Explanatory Memorandum to COM(2011)445 - European Account Preservation Order to facilitate cross-border debt recovery in civil and commercial matters

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dossier COM(2011)445 - European Account Preservation Order to facilitate cross-border debt recovery in civil and commercial matters.
source COM(2011)445 EN
date 25-07-2011
1. CONTEXT OF THE PROPOSAL

3.

1.1 General context


The 2009 Stockholm Programme to deliver justice, freedom and security to citizens[1] emphasizes that the European judicial area should serve to support economic activity in the Single Market and invites the Commission to bring forward appropriate proposals for i.a. improving the efficiency of enforcement of judgments in the EU regarding bank accounts and debtor's assets. The Commission Action Plan implementing the Stockholm Programme[2] confirms this political mandate by providing for a Regulation on improving the efficiency of the enforcement of judgments in the European Union: the attachment of bank accounts.

The Commission already noted the difficulties of cross-border debt recovery in a 1998 Communication 'Towards Greater Efficiency in Obtaining and Enforcing Judgments in the European Union'[3], and emphased the need to improve the enforcement of decisions and to establish protective measures against debtor's assets at EU level. This approach was endorsed by the Council in its 2000 Programme on Mutual Recognition[4]. Although much progress has been made towards the creation of a genuine European Area of Civil Justice since then, these issues have not yet been addressed by the European legislator. Existing instruments in the area of civil justice, e.g. Regulation (EC) No 44/2001 of the Council of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (hereinafter 'Regulation Brussels I')[5] solely ensure that a judgment given in one Member State is recognised and enforceable in another Member State but they do not contain any provision on how a judgment is actually enforced. To date, the procedural modalities of enforcement of a judgment or other enforceable title are exclusively governed by national law. This approach does not change with the proposed revision of Regulation Brussels I[6].

The need for improving cross-border debt recovery was most recently emphasized by the European Parliament which adopted in May 2011 an own-initiative report calling on the Commission to put forward a proposal on interim measures for the freezing and disclosure of debtor's assets in cross-border cases[7].

4.

1.2 Grounds and objectives of the proposal


At present, a creditor seeking to recover his debt in another Member State faces significant difficulties. In particular, it is more cumbersome, lengthy and costly for him to obtain provisional measures to preserve assets of his debtor located abroad. This is a problem because quick and easy access to such provisional measures is often crucial to ensure that the debtor has not removed or dissipated his assets by the time the creditor has obtained and enforced a judgment on the merits. This is particularly important with regard to assets in bank accounts. Currently, debtors can easily escape enforcement measures by swiftly moving their monies from a bank account in one Member State to another. A creditor, however, has little chance of blocking a debtor's bank accounts abroad to secure the payment of his claim. As a result, many creditors are either unable to successfully recover their claims abroad or do not consider it worthwhile pursuing them and write them off.

Essentially, four main shortcomings of the current situation can be identified:

· The conditions for issuing orders preserving assets in bank accounts under national law vary considerably throughout the EU. This makes it more difficult for creditors to obtain an account preservation order (or to obtain one without the prior hearing of the debtor) in some Member States than in others and encourages forum-shopping. As European law currently stands, an additional problem results from the fact that provisional measures issued without a prior hearing of the debtor are not recognized and enforced in another Member State under Regulation Brussels I according to the jurisprudence of the Court of Justice of the European Union[8]. This problem has, however, already been addressed by the Commission's proposal for revising Regulation Brussels I.

· A second problem relates to the fact that in many Member States it is difficult, if not impossible, for a creditor to obtain information about the whereabouts of his debtor's bank account without having recourse to the services of private investigation agencies. This lack of transparency will often prevent a creditor from having access to this type of provisional measure.

· Thirdly, the costs of obtaining and enforcing an account preservation order in a cross-border situation are generally higher than in domestic cases, which deters creditors from recovering their claims abroad with the help of the judicial system.

· Finally, the divergences in and length of national enforcement systems constitute a serious problem for creditors seeking to enforce a judicial decision. This jeopardizes the effectiveness of provisional measures like account preservation orders which by definition depends on a swift implementation.

A detailed analysis of the problems of the current system as well as the impacts of the different options considered for addressing them can be found in the Impact Assessment accompanying this proposal.

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[9] and to the creation of a genuine European area of civil justice in the area of enforcement. The general objectives of this proposal are to facilitate the recovery of cross-border claims for citizens and businesses, in particular 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.

5.

More specifically, this proposal aims at


· enabling creditors to obtain account preservation orders on the basis of the same conditions irrespective of the country where the competent court is located;

· Allowing creditors to obtain information on the whereabouts of their debtors' bank accounts; and

· Reducing costs and delays for creditors seeking to obtain and enforce an account preservation order in cross-border situations.

Contents

1.

RESULTS OF CONSULTATIONS


6.

WITH INTERESTED PARTIES AND IMPACT ASSESSMENT


This proposal was preceded by an extensive consultation of the interested public, Member States, other institutions and experts on the existing problems of the current system and the possible solutions to it. On 24 October 2006, the Commission adopted a Green Paper on improving the efficiency of the enforcement of judgments in the EU: the attachment of bank accounts[10] which suggested to create a European provisional measure for the preservation of bank accounts and on which a total of 68 responses were received. In elaborating these suggestions, the Commission took into account the results of a comparative legal study submitted by Prof Burkhard Hess of the University of Heidelberg in February 2004 (and covering the then 15 Member States)[11]. Empirical data on the impact of the different options for this proposal was collected by a further external study finalised in January 2011[12] as well as a survey of European companies launched via the European Business Test Panel (EBTP) the results of which were published in August 2010[13]. A public hearing took place in June 2010. In order to assist the Commission in elaborating this proposal, a group of private experts was set up which met four times between February and April 2011. Member States' experts were consulted on a preliminary draft proposal at a meeting in March 2011.

It results from the consultation process that there is large support from both stakeholders and Member States for the creation of a self-standing European procedure for the preservation of bank accounts. The few stakeholders contesting the need for the initiative generally argue that their own national procedures work well. However, others acknowledge that while a new European procedure might not be needed to improve procedures in their own Member State, it would have added value for ‘out-going’ applications that are dealt with in other countries, some of which are seen as having very inefficient procedures for account preservation orders. Turning to the key features of the envisaged proposal, a large majority of stakeholders and the European Parliament support that the envisaged European order for the preservation of bank accounts should be of a provisional nature only. There is also overwhelming support for allowing the order to be issued without a prior hearing of the debtor in order to preserve its 'surprise effect'. The most controversial aspects of the initiative relate to issues of debtor protection, notably which court should have jurisdiction for contesting the order, and the modalities of enforcing the order cross-border.

The Commission analysed the costs and benefits of the main aspects of the proposed reform in its Impact Assessment which accompanies this proposal.

2.

LEGAL ELEMENTS OF THE PROPOSAL



7.

3.1. Summary of the proposed action


The proposed Regulation will establish a new and self-standing European procedure for the preservation of bank accounts which will enable a creditor to prevent the transfer or withdrawal of his debtor's assets in any bank account located in the European Union. The European procedure will be available to citizens and companies as an alternative to procedures existing under national law. The proposed Regulation will regulate the procedure for issuing the European account preservation order as well as its implementation by the bank holding the account targeted. The European account preservation order would be of a protective nature only, i.e. it would only block the debtor's account but not allow money to be paid out to the creditor. In line with the legal traditions of the large majority of Member States, the European order will have an in rem effect, i.e. be directed against specific accounts and not at the debtor personally.

The main features of the proposal can be summarised as follows:

8.

3.1.1. Scope (Articles 2, 3)


The proposed Regulation applies to civil and commercial matters. The exclusions from the scope largely correspond to those of Regulation Brussels I. As in Regulation Brussels I, insolvency and social security are excluded from the scope. Arbitration is equally excluded from the scope. Even though there might be a case for allowing parties to an arbitration to have recourse to the European procedure, the inclusion of arbitration would entail complex questions which have not yet been addressed by EU law, e.g. under which circumstances arbitral awards can be put on an equal footing with judgments and it did not seem appropriate to address them for the first time in this instrument.

In contrast to Regulation Brussels I, the proposed Regulation will apply to matters of matrimonial property regimes, of the consequences of registered partnerships and of successions as soon as the legal instruments proposed by the Commission in these two areas have been adopted and entered into application.

The instrument is limited to situations having cross-border implications. The approach to define these situations in a 'negative' way has been inspired by Article 1 of the Hague Convention on Choice of Court Agreements.

9.

3.1.2. Conditions and procedure of issue


· Availability (Article 5)

The proposal envisages that the European procedure is available in two different types of cases: before and after obtaining a title enforceable in the Member State where the account is located. In practical terms, this means that a creditor could apply for the order (1) prior to or during judicial proceedings on the merits or after having obtained in the Member State of origin an enforceable title which is not yet enforceable in the Member State of enforcement and (2) after obtaining a title enforceable in the Member State of enforcement. While the Commission expects the instrument to be most relevant in the first constellation, it can have an added value in the second constellation by maximising the effectiveness of enforcement. Given that in this constellation, the creditor already has an enforceable title, the conditions of issue are less stringent than in the first constellation.

· Jurisdiction for issuing the order (Articles 6, 14)

As a general rule, the courts of the Member State having jurisdiction on the substance as determined by European instruments or national law are competent for issuing a European account preservation order. Alternatively, the order can be issued by the courts of the Member State where the account is located. In this case, however, in order to avoid forum-shopping, the effect of the order is limited to the Member State where it was issued and it is not recognised and enforced in other Member States under the proposed Regulation. In cases where the creditor has already obtained an enforceable title, he can obtain the European Account Preservation Order either from the court having issued the enforceable title or from the enforcement authority of the Member State where the bank account is located.

The rules on jurisdiction of this Regulation do not prevent a claimant to seek protective measures under national law on the basis of Article 31 of Regulation Brussels I.

· Conditions of issue (Articles 7, 12)

In line with the general approach taken in the large majority of Member States the proposed Regulation requires the creditor to show that he has a good prospect of winning his case on the substance, i.e. that his claim is prima facie well-founded, and that there is the risk that the enforcement of a subsequent judgment would be frustrated if the measure is not granted because the debtor risks to remove or dissipate his assets. In addition, the court may request the creditor to provide security to ensure compensation for any damage suffered by the debtor if the order was subsequently set aside as unjustifiable, e.g. because the creditor had no valid claim on the substance.

· Aspects of the procedure (Articles 10, 11, 44)

The European account preservation order will be issued in an ex parte procedure, i.e. without the prior hearing of the debtor. This will allow the 'surprise effect' of the measure to be preserved. In situations where the 'surprise effect' is not necessary, e.g. because the account is currently pledged to another creditor, the claimant can, however, request that the procedure be inter partes. Since speed is of crucial importance in proceedings for provisional measures, the Regulation only allows the taking of oral evidence in exceptional circumstances. Courts are entitled to accept written statements of witnesses or experts as evidence. The Regulation also establishes specific time-limits for issuing and implementing the European order. Where the court or enforcement authority is in exceptional circumstances not able to comply with these time limits it has to justify why an additional delay is needed.

· Obtaining information on the debtor's account(s) (Article 17)

Given the difficulties the creditor may have to obtain information about his debtor's account(s) the proposed Regulation obliges Member States to provide for a mechanism facilitating that task. The Regulation leaves Member States the choice between two different mechanisms: Member States can provide for an order of disclosure obliging all banks in their territory to disclose whether the debtor has an account with them. Alternatively, they can grant their enforcement authorities access to information held by public authorities in registers or otherwise. The latter mechanism also figures in Article 61 of the Maintenance Regulation. Considerations of data protection require that the personal information exchanged under this provision is limited to the information necessary for enforcing and implementing the order.

10.

3.1.3. Enforceability and enforcement of the order


· Abolition of exequatur (Article 23)

In line with existing European procedures[14], account preservation orders issued under the proposed procedure in one Member State will be automatically recognised and enforced in another Member State without any special procedure being required.

· Service of the order on the bank and the defendant (Articles 24, 25)

The provisions on the actual enforcement of the European order to be issued under the new procedure constitute the main novelty of the proposed Regulation. An account preservation order with in rem effect is enforced by serving it on the bank or banks holding the accounts targeted which are under an obligation to implement the order. The provisions for service on the bank of the proposed Regulation distinguish between two situations. If the court is situated in the same Member State as the bank, service is governed by national law. If service has to be effected across borders, this has to be done in accordance with Regulation (EC) No 1393/2007 with an important modification as to the method of service: The documents to be served are transmitted from the court of origin or the claimant directly to the competent authority in the Member State of enforcement which in turn serves them on the bank or the defendant. In comparison to other methods of service or a free choice between different methods, this method of service has the important advantage of involving the competent authorities of the Member State of enforcement. This will not only ensure that the banks will receive the order through channels with which they are familiar but also allow the competent authority to take into account ex officio amounts exempt from execution where that is possible under national law.

The debtor has to be notified immediately after the measure took effect in order to be able to prepare his defence. The proposed Regulation ensures that service is effected as quickly as possible after the order has been implemented.

· Implementation by the bank and bank's declaration (Articles 26, 27)

The bank is obliged to implement the order immediately by blocking an amount corresponding to the amount of the order. Special provisions take into account the situation of accounts containing financial instruments and accounts in a different currency than that in which the order is issued. Within 8 days, the bank has to issue a declaration on whether the order has preserved sufficient funds. In order to ensure an adequate protection of the debtor's personal information, the account balance may not be communicated if it allows for the full satisfaction of the order.

· Preservation of several, joint and nominee accounts (Articles 28, 29)

Where the preservation of several accounts is ordered, the proposed Regulation limits the possibility of an over-seizure by the creditor by obliging the creditor to release any amount exceeding his claim as soon as he is informed about it. Given the wide divergence of national law on the conditions under which joint and nominee (trust) accounts can be preserved, the proposed Regulation leaves this question to the applicable national law.

· Amounts exempt from enforcement (Article 32)

When it comes to the amounts exempt from enforcement for ensuring the livelihood of the debtor and his family or for allowing a company to continue its ordinary course of business national law varies considerably within the EU. This concerns notably the question whether amounts are exempt ex officio or only upon request of the debtor. The proposed Regulation allows Member States to maintain their national system.

· Ranking of competing creditors (Article 33)

National law also differs widely in the EU when it comes to the effects of a provisional measure on the ranking of creditors. This question is very complex and intrinsically linked with national enforcement and insolvency law. In view of these differences, the proposed Regulation provides that the European order has the rank given to an equivalent measure under national law.

11.

3.1.4. Remedies against the European Account Preservation Order (Articles 34, 35, 36)


The proposed Regulation gives the debtor the right to contest the preservation order both on substantive and on procedural grounds. As to the question which courts should have jurisdiction to decide on the debtor's application for a review, the proposed Regulation follows the approach taken in the revision of Regulation Brussels I. In principle, the defendant has to raise his objections against the order before the court having issued it (the court of origin). This approach ensures that it is in principle the same court that decides on the order and its review. By way of exception, objections relating to certain aspects of the enforcement procedure, in particular the amounts exempt from execution, have to be raised before the courts of the Member State of enforcement because it is that Member State which is in charge of the procedure. In order to facilitate the task of the debtor to apply for a review of the order before the courts of another Member State, the Regulation provides for standard forms which will be available in all Union languages, thereby reducing the costs of translation. A different jurisdiction rule applies to certain categories of debtors which are generally considered to be the 'weaker party' in a dispute – consumers, employees and insured persons. These types of debtors are able to raise any objections against the order before the courts in their Member State of domicile. This rule ensures that weaker parties can always contest a European order in their home jurisdiction, thereby adding a layer of protection to the protective rules on jurisdiction for such cases contained in Regulation Brussels I.

12.

3.1.5. Other provisions


· Legal representation (Article 41)

In line with the legal situation in most Member States and in order to reduce the costs of proceedings, the proposed Regulation provides that legal representation is not mandatory in proceedings for obtaining a European account preservation order. This will allow a creditor to apply for a European order without having recourse to a lawyer at all or without having to involve a lawyer licensed to practice in the Member State where the court is situated. However, national law might require the parties to be represented by lawyers if the debtor contests the order. In order to facilitate the task of the creditor to apply for a European order, the proposed Regulation contains a standard application form with appropriate guidelines for filling it out. The form will be available in all Union languages, thereby reducing the need for translation to a few elements of free text.

· Costs issues (Articles 30, 31, 43)

Several provisions of the proposed Regulation deal with costs: Banks can only charge a fee for the implementation of a European account preservation order where they are entitled to do so when implementing equivalent measures under national law. In order to increase transparency, the Member States concerned have to determine a single fixed fee applicable in their territory. A single fixed fee also has to be determined for the costs occasioned by the recourse to a competent authority, such as a bailiff. Article 43 obliges the unsuccessful party to bear the costs of the European procedure. While Member States remain free to levy court fees for the European procedure, these must not be higher than those for obtaining an equivalent measure under national law, not be disproportionate to the amount of the claim and not excessively high to discourage use of the procedure.

13.

3.2. Legal Basis


This proposal is based on Article 81 (2) TFEU which entitles the European Parliament and the Council, particularly when necessary for the proper functioning of the internal market, to adopt measures aiming at ensuring i.a. the mutual recognition and enforcement of judgments between Member States (lit a), effective access to justice (lit e) and the elimination of obstacles to the proper functioning of civil proceedings, if necessary by promoting the compatibility of rules on civil procedure applicable in the Member States (lit f).

Title V of Part Three of the Treaty on the Functioning of the European Union is not applicable to Denmark by reason of the Protocol on the position of Denmark annexed to the Treaties. It is also not applicable to the United Kingdom and Ireland, unless those two countries decide otherwise in accordance with the relevant rules of the Protocol on their position on respect of the area of Freedom, Security and Justice.

14.

3.3. Subsidiarity and Proportionality


This proposal complies with the requirements of subsidiarity and proportionality.

As to subsidiarity, the problems outlined above have a clear cross-border dimension and cannot be adequately attained by the Member States alone. Although theoretically possible, it is highly unlikely that Member States would undertake a concerted action to align their legislation on the preservation of bank accounts which would make EU action unnecessary. The issue of enforcement has never been the subject of international agreements or model laws put forward by international organisations and there is no indication that an international initiative would materialise in the foreseeable future. Moreover, even if this were the case, the differences of the current enforcement systems in the EU make it highly unlikely that agreement on a common approach be reached between Member States within a reasonable time, notably given that any agreement outside the European legislative process would require unanimity.

The Impact Assessment accompanying this proposal demonstrates that the benefits of the key elements of this proposal outweigh their costs and that the proposed measures are therefore proportionate.

15.

3.4. Impact on Fundamental Rights


As set out in detail in the Impact Assessment accompanying this proposal and in accordance with the Union's Strategy for the effective implementation of the Charter of Fundamental Rights of the European Union[15], all elements of the proposal respect the rights set out in the Charter of Fundamental Rights. By creating a swift and low cost European procedure for the preservation of bank accounts, the proposal improves the right of the creditor to an effective enforcement of his claims which forms part of the right to an effective remedy as laid down in Article 47 (1) of the Charter. At the same time, the proposal ensures that the rights of the debtor are safeguarded in full compliance with the requirements of the right to a fair trial (Article 47 (2) of the Charter) and the right to respect of human dignity and family life (Articles 1 and 7 of the Charter respectively). Protection of the debtor's rights is ensured in particular by the following elements of the proposal:

· the requirement to notify the debtor immediately after the order is implemented with all documents which the creditor submitted to the court;

· the possibility of the debtor to contest the order by applying for a review to the court of origin, the court of enforcement or - if the debtor is a consumer, employee or insured – to the court at his place of domicile;

· the fact that amounts necessary to ensure the livelihood of the debtor and his family will be exempt from execution.