must apply to the competent court of the Member State where the consumer is domiciled.
meeting the tests
The creditor must submit evidence satisfying the court that an urgent need for the EAPO exists. He is to persuade the court that but for such measure being taken, a real risk exists that enforcement of his claim will either be impeded or be substantially more difficult. In addition, together with an application for pre-judgment attachment, the creditor must submit evidence satisfying the court that he is likely to succeed in the main proceedings. Such proceedings are to be commenced within 30 days of the date of application or 14 days of the date of issuance of the EAPO, whichever term expires later. Otherwise, the EAPO is terminated.
The creditor is required to furnish security. Such is the rule for pre-judgment attachment, whereas the court may make an exception in special circumstances. For post-judgment attachment this is the exception, to be applied only if the court considers it necessary and appropriate. The amount of security must be sufficient both to prevent abuse and to ensure compensation of damages in the event that the creditor would eventually be found liable for losses caused by the attachment.
element of surprise
Since the element of surprise is key to success, the Regulation provides that the debtor will not be informed of the creditor's application for an EAPO and will not be heard by the court either prior to the issuance thereof. Moreover, the banks are not allowed to inform the creditor of the EAPO prior to the attachment.
the court, the bailiff and the bank
The court decides upon pre-judgment and post-judgment applications without delay. This may take no longer than 10 or 5 working days, respectively. If an EAPO is granted, the court specifies the amount to be attached. The EAPO is to be recognized and enforceable in all other Member States (except for the UK and Denmark) as well, without any further need for a local declaration of enforceability.
In the Netherlands, a bailiff assists the creditor with the enforcement. Subsequently, the bank ensures without delay that the amount specified by the court is either (a) not transferred or withdrawn from the account or (b) transferred to an account dedicated for such preservation purpose. Should there be insufficient funds on the account, only the available amount is attached. Conversely, should the available amounts exceed the amount specified by the court, the surplus remains unaffected. Importantly, the EAPO has the same rank in enforcement scenarios as an equivalent measure under the law of the Member State of the bank account. These ranks vary among the Member States. Under Dutch law, an attachment does not entail a special ranking.
In principle, no later than by the third working day following execution of the EAPO latest, the bank issues a declaration in which it indicates to what extent funds have indeed been attached. Only after that, the debtor is informed and certain remedies may be invoked by him. For example, in particular scenarios, such as a change of circumstances, he may request a revocation or a modification of the EAPO itself. In more limited circumstances he may seek the termination or limitation of the enforcement. Further, in the event of fault on the creditor's part, the debtor may claim damages. The burden of proof lies with the debtor. Still, in particular cases, the Regulation alleviates that burden considerably by providing a presumption of fault on the creditor's part. All remedies can be appealed.
comparison and conclusions
All in all, the EAPO is an interesting new legal instrument that can be utilized in EU cross-border situations. It may well help a creditor to secure that at the end of the day, once main proceedings have been completed, sufficient funds are available to pay his claim. Compared to the existing Dutch pre-judgment attachment of bank accounts, the EAPO route has attractive features. All time periods specified in the Regulation are comparatively tight, except for the 30 days term granted to the creditor to initiate the main proceedings. Accordingly, already having a declaration from the relevant banks in place, the creditor can timely make a commercially sound decision whether or not to commence such litigation. Moreover, an EAPO can be enforced in all Member States (except for the UK and Denmark) without any further ado. As time is of the essence for a successful attachment, this is indeed a positive development.
The EAPO route should be chosen with care, though:
- Firstly, as noted, stringent criteria must be met in order to receive an EAPO. The creditor must prove the existence of a realistic risk of, at least, a substantially more difficult recovery in the absence of attachment. This requirement does not apply under common Dutch procedural law regarding the attachment of bank accounts.
- Secondly, the basic rule for pre-judgment applications is that the creditor must furnish adequate security. That, of course, makes this tool less attractive as well, since this is not the default scenario under common Dutch law.
- Thirdly, the Regulation dictates that an attachment further to an EAPO only covers the amount of the claim. By contrast, an attachment under common Dutch law covers the entire positive balance on the account at the moment of the attachment. This difference may be critical, since the Regulation provides that national law applies to the attachment's ranking in scenarios of multiple creditors seeking enforcement. As noted, just as the laws of various other Member States, Dutch law holds that attachment does not result in a special rank. Non-secured creditors hold equal positions, which translates into a distribution of available funds pro rated to the amounts of their claims. Naturally, in all scenarios in which the balance on the debtor's account exceeds the creditor's claim (but is insufficient to cover the claims of all creditors), the creditor is better off receiving a pro rated part of (a) the entire positive balance than of (b) just his claim amount. The cake seized by virtue of an EAPO is simply smaller.