HomepageCommercial LawPrivate LawPublic Law & Human RightsCriminal LawEU & International LawCareers

Accessibility

Have Irlen Syndrome, or need different contrast? Click the button below for options.

Background Colours

Subscribe

Enter you email address below to subscribe to free customisable article notifications.

Alternatively, click the button below for our various RSS Feeds (available journal wide, or per section).

UK Counts Itself Out of European Account Preservation Order

About The Author

Edmund Day (Former Writer)

Edmund is a 3rd year student of Law with French at the University of Birmingham, currently studying towards the Certificat de Droit Français during his year abroad at l'Université Montesquieu - Bordeaux IV. Edmund aspires to be a solicitor, with a particular interest in the aviation sector.

After nearly three years of negotiations, the long-anticipated European Account Preservation Order (EAPO) has received backing from the European Parliament and looks set to take legal effect this month when it is published in the Official Journal of the European Union.

These Orders give the national courts of Member States the power to freeze business accounts in other participating Member States, preventing debtors from diverting funds abroad in an attempt to secure them from creditors whilst debt recovery proceedings are ongoing.

What Does the EAPO Seek to Achieve?

First proposed in July 2011 by the European Commission, the EAPO aims to facilitate the recovery of cross-border debts and strengthen businesses across the EU. The Commission estimates that 2.6% of total turnover is lost to written-off cross-border debts each year, with businesses daunted by the prospect of pursuing costly, and often complex, debt recovery procedures abroad. This legislation responds primarily to concerns over the uphill struggle that these businesses face to enforce debt repayments, leaving many of them significantly weakened and out of pocket. To be precise, as much as €600 million of debt is abandoned by small and medium-sized enterprises (SMEs) each year.

The European Commission, keen to ensure sustainable Union-wide economic growth through the support of SMEs, has recognised the need to provide such businesses with the necessary means to swiftly resolve credit disputes. SMEs serve as the backbone of the European economy, accounting for 99% of businesses within the EU, 1 million of which face ongoing difficulties in securing cross-border debt repayments.

The EAPO stops short of enforcing the repayment of a debt, but instead preserves funds within a specified account, taking effect until it is set aside by a court order or replaced by an equivalent provision of national law. The EAPO itself acts as a protective measure, maximising the effectiveness of any cross-border debt recovery procedure. To secure the payment of any funds secured by an EAPO, a final judgment is required by a separate procedure.

The legislation itself states that, in order to effect the grant of an EAPO, a claimant must provide “sufficient evidence” that there is an ‘urgent need for a protective measure in the form of a Preservation Order because there is a real risk that, without such a measure, the subsequent enforcement of the creditor's claim against the debtor will be impeded or made substantially more difficult’. How the courts will choose to interpret these provisions is yet to be seen.

It is hoped that the EAPO will make cross-border debt recovery equally straightforward as the recovery of business debts domestically. The creation of the EAPO signifies a notable simplification of the procedure, with businesses now able to secure the freezing of funds on the back of a single application to a Member State's court rather than the comparatively costly and complicated pre-existing process, involving either the Small Claims Procedure, the European Order for Payment, or via the national courts. The latter risks being transferred to the courts of the state issuing proceedings, in which case additional costs and complications are likely to be incurred by the claimant.

Criticism by the UK and Others

Despite the EAPO's apparent strengths, the UK, along with Denmark, has opted-out of this area of law, citing that they each consider the legislation to be too 'pro-creditor'. This sentiment is rooted in concerns that the legislation fails to adequately protect defendants as the threshold for obtaining an EAPO from a member state's court is too low.

The UK's Ministry of Justice released a statement on the matter, reasoning that there is “no requirement to compensate a defendant for losses suffered from the wrongful grant of an order and defendants should not have to challenge orders in foreign courts.” The UK therefore considered it, on balance, not to be in the interests of businesses to take part in the scheme.

Similar reservations were echoed by R3, a UK insolvency trade body. R3 have been critical of the EAPO's ability to undermine protections guaranteed by English law and jeopardise fragile rescue work undertaken by insolvency professionals. Particularly worrying, claim R3, is the EAPO's ex parte effect, meaning that the defendant is not required to be notified of the grant of an EAPO in relation to his account. This built-in element of surprise for debtors is a crucial aspect of the EAPO's effectiveness according to EU legislators, as without it defendants could too easily divert funds elsewhere and secure them unfairly out of reach of creditors.

Whilst the substance of this legislation seems straightforward enough, it has attracted criticism for further complicating an already delicate and complex area of law. One particular fear that has been raised is that the legislation will place a substantial burden on banks. For example, not only must they enforce the freezing of funds, but also issue declarations to relevant authorities regarding those funds, and search for and provide account information where necessary under Article 17 of the EAPO regulation.

The UK’s Decision to Opt-out

The decisions of the UK and Denmark to opt-out of the EAPO scheme has drawn renewed attention to the issue of whether the use of legislative opt-outs significantly undermines the effectiveness of EU law. As it stands, the UK has exercised its power to opt-out four times, relating to the Schengen Agreement on the free movement of persons, the EU's economic and monetary union and the Charter of Fundamental Rights of the EU, as well as the area of freedom, security and justice. Denmark equally has four opt-outs, followed by the Republic of Ireland with two and Poland with one.

A law that is directly effective with regards to some citizens, but not all, seems a curious concept, and the absence of uniform legal protection for all EU citizens, in the form of the EAPO, is precisely that. The EU's desire to harmonise the legal systems of its Member States, facilitating increased interaction between them, appears theoretically undermined by the concept of opting-out, or picking and choosing if and when to participate as a Member State pleases.

However, compromise within the EU has been a growing reality in correlation to its expansion. Currently made up of 28 Member States, compared with the original founding six, satisfying all parties when passing legislation is an increasingly tall order. Avoiding stalemates in order to enact legislation has advanced up the agenda, and the compromise of a multi-speed Europe, whereby different states integrate to varying degrees, is a reality of the modern European Union: a reality that is here to stay.

The lack of harmonisation brought about by the UK and Denmark’s decision to opt-out of this scheme leaves certain EU residents unprotected by the EAPO, with the regulation only offering protection to those claimants domiciled in participating member states. A would-be claimant domiciled in the UK would be unable to rely on these provisions, and would likewise be immune from being the subject of an EAPO. It will be intriguing to see whether this restriction will influence how interested parties, particularly international SMEs, structure their financial affairs in future.

For the latest articles straight to your inbox, you can subscribe for free. Alternatively, follow @KeepCalmTalkLaw on Twitter or Like us on Facebook.

Tagged: Banking & Finance, Commercial Law, Company Law, European Union

Comment / Show Comments (0)

You May Also Be Interested In...

A Permanent Investment Court: The Future of the International Investment Regime?

28th Aug 2018 by İnayet Aydeniz Baytaş

The problem with foreign currency loans

26th Feb 2016 by Rowan Clapp

Regulating High-Frequency Trading: New EU Rules

18th Jun 2015 by Alex Hitchcock

A Bonkers Bonus Cap? Reigning In Remuneration

18th Feb 2015 by Rowan Clapp

When is enough, enough? Balancing the rights of consumers and advisers

26th Aug 2014 by R T

Tackling Fraud and Corruption in the European Union

14th Jun 2014 by R T

Section Pick May

Coronavirus and Contracts: Is Frustration in Play?

Editors' Pick Image

View More

KCTL News

Keep Calm Talk Law: Moving Forward

3rd Sep 2019

Changing of the Guard: Moving Keep Calm Talk Law Forward

12th Aug 2018

An Anniversary or Two: Four Years of Keep Calm Talk Law

11th Nov 2017

Rising from the Ashes: The Return of Keep Calm Talk Law

18th Nov 2016

Two Years On, Keep Calm Talk Law’s Legacy is Expanding

11th Nov 2015

Twitter

Javascript must be enabled for the Twitter plugin to function. Click below to visit us on Twitter.

Free Email Subscription

Subscribe to Keep Calm Talk Law for email updates, and/or weekly roundups. You can tailor your subscription on activation. Both fields are required.

Your occupation / Career stage is used to tailor your subscription and for readership monitoring.

Uncheck this box if you do not want to receive our monthly newsletter.

By clicking the Subscribe button, you agree to our privacy policy and terms of service. Please ensure you read these in full.

Free Subscription