November 2016
European Regulation
on the freezing of
bank accounts
OVERVIEW
From 18 January 2017 claimants will be able to apply for a European Account Preservation Order (EAPO), a
new, and potentially potent, weapon in their litigation armoury. EAPOs will enable a claimant to freeze funds in
a defendant’s bank accounts across 26 Member States by submitting a standard form paper application to a court
in one of those Member States. That application will then be considered on an ex parte basis. Once an EAPO is
made, it will be transmitted (‘passported’) from the issuing court to other participating jurisdictions where
relevant accounts may then be frozen.
A claimant faced with a defendant who has multiple accounts across Europe will no longer have to incur the cost
and delay of making separate national freezing applications. For example, a claimant in proceedings in Milan
will be able to seek an EAPO from the Italian court and that Italian order will be effective to freeze monies held
in a defendant’s Spanish, German, Luxembourg and French bank accounts. The claimant no longer needs to go
through the process of prioritising from which jurisdictions relief might most effectively and efficiently be
sought. This may mean that more European accounts are frozen in future.
EAPOs will be available throughout the lifespan of a dispute; from before proceedings are initiated to after
judgment is obtained. EAPOs cannot generally be used at the same time as a national protective measure, but
rather they are a complete alternative to such measures in “cross-border” civil and commercial proceedings.
“Cross-border” in this context means where a targeted bank account is located in a Member State other than that
where the court seized of the application or the claimant is domiciled.
EAPOs will only be issued where the court is satisfied that there is an urgent need for one because, without one,
there is a real risk that subsequent enforcement will be impeded or made substantially more difficult. Although
the test for issuance was tightened up as the legislative process progressed, the Regulation may still pose a
number of risks for defendants. There may be concerns about the speed at which a wrongly granted EAPO may
be set aside. National differences in the application of the EAPO regime may also mean that in some
jurisdictions EAPOs are easier to obtain and cover more funds than in others. The Regulation allows a
significant degree of discretion to the Member State court when considering an EAPO application. The process
is further complicated by the Regulation reverting to Member State law on a number of important points (eg
whether joint or nominee accounts can be frozen and amounts exempt from seizure). This lack of uniformity
between jurisdictions in its application may be amplified by the fact that EAPOs will generally be granted by
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Member State courts on just a paper application, without an oral hearing. EAPOs will also be granted before
defendants are notified and have the opportunity to argue against the making of such orders.
There are, however, protections for the defendant built into the regime. The claimant will generally be required
to provide security for pre-judgment EAPOs (and, occasionally, for post-judgment EAPOs). Again, there may be
significant differences between jurisdictions as to the form and amount of security required. Further and as noted
above, a claimant must provide “sufficient evidence” there is an “urgent need” for such a measure and that
without it there is a real risk that enforcement will be “impeded or made substantially more difficult”.
EAPOs are not available to all claimants or from all Member State courts. The UK and Denmark took the
decision not to opt into this Regulation. Accordingly, the UK and Danish courts will not issue EAPOs and bank
accounts held in these jurisdictions will not be subject to these orders. Unusually, Recital 48 to the Regulation
seeks to introduce a nationality restriction on claimants. Only those claimants domiciled in participating Member
States can apply for an EAPO (thereby excluding UK, Danish and non-EU claimants). However, the Regulation
still impacts UK, Danish and non-EU businesses as their accounts in the 26 participating Member States may be
frozen. The accounts of UK and Danish consumers are not subject to pre-judgment EAPOs.
International banks operating in the participating Member States will have to get to grips with implementing
EAPOs. The administrative requirements and obligations on banks are potentially significant. They will be
under an obligation to freeze accounts “without delay” and issue declarations as to compliance within three
working days from implementation. For post-judgment EAPOs, banks may also be required to conduct searches
in order to identify any accounts it holds for a defendant. Banks will therefore need to have an understanding of
which accounts and funds may be caught in each participating Member State. They will also need robust internal
processes in place to ensure compliance with any EAPOs or information requests received within quite tight
time periods.
This burden is compounded by the fact that banks will not be able to adopt a uniform pan-European policy in
response to this legislation due to its numerous references back to national law. Instead, specific local law advice
will be required on its implementation and impact in different Member States with potentially the force of any
EAPO granted varying from one jurisdiction to another.
The Regulation is complex. It spans 54 Articles, with some 51 Recitals (many of these Recitals contain text one
might expect to find in operative provisions). It involves a complicated and delicate interplay between national
and European law. The use of single application process and standardised forms should not disguise the fact that
this is an enormously detailed piece of legislation and one that may be difficult for litigants, banks and the courts
to apply in practice.
We provide a more detailed review of the Regulation below.
WHERE ON THE WEB
Regulation (EU) 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: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0655&from=en
Commission Implementing Regulation (EU) 1823/2016 of 10 October 2016 establishing the forms referred to in
this Regulation: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32016R1823
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European Regulation on the freezing of bank accounts – November 2016
The EAPO Process
1
PAPER APPLICATION
BY CLAIMANT TO
COURT
POST-JUDGMENT, IT MAY
INCLUDE ACCOUNT
INFORMATION REQUEST
2
EAPO ISSUED BY
COURT
SECURITY, ESPECIALLY
PRE-JUDGMENT, MAY BE
A PRE-CONDITION
IF ENFORCEMENT IN
3A DIFFERENT MEMBER
STATE,TRANSMISSION TO
ENFORCEMENT COMPETENT
AUTHORITY
3B COMMUNICATION TO AND
IMPLEMENTATION BY BANK
4B
IF ENFORCEMENT
IN DIFFERENT
MEMBER STATE TO
ISSUANCE, TO
ENFORCEMENT
COMPETENT
AUTHORITY
*Enforcement bank can also disclose the
EAPO to defendant
4A
BANK ISSUES AND TRANSMITS
A DECLARATION OF
PRESERVATION
4C TO ISSUING COURT AND
CLAIMANT
5
DISCLOSURE TO DEBTOR BY
CLAIMANT, ISSUING COURT OR
COMPETENT AUTHORITY*
Obtaining an EAPO
EAPOs are available throughout the lifespan of a
claim (including before substantive proceedings are
issued and after a judgment is obtained) (Article 5).
EAPOs are only available to those claimants, courts
and accounts located within the 26 participating
Member States (ie all EU Member States other than
the UK and Denmark) (Article 1and Recital 48).
They are a tool available to support pecuniary claims
in civil and commercial matters in, crucially, “crossborder cases”. Cross-border cases are widely defined
(ie where a targeted account is located in a Member
State other than where the EAPO application is made
or where the claimant is domiciled) (Article 3).
Significantly the Regulation carves out from its scope
a number of areas. It does not apply to rights in
property arising out of a matrimonial relationship (or
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equivalent under the applicable law), wills and
succession, claims against defendants where
certain insolvency proceedings have been
commenced or arbitration (Article 2).
In relation to the arbitration exclusion, there is
some ambiguity as to whether a claimant seeking
to enforce a judgment made following recognition
of its arbitral award is excluded from seeking an
EAPO in support. The Regulation simply provides
that it does not apply to “arbitration”. Reading this
exclusion alongside the jurisdictional requirements
for a court to be able to grant an EAPO, it is
arguable that the Regulation was not intended as a
tool to support the enforcement of such judgments
(Articles 2 and 6). This is likely to be an area of
future debate.
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In relation to the exclusion of claims against
defendants where certain insolvency proceedings
have been commenced, Recital 8 makes clear that the
insolvent entity will still be able to use an EAPO
when looking to secure the recovery of detrimental
payments (ie transaction-avoidance actions).
The Regulation also only applies to certain
accounts in participating Member States and
certain funds (see further below).
INTERPLAY WITH RECAST REGULATION
One of the main attractions to claimants in obtaining
an EAPO is its efficiency. Rather than obtaining a
string of national freezing orders, an EAPO is
generally enforced across all participating Member
States without the need for further applications before
the courts of enforcement.
The Brussels Recast introduced (on 10 January 2010)
a simplified mechanism for the recognition and
enforcement of Member State “judgments”. The
revised rules eliminated the need for a declaration of
enforceability in the courts of the Member State of
enforcement (exequatur). However, carved out of
this streamlined process are protective measures
(such as freezing orders) granted without the
defendant being summoned to appear (unless the
order has been served on the defendant prior to
enforcement). Many national freezing orders and
most EAPOs would be excluded measures as they
are issued before the defendant is notified of the
application and are not served on the defendant
until after the declaration of preservation is issued.
TEST FOR ISSUANCE
The test for issuing an EAPO has been the subject of
much debate since the Commission first published its
draft legislation in 2011. As a result, the final text of
the test has been made more stringent, apparently
in an effort to protect the interests of defendants. The
test will still generally be applied without an oral
hearing and will therefore, arguably, lack the rigorous
application that follows from oral examination in
some jurisdictions.
The Regulation provides that an EAPO will be
granted if the claimant presents “sufficient evidence”
to satisfy the court that there is an “urgent need” for
such an EAPO because without such a measure there
is a “real risk” that “subsequent enforcement” of the
claimant’s claim against the defendant will be
“impeded or made substantially more difficult”. In
addition, where the claimant makes an application
before obtaining judgment against the defendant, the
claimant must also submit “sufficient evidence” to
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satisfy the court that it is “likely to succeed” on the
substance of its claim (Article 7) and generally
provide security (see further below). This test is
similar to that for the equivalent national remedy
under, for example, German and Belgium law.
The two stage test
Stage 1
The court shall issue the EAPO when the
claimant has submitted sufficient evidence to
satisfy the court that there is an urgent need for
a protective measure in the form of an EAPO
because there is a real risk that, without such a
measure, the subsequent enforcement of the
claimant’s claim against the defendant will be
impeded or made substantially more difficult.
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European Regulation on the freezing of bank accounts – November 2016
Stage 2
Where the claimant has not yet obtained in a
participating Member State a judgment, court
settlement or authentic instrument requiring the
defendant to pay the claimant’s claim, the
claimant shall also submit sufficient evidence to
satisfy the court that he is likely to succeed on the
substance of his claim against the defendant.
Recital 14 adds some flavour to the tests, suggesting
how courts must interpret them. On urgency, it says
that in every case the claimant must demonstrate that
without the EAPO there is a “real risk” that by the
time the claimant is able to have the judgment
enforced, “the defendant may have dissipated,
concealed or destroyed his assets or have disposed of
them under value, to an unusual extent or through
unusual action”. Depending on one’s national
perspective, this may be seen as a limitation on the
availability of EAPOs. However, this wording is not
replicated in the body of the Regulation (although it is
in the standard application form). Recital 14 also
provides guidance as to what sort of defendant
conduct can be taken into account in the court’s
overall assessment of this risk, including the debtor’s
credit history and poor financial circumstances. Note
this is an overall assessment and therefore, according
to Recital 14, it seems that a debtor’s poor financial
circumstances should not by itself constitute a
sufficient ground for issuing an EAPO. Something
more is needed.
Accordingly, the court has a significant degree of
discretion as to whether the test for issuance is met
(eg what level of urgency is necessary? What
constitutes “substantially more difficult”?). There is a
risk that, at least initially, there may be a degree of
divergence in the approaches between 26 Member
State courts. Although uniform application will be
required, courts may tend to use criteria they are
familiar with from the equivalent national law
measures. Belgium case law on the urgency
requirement for its equivalent national remedy
provides, for example, that there is a presumption of
urgency when the debtor is in financial distress. Some
courts may take a more formulaic and less factwww.allenovery.com
sensitive approach to applications than others.
Eventually, the CJEU will need to shed light on
the practical application of the urgency
requirement.
Insolvency practitioners have expressed concerns
as to how courts will exercise their discretion in
the context of a business rescue. While there is an
insolvency exclusion in the Regulation, arguably
this will not cover all formal rescue procedures
and does not cover informal financial
restructurings. A restriction on managing cash
resources, even for a matter of days, can be
disastrous for a company already in distress and
could destroy value to the detriment of creditors as
a whole. Much will turn on the degree of rigour
with which courts apply Recital 14’s dissipation
requirement.
Differences with equivalent national remedy
The test for obtaining an EAPO is very similar to
what is required to obtain the equivalent national
measure in Germany and Belgium, but in other
jurisdictions the alignment will not be so close. In
some jurisdictions it may be easier to obtain an
EAPO than the national equivalent; in others not.
For example, in the Netherlands and in Belgium
security is generally not required even for prejudgment EAPO equivalents. In Belgium, bank
accounts may even be frozen without a prior court
injunction, but on the basis of documents
establishing a payment entitlement, such as
unchallenged invoices.
Timescales for issuing EAPO and substantial
proceedings
The timescales for issuing an EAPO after the
application is made are relatively generous (given
that the situation is often urgent). The length of
time depends on whether it is a pre- or postjudgment application, the claimant needs to
provide security, an oral hearing is required and/or
account information is ordered to be sought.
For example, on a paper application where
security is not required and account information is
not ordered, the court generally has ten working
5
days to issue its decision from the application being
lodged for a pre-judgment EAPO and five working
days for a post-judgment EAPO (Articles 18 and 45).
Within these limits certain Member States courts
might be quicker than others at issuing EAPOs.
Where an EAPO is issued before proceedings are
initiated, the claimant must start proceedings within
30 days from the date on which the EAPO
application was lodged or within 14 days of the
date of issue of the EAPO, whichever is the later
(Article 10). National legislation will then
determine the speed at which those substantive
proceedings progress, which will again clearly
vary between jurisdictions.
WHAT CAN BE PRESERVED?
An EAPO preserves specified amounts in an
identified “bank account” located in a participating
Member State (ie all other than the UK or Denmark)
containing the defendant’s “funds”.
Amount to be preserved
For pre-judgment EAPOs, a claimant is able to secure
the amount of the claim, as well as any interest
accrued on the claim. For post-judgment EAPOs, a
claimant can secure the amount of the judgment, any
interest accrued on the judgment and the costs of
obtaining that judgment (to the extent that the
defendant has been held liable for those costs)
(Articles 8 and 15).
Banks, accounts and funds within scope
The definition of “bank account” extends to “any
account containing funds which is held with a bank in
the name of the …[defendant] or in the name of a
third party on behalf of the …[defendant]” (Article 4).
Whether the Regulation bites and there is a possibility
of obtaining an EAPO therefore depends on whether
the bank, account and funds are all within scope.
Is the bank/account within scope?
The definition of “bank account” requires it to be held
“in the name of” the defendant or a third party on
behalf of the defendant. This suggests it is the
deposit-taking institution which determines the
location of the account (rather than any subcustodian) as that is who “holds” the account “in the
name of” a person or entity. It is therefore that
institution which needs to be located in a participating
Member State for the defendant’s account to be
potentially caught by an EAPO.
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The types of deposit-taking institutions caught by
the Regulation are “credit institutions” (including
branches) located within participating Member
States. “Credit institutions” are defined by
reference to the Capital Requirements Regulation
(CRR) with their business being “to take deposits
or other repayable funds from the public and to
grant credits for their own account” (Article 4 and
Recital 9). A list of the banks and branches
within the CRR regime can be found on the
European Banking Authority’s website (although
this list includes entities located in the UK and
Denmark which will be outside the direct scope of
the Regulation).
It seems, therefore, that a French branch of a retail
bank with a U.S. head office would fall within the
Regulation’s territorial scope but the U.S. head
office would not. Likewise, if the head office was
located in France but the branch was in the U.S.,
the head office and not the branch would be
caught.
Are the funds within scope?
“Funds” is defined as “money credited to an
account in any currency, or similar claims for the
repayment of money, such as money market
deposits” (ie the principal sum is always
repayable) (Article 4). It seems, therefore, that
positions are not included within the definition and
will not be subject to an EAPO.
In earlier drafts of the Regulation, financial
instruments were included within the definition of
“bank account”. Their omission from the final text
is to be welcomed. It should be noted, however,
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European Regulation on the freezing of bank accounts – November 2016
that what may be preserved by an EAPO may be
expanded in due course as the European Commission
is to produce (by January 2022) an evaluation as to
whether financial instruments should be included
within the Regulation’s scope (Article 53).
Joint and nominee accounts?
Another area of complexity and national divergence
in this Regulation is that joint and nominee accounts
may only be preserved to the extent permitted under
the national law of their location (ie the place of
enforcement) (Article 30). This means that there may
be some important distinctions in approach between
Member States in this regard. Jurisdictions that
recognise trusts and concepts of beneficial interest,
for example, may seek to impose EAPOs on a wider
range of accounts than elsewhere (or, indeed, a
narrower range if the accounts in question are
beneficially owned by someone other than the
defendant). Monies owned by a defendant
beneficially and in nominee accounts may therefore
be frozen in some jurisdictions but not others. To
compound such divergence some jurisdictions may
require particular processes to be followed before
such accounts can be frozen (which potentially
deviates from the objective of a single application
mechanism).
In Germany, for joint accounts, it depends on whether
the account holders can only dispose together or each
account holder can dispose separately. For the former,
the claimant must obtain an EAPO (and therefore
have a claim) against all account holders. The latter
type of account can be attached but the bank can still
pay to the ‘innocent’ account holders. Nominee
accounts as such cannot be attached under German
law as the defendant has no claim against the bank;
instead the claim of the defendant against the account
holder would have to be attached – but this cannot be
obtained by an EAPO.
In Belgium, it is possible to attach joint and nominee
accounts and such attachment applies to the full
balance of the account.
Member States have had to notify the Commission of
the extent to which joint and nominee accounts can be
preserved (Article 50). We understand that these
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communications will be published by the
Commission before 18 January 2017.
Immune accounts
The Regulation does not apply to bank accounts
which are immune from seizure under the law of
the Member State in which the account is
maintained or to accounts maintained in
connection with the operation of payment and
securities settlement systems. It does not apply to
bank accounts held by or with central banks when
acting in their capacity as monetary authorities.
Pending transactions
The final amount preserved may be subject to the
settlement of transactions which are already
pending at the moment when the EAPO (or
corresponding instruction) is received by the bank.
However, such pending transactions may only be
taken into account when they are settled before the
bank issues its declaration of preservation (see
below) (Article 24).
How is a currency mismatch dealt with?
Where the currency of the funds held in the
attached account(s) is not the same as that in the
EAPO, the bank shall convert (on the day and at
the time of implementation) the amount specified
in the EAPO into the currency of the funds
(Article 24).
Hierarchy of accounts
Where the EAPO covers several accounts held by
the defendant with the same bank, the bank shall
implement the order only up to the amount
specified (Article 24). The Regulation provides for
a hierarchy of attachments. Savings accounts in
the defendant’s sole name are to be attached first,
followed by current accounts in the defendant’s
sole name. Joint accounts (if capable of being
preserved) are then to be attached, with savings
accounts being attached first, followed by current
accounts (Article 24).
Exempt amounts
The Regulation provides that amounts that are
exempt from seizure under the law of the Member
State of enforcement shall also be exempt from
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preservation under the EAPO (eg the defendant’s
necessary living expenses). This is another layer of
complexity, where there will be national divergence.
Both the type and amount of “exempt amounts” will
therefore vary across Member States. Such exempt
amounts might include living expenses for an
individual, amounts necessary “to pursue a normal
course of business” for a company and legal fees.
These items are often hotly contested aspects of
freezing orders.
No detail is given as to exactly how these “exempt
amounts” are to be communicated to the bank. All
that is said is that, depending on the procedural
system of the Member State of enforcement, the
relevant amount should either be exempted by the
body responsible for exempting such amounts or
be exempted at the request of the defendant after
implementation of the EAPO (Article 31 and
Recital 36). As a result there are a number of
uncertainties as to how this will work in practice.
JURISDICTION
Pre-judgment
Jurisdiction to grant pre-judgment EAPOs lies with
the courts of the Member State which have
jurisdiction over the substance of the matter
(Article 6). It is anticipated this provision may give
rise to some difficulties in practice; for example,
what is the status of an EAPO where there is a
successful jurisdictional challenge?
The exception to this general rule is where a
defendant is a consumer. Jurisdiction then lies
only with the courts of the Member State in which
the defendant is domiciled (Article 6). This
provision provides some comfort to Member State
consumers that in the pre-judgment context only the
courts of their domicile may issue EAPOs against
their accounts wherever they are located. This
suggests that, pre-judgment, as the UK and
Denmark have not opted into the Regulation,
accounts of UK and Danish consumers will not be
subject to EAPOs (even if they have accounts in
other Member States). Unhelpfully, the Regulation
does not address the position of non-EU domiciled
consumers. This means the status of UK consumers’
accounts in participating Member States post Brexit
is unclear.
Post-judgment
Jurisdiction to grant post-judgment EAPOs lies with
the courts of the Member State in which the
judgment was issued, irrespective of whether the
defendant is a consumer or not. Consumers
domiciled in a Member State will take comfort from
the rules in the Brussels Recast which provide that
proceedings must be brought against consumers in
the courts of their domicile. The position of non EU
domiciled consumers (where the Brussels Recast
may not apply) is less clear.
PREVENTING DUPLICATIVE ATTACHMENTS
The Regulation is intended to provide an
alternative to the protective measures available under
national laws.
It endeavours to prevent funds being attached more
than once, by stipulating that:
only one EAPO against the same defendant aimed
at securing the same claim may be made; and
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the claimant must declare whether he has
made any applications for an equivalent
national order against the same defendant
aimed at securing the same sum and whether
those applications are still in process or have
been unsuccessful or successful. The issuing
courts will then consider whether it is still
appropriate to issue the EAPO in full or in part
(Articles 8 and 16).
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European Regulation on the freezing of bank accounts – November 2016
THE PROCESS – WHAT INFORMATION DO YOU NEED TO COMPLETE THE FORM?
As mentioned, EAPOs are available throughout the
lifespan of a claim (including before substantive
proceedings are issued and after a judgment
is obtained).
if available, where the defendant is a natural
person, his date of birth and identification or
passport number or, where the defendant is a
legal person, the country of its incorporation,
formation or registration and its identification or
registration number or, where no such number
exists, the date and place of its incorporation,
formation or registration;
a number enabling identification of the bank
(such as the IBAN or BIC) and/or the name and
address of the bank with which the defendant
holds account(s) to be preserved (see
Information about bank accounts below for how
the claimant can request such information in
relation to a post-judgment EAPO); and
if available, the number of the account(s) to be
preserved and an indication as to whether any
other accounts held by the defendant with the
same bank should be preserved (Article 8).
They are obtained by way of a uniform application
process before just one participating Member
State court.
The application for an EAPO will be made on paper
by submitting a standard application form to the
relevant Member State court and without notifying
the defendant. In keeping with the desire for
pan-European uniformity, the form (although not its
lanuguage) will be the same no matter where the
application is made (Article 8).
The standard forms have now been published. A
claimant in the application form must provide
certain information about the defendant and the
targeted accounts:
the name and contact details of the defendant
(and, if applicable, his representative);
The claimant completes the application form with a
statement that the information provided is “true and
complete” to the best of the claimant’s knowledge.
Information about bank accounts
The Regulation provides a mechanism to allow
claimants post-judgment to make a preliminary
request for information about a defendant’s
bank account.
If a claimant is not able to identify the bank(s) with
which the defendant holds account(s) (eg by an
IBAN, BIC or another bank number and/or the
name and address of the bank), he can request in his
EAPO application form that such information is
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obtained by the court of issuance from the
Information Authority (IA) in the Member State
of proposed enforcement. The claimant must
substantiate why he believes that the defendant
holds account(s) with a bank in a specific Member
State and provide all relevant information available
to him about the defendant and the account(s) to be
preserved. Such requests will only generally be
allowed where an enforceable judgment has been
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obtained (but, exceptionally, may be allowed
before the judgment has been made enforceable)
(Articles 8 and 14).
If the court of issuance considers that the claimant’s
request is sufficiently substantiated and that all
conditions for issuance of the EAPO are met other
than the identification of the relevant bank(s) (and,
if applicable, the provision of security) it will
transmit the information request to the IA of the
Member State of enforcement. The IA then
“expeditiously” attempts to obtain this information
by a method available under its national law. This
provision may require new legislation to be
introduced in some jurisdictions.
For instance, in Germany the draft bill for
implementing rules on the EAPO suggests using a
mechanism by which the Federal Central Tax Office
can retrieve account information from databases
held by the banks. This method is already available
for preparing enforcement under national law, but
only if the defendant fails to provide information on
its financial status and assets, or if the assets
according to this information are insufficient. By
contrast, when obtaining the account information for
an EAPO the defendant does not need to be asked
first – which might make an EAPO an attractive
option for post-judgment claimants in Germany.
Information obtained in this way is not provided
directly to the claimant, but only to the requesting
court. Notification of the data subject of the
processing of his data by such request is to take
place in accordance with national law. However,
any notification of the defendant is to be deferred
for 30 days to avoid jeopardising the effect of the
EAPO (Article 14 and Recital 46). Banks are
likely to have to assess their terms and conditions in
this regard.
How is an EAPO implemented?
A bank served with an EAPO is subject to a number
of obligations, all of which it must comply with
expeditiously. The Recitals indicate that the courts
are expected to take a firm line on delay, stating that
derogation from specified timeframes will only be
allowed in “exceptional circumstances”, for instance
in cases which are legally or factually complex
(Recital 37).
First, the bank must, “without delay”, identify the
account(s) subject to the EAPO. It is thought this
will generally be done via IBAN numbers.
Identification may be difficult where a bank needs
to consider whether to preserve funds in joint or
nominee accounts or where bank account numbers
are not given. Where the EAPO does not specify the
relevant account number(s) and it is not possible to
identify with certainty an account of the defendant
(eg because there are two account holders with the
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same name) the bank may be required to request
information from the relevant IA in the Member
State of enforcement (Article 24).
Secondly, once the relevant accounts are identified,
the bank must “without delay” preserve the amount
specified in the EAPO either (a) by ensuring that
that amount is not transferred or withdrawn from
specified/identified account(s) or (b) where national
law so provides, by transferring that amount to an
account dedicated for preservation purposes
(Article 24).
Thirdly, a recipient bank then has three working
days from implementation of an EAPO to issue a
declaration (in a standard form) indicating whether
and to what extent funds in the defendant’s
account(s) have been preserved and, if so, on what
date(s). This might be considerably less time than
the bank has to comply with the equivalent national
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European Regulation on the freezing of bank accounts – November 2016
provision (eg in Belgium the bank has 15 calendar
days to comply with the equivalent national
provisions).
The Regulation provides that a bank’s liability for
failure to comply with its obligations under the
Regulation is to be governed by the law of the
Member State of enforcement (Article 26).
Fourthly, the funds preserved by the EAPO will
remain preserved as provided for in the EAPO until
the EAPO is revoked, its enforcement is terminated
or the judgment to which it relates has been
successfully enforced.
Banks are only able to seek payment of the costs of
implementing the EAPO if they are entitled to this
under the law of the Member State of enforcement
in relation to equivalent national orders. Banks may
need to categorise the type of EAPO to claim the
appropriate level of costs. Recoverable costs must
take into account the complexity of the
implementation of the EAPO and should be no
higher than the fees charged for the implementation
of equivalent national orders (Article 43).
Banks are also entitled to charge a fee to cover the
costs of providing account information. The fee
must not be higher than the costs actually incurred
and (where applicable) not higher than the fees
charged for the equivalent national orders.This is the
case despite the administrative burden of the EAPO
potentially being higher than the national order
(Article 43).
Banks may find that their administrative expenses
exceed the amount allowed.
The Regulation also contemplates authorities in the
Member State of enforcement recovering a fixed fee
for administering an EAPO (Articles 44 and 50).
The court of issue can also charge a fee (Article 42).
SERVICE ON THE DEFENDANT
After the EAPO has been implemented, the defendant
is served with the EAPO (and also the bank’s
declaration of preservation and all documents
submitted by the claimant in support of the EAPO)
(Article 28). Translations of certain documents will
also need to be served on the defendant if they are not
in the language of the Member State of the
defendant’s domicile (Article 49). It is unclear what
happens regarding translations where the defendant is
not domiciled in a Member State. Who serves the
documents on the defendant depends on the
location of the defendant. It might be the claimant,
issuing court or Competent Authority (Article 28).
Where EAPOs need to be served in another
Member State, the Regulation does not require
service pursuant to the Service Regulation which
may avoid the delays associated with service under
that Regulation.
A DEFENDANT’S RIGHT TO REVIEW
A defendant does have several remedies for an
incorrectly issued and/or enforced EAPO. Again,
the Regulation contains some quite detailed rules in
this regard (Articles 33 to 36).
A defendant can challenge an EAPO in the Member
State of issuance or enforcement. However, the
grounds available for challenge are more limited in
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the Member State of enforcement. Of course, this
may be where the defendant is domiciled and have
the easiest access to the courts.
Crucially, if the defendant seeks to challenge an
EAPO on the ground that the test for issuance
(Article 7) has not been met, that challenge can only
be made to the courts in the Member State of issue.
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Although potentially inconvenient for a defendant,
this mechanism is understandable as otherwise it
would involve one Member State court scrutinising
the discretion exercised by another Member State
court. EU consumers can also take comfort that the
court of issuance for pre-judgement EAPOs will be
in the participating Member State of their domicile.
Defendant’s rights to challenge
In the Member State court of issue the defendant
can challenge an EAPO on the basis that the
requirements of the Regulation were not complied
with (a type of “sweep-up” ground) as well as that
the required documents were not served on the
defendant correctly, over-preserved amounts were
not released correctly, the required security has not
been provided, the underlying claim has been
satisfied in full or in part or has been dismissed, the
underlying judgment has been set aside or other
change of circumstances relating to the basis on
which the EAPO was issued.
The courts of the Member State of issue will also
revoke or terminate a pre-judgment EAPO if
substantive proceedings have not been initiated
within 30 days from the date on which the
application for the EAPO was lodged or within 14
days of the date of issue of the EAPO (whichever is
later) (Articles 10 and 33).
The courts of the Member State of enforcement (or
where national law so provides, the Competent
Authority in that jurisdiction) the grounds of
challenge for the defendant go to the enforcement of
the EAPO. For instance, the execution of an EAPO
can be terminated by those courts on the grounds
that the account preserved was not within scope, the
underlying judgment has been refused, suspended or
the enforcement of the EAPO is contrary to public
policy. Enforcement can also be limited on the
grounds that certain amounts should not have been
frozen because they are exempt amounts or not
caught by the EAPO.
Third parties’ rights to contest
The right of a third party to contest an EAPO is
governed by the law of the Member State of
issuance, and the rights of a third party to contest
enforcement is governed by the law of the Member
State of enforcement (Article 39).
Security
An important safeguard for a defendant to any
freezing style order is to require the claimant to
provide some form of security to compensate the
defendant at a later stage for any damage caused
to him.
The Regulation provides that the issuing court may
order that an EAPO will only be granted if the
claimant provides security for an amount “sufficient
to prevent abuse” of the EAPO procedure and to
“ensure compensation for any damage suffered” by
the defendant for which the claimant is liable
pursuant to Article 13 (Article 12). Article 13
provides that the claimant is liable for any damage
caused to the defendant by the EAPO where the
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claimant is at fault (the claimant may also have
additional liability under the law of the Member
State of enforcement). The amount and form of
security is in the discretion of the court of issue.
The Recitals do note, however, that in the absence
of specific evidence as to the amount of potential
damage it is open to the court to consider the
amount in which the EAPO is to be issued as a
guideline for determining the amount of security
(Recital 18). It is anticipated that there may
therefore be wide variations between Member States
in the form (and possibly the amount) of security to
be provided.
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European Regulation on the freezing of bank accounts – November 2016
Whether security will be ordered depends largely on
whether the application is for a pre- or postjudgment EAPO. It seems that security will almost
always be ordered for a pre-judgment EAPO but
only occasionally ordered for a post-judgment
EAPO (Article 12). Recital 18 envisages that an
exception to the security requirement in the prejudgment context might be where “the creditor has a
particularly strong case but does not have sufficient
means to provide security…or that the size of the
claim is such that the…[EAPO] is unlikely to cause
any damage to the debtor, for instance a small
business debt”.
An EAPO will only be made once this security
has been provided (Article 12). The Regulation is
silent on when any security will be released.
The general requirement for security in respect of
pre-judgment EAPOs may lessen the attractiveness
of this measure for claimants (although as noted,
SMEs may escape this requirement). It may be that
if the available equivalent national measure does not
require such security this is the preferable option
(such as in the Netherlands and Belgium). By
contrast the general lack of a requirement for
security post-judgment may make this a very
popular enforcement tool, particularly for claimants
with limited resources.
Set-off for banks
The Regulation does not expressly address a bank’s
right of set-off (eg what happens to a bank’s right of
set-off where a defendant has two accounts at a
bank, one account in credit and the other in debit,
and the account in credit is attached by an EAPO).
The Regulation simply provides that the EAPO has
the same rank as an “equivalent national order” in
the Member State of enforcement (Article 32).
Member States have had to inform the Commission
about any ranking conferred on equivalent national
orders under national law (Article 50). In Belgium,
contractual set-off provisions stipulated by banks
will be protected by the provisions of the Financial
Collateral Law (the Law of 15 December 2004) and
remain unaffected by an attachment.
This is an issue that banks will wish to have
clarified in all relevant jurisdictions.
Over-preserved funds and other liability
Claimant liability
Obtaining an EAPO is not without risk to the
claimant. The claimant shall be liable for damage
caused to the defendant by the EAPO where the
creditor is at fault.
The claimant’s fault is presumed in a number of
circumstances (ie where substantive proceedings are
not started, the process to release over-preserved
funds is not initiated, where the EAPO is defective
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because the claimant has not complied with his
obligations in relation to parallel freezing orders and
the claimant has not complied with his obligations
in relation to service (including translation) of
the EAPO).
The liability of the claimant shall generally be
determined under the law of the Member State of
enforcement. Where the accounts preserved are in
more than one Member State the law applicable will
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be the Member State of enforcement, where the
defendant has his habitual residence, or failing that
the one which has the closest connection with the
case. In addition to liability under the Regulation the
claimant may also have liability to the defendant
under the applicable national law (Articles 13 and
27 and Recital 29).
The claimant may also have liability towards the
affected banks and other third parties under the
applicable national law (Article 13 and Recital 19).
For example, if the defendant defaulted on its debts
to third parties as a result of an incorrectly
obtained EAPO.
Bank liability
Banks may potentially have liability to the claimant
and defendant for performing their obligations under
the Regulation defectively (eg erroneously
preserving more funds than specified in the EAPO
or the wrong funds or incorrectly issuing its
declaration of implementation). Any liability of the
bank for failure to comply with its obligations under
the Regulation is governed by the law of the
participating Member State of enforcement
(Article 26). In addition, the bank may also have
liability to the defendant, claimant and third parties
pursuant to other statutory or contractual provisions
or other obligations.
Position outside participating Member
States (including UK and Danish
parties)
The UK and Denmark have not opted into the
Regulation and are therefore not bound by the
Regulation or subject to its application. This means
that bank accounts located in the UK and Denmark
(and non-EU countries) cannot be attached via
an EAPO.
The Regulation appears to restrict the availability of
EAPOs to claimants domiciled in a participating
Member State (Recital 48). This means British,
Danish and presumably third-country (eg U.S. or
Swiss) claimants who may wish to bring proceedings
in a participating Member State would be unable to
obtain EAPOs.
EAPOs can however be obtained against funds in
accounts held by UK, Danish and non-EU parties in
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participating Member States. As discussed above,
the Regulation provides protection to UK and
Danish consumers who will not be susceptible to
pre-judgment EAPOs (at least whilst the UK
remains in the EU).
Recital 48 does give rise to some apparent
inequalities. In German proceedings a Spanish
claimant could obtain an EAPO in circumstances
where a Danish co-claimant might not. The
inclusion of this nationality restriction is only
found in the Recitals and may possibly be subject
to legal challenge on the basis that such a
nationality requirement is discriminatory and
contrary to EU law (Article 18 TFEU).
European Regulation on the freezing of bank accounts – November 2016
Conclusion
The Regulation will undoubtedly enhance
opportunities for claimants seeking to track down
and secure a defendant’s assets across participating
Member States pending the outcome of litigation or,
as EAPOs can be applied in respect of a defendant’s
judgment debt, to aid enforcement. However, the
requirement for security in almost all pre-judgment
applications, coupled with the inherent complexity
of the instrument may detract from its attractiveness
for the less affluent claimant. It may be that in
certain circumstances the available national
remedies offer speedier, easier and less risky
alternatives for a claimant.
This is a novel and innovative piece of EU
legislation. It remains to be seen how national and
European courts will interpret its provisions in
practice. Over time there may be certain courts that
establish a reputation for applying the test for
issuance more flexibly than others. We may see
associated forum shopping, with claimants initiating
substantive proceedings on the merits in courts
where EAPOs are thought to be more easily granted.
There will no doubt be a lack of uniformity in
application given the multiple national law carveouts in this EU law.
There will inevitably be some controversial
decisions whereby the bank accounts of innocent
defendants are wrongly frozen. During the currency
of any appeal and remedy process there may be
considerable uncertainty as to the exposure for
defendants, claimants and the banks involved.
The Regulation is likely to increase the burden on
banks operating across Member States. They will
have to implement and respond to such orders and
will need to do so expeditiously. Banks will need to
review their customer terms and conditions as well
as their systems and processes for implementing
such orders.
Much will depend on the volume of orders sought
and how Member State courts exercise their
numerous discretions under this ambitious
legislation.
Key contacts
If you require advice on any of the matters raised in this document, please contact any of the Litigation and
Dispute Resolution experts mentioned below or your usual contact at Allen & Overy.
www.allenovery.com
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Belgium
France
Werner Eyskens
Partner
Litigation – Brussels
Erwan Poisson
Partner
Litigation – Paris
Tel +32 2 780 2602
[email protected]
Tel +33 1 40 06 53 87
Czech Republic
[email protected]
Germany
Robert Pavlů
Senior Associate
Litigation – Banking – Prague
Wolf Bussian
Partner
Litigation – Frankfurt
Tel +420 222 107 124
Tel +49 69 2648 5571
[email protected]
[email protected]
England & Wales
Italy
Mona Vaswani
Partner
Litigation – Banking, Finance &
Regulatory – London
Massimo Greco
Partner
Litigation – Milan
Tel +39 02 2904 9402
[email protected]
Tel +44 20 3088 3751
[email protected]
Sarah Garvey
Counsel
Litigation – London
Amilcare Sada
Senior Associate
Litigation – Milan
Tel +44 20 3088 3710
[email protected]
Tel +39 02 2904 9633
[email protected]
Christabel Constance
Senior Professional Support Lawyer
Litigation – London
Luxembourg
Thomas Berger
Counsel
Litigation – Luxembourg
Tel +44 20 3088 3841
[email protected]
Tel +352 44 44 5 5196
[email protected]
The Netherlands
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Slovakia
Richard de Haan
Partner
Litigation – Amsterdam
Martin Magál
Partner
Litigation – Bratislava
Tel +31 20 674 1745
[email protected]
Tel +421 2 5920 2412
[email protected]
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European Regulation on the freezing of bank accounts – November 2016
Poland
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Spain
Paweł Mruk-Zawirski
Senior Associate
Corporate – Warsaw
Antonio Vazquez-Guillen
Partner
Litigation – Madrid
Tel +48 22 820 6146
[email protected]
Tel +34 91 782 99 53
[email protected]
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European Regulation on the freezing of bank accounts – November 2016
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European Regulation on the freezing of bank accounts – November 2016
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