knowledge 25 November 2016 |

New European ‘Freezers’ will Provide a Fast and Effective Tool in Preserving Funds in Cross-Border Cases from January 2017

The new system is designed to make it easier to identify and freeze funds in cross-border cases, where the creditor is in one Member State and the funds are held in another. An application can be made by a creditor that has already obtained a judgment or a court settlement, or before the ‘creditor’ initiates proceedings against a debtor and up to obtaining judgment or a court settlement. A ‘creditor’ is defined as a natural or legal person or any other entity domiciled in a Member State having legal capacity to sue or be sued and who applies for, or has already obtained an EAPO.

If the application is brought pre-judgment, the amount of the claim and any interest properly accrued may be frozen. Postjudgment any costs ordered against the debtor can be added to this amount.

The court has to be satisfied that the creditor has submitted sufficient evidence that there is an urgent need for an order because there is a real risk that the subsequent enforcement of the creditor’s claim against the debtor will be impeded or made substantially more difficult without such a measure. A creditor who has not yet obtained a judgment or court settlement must also satisfy the court that it is likely to succeed on the substance of its claim. A ‘real risk’ for this purpose is that the debtor ‘may have dissipated, concealed or destroyed his assets or have disposed of them under value, to an unusual extent or through unusual action’. To maintain an element of surprise and ensure the efficacy of the order, the debtor will not be informed of the court application or the existence of the EAPO until after its implementation.

To prevent abuse of the process, security will be generally required from a creditor unless there is an existing judgment or settlement, and it appears that in Ireland at least this requirement could be satisfied by a lodgement into court, although this remains to be confirmed. It is still unclear as to what amount of security will be required, though the court can be guided by the size of the EAPO when considering this issue.

Significantly, where a creditor has an enforceable judgment or court settlement and it believes the debtor has a bank account in another Member State, but has no information as to the name of the bank or the account details, it can request the court dealing with the EAPO to seek information from the information authority of the relevant Member State to enable the account or accounts to be identified. This will be a very useful weapon in the arsenal of the creditor seeking to enforce a judgment where there is a paucity of specific information as to the whereabouts of funds held by the debtor in another Member State. There is a 30 day window built into the provisions before the debtor can be notified of the disclosure of information by the bank concerned.

The EAPO will be implemented by the debtor’s bank who will freeze the funds covered by the order and send a declaration of implementation back to the issuing court. Banks are required to act without delay.

The debtor will have an opportunity to challenge the EAPO. However, in the absence of a successful challenge, it will remain in force until it is revoked, its enforcement terminated or a measure to enforce judgment has taken effect.

Comment

The EAPO will certainly be of assistance to creditors, particularly post-judgment where security will generally not be required and account information can be requested. Pre-judgment, this tool will be particularly useful in urgent asset tracing cases as funds can quickly be frozen under the procedure assuming the pre-judgment criteria can be met and the necessary level of account information is available. Finally, the new procedure will see an increased burden on banks in participating Member States who will be tasked with its implementation. As the UK has opted out of this legislation, it will not apply to bank accounts held in the UK. However, UK domiciled banks with branches and/ or subsidiaries located or operating in participating Member States may be affected.