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European Account Preservation Order: to issue or not issue?

As known, on July 17, 2014 came into force the EU regulation No. 655/2014 (hereinafter – the Regulation), establishing a European Account Preservation Order (hereinafter – the EAPO) procedure to facilitate cross-border debt recovery in civil and commercial matters.

EAPO procedure is applicable in all the EU member states (except for Denmark and the United Kingdom). It allows the creditor domiciled in the EU to get the court order issued in one EU country, pursuant to which debtor‘s funds held in the bank account in another EU country are preserved.

The creditor might apply for EAPO in every stage of the legal proceedings. The debtor is not notified about this procedure and the issued EAPO is directly recognized and enforceable in another EU member state. EAPO procedure is applicable only from January 18, 2017, so we can review the Regulation‘s application practice for not full 3 years through national and the EU level.

‘Simplified mechanism’ is not so simple

At first it might appear that by the ‘simplified mechanism’ created by the Regulation EAPO are easily given to the creditors. However, issue of EAPO is a complicated process, demanding harmonization of creditors‘ and debtors‘ interests, while the conditions for EAPO issue are just forming in the case law.

By its nature EAPO is the alternative to interim provisional measures listed in the Lithuanian code of civil procedure, specifically the arrest of debtor‘s funds. Hence, EAPO is the interim provisional measure, which application depends on the cross-border of the particular case, i.e. the EU member state where the debtor‘s bank account, that is going to be preserved, is located cannot match the EU member state of the court seized for EAPO application or the creditor‘s domicile.

As far as EAPO is the interim provisional measure, the criteria for issuing EAPO is being influenced by the court practice on interim provisional measures of the particular EU member state. National cases regarding issue of EAPO will not reach the Supreme Court of Lithuania, because the cassation procedure on rulings regarding interim provisional measures is not possible. Thus, the court practice on issue of EAPO in Lithuania can be formed only by the Court of Appeal and courts of lower instance.

From the beginning of application of EAPO procedure, the Court of Appeal has made only 4 rulings (one of which has been finished by settlement agreement). In one case it has been simply reminded that issue of EAPO is not possible when it is agreed to settle the main dispute in the arbitral tribunal[1]. In another case it has also been reminded to the court of first instance that issue of EAPO is possible at every stage of the process, even though the creditor doesn’t have information about the details of debtor‘s bank account[2]. In one more case it has been explained to the applicant that he is obliged to organize the enforcement procedure of the issued EAPO in the foreign country[3]. In the above-mentioned cases the Court of Appeal narrowly interpreted the provisions of the Regulation, so explanations regarding EAPO issue conditions also have to be looked up in the case law of application of national interim provisional measures.

In the newest and most relevant case law of the Court of Appeal on application of interim provisional measures inside Lithuania, the presumption of the big claim‘s sum is denied. The risk for the enforcement of judgment could be ascertained only in cases where is evidence about debtor‘s unfair behavior and actions, by which he is aiming to avoid the enforcement of judgment (i.e. the debtor is hiding, transferring, pledging or in other way aggravates his property and etc.). The similar conditions must be proved in order to get EAPO, hence the Lithuanian courts in the cases on interim provisional measures quite often quote the provisions of the Regulation, where some contradictions might be seen.

For example, in the often quoted recital 14 of the Regulation it is stated that the evidence of risk could be the debtor’s conduct in respect of the creditor’s claim or in a previous dispute between the parties, the debtor’s credit history, the nature of the debtor’s assets and any recent action taken by the debtor with regard to his assets. However, in another part of this recital is written that mere non-payment or contesting of the claim or the mere fact that the debtor has more than one creditor and the financial circumstances of the debtor are poor or deteriorating, should not constitute a sufficient ground for the issuing of EAPO – the court may take
these factors into account in the overall assessment of the existence of the risk.

Consequently, the issue of EAPO in Lithuania is possible only when the condition of risk for the judgment‘s enforcement, created in the newest case law, is satisfied. To prove this risk the evidence of debtor‘s poor financial circumstances and non-payment to creditor is not sufficient – the reliable evidence about the debtor‘s unfair actions in respect of his assets should be provided as well as the creditor must convince the court that in such actions there is a debtor’s aim not to fulfil disadvantageous judgment for him. It creates practical difficulties and financial inconveniences for the creditor, especially when all debtor’s assets and the debtor himself are located in another EU member state.

News from Luxembourg

The Court of Justice of the European Union (hereinafter – CJEU), that is located in Luxembourg, not so long ago (7 November, 2019) solved the case[4] initiated by the Bulgarian court, where it was interpreted that non-enforceable order for payment (similar to our national court order), does not constitute an ‘authentic instrument’ in the Regulation. However, the ongoing proceedings for an order for payment may be regarded as proceedings ‘on the substance of the matter’, and the ‘exceptional circumstances’ on prolongation of term to issue EAPO, that can be found in Article 45 of the Regulation, doesn’t include the judicial vacations. This CJEU judgment shows that EU case law on application of the Regulation is being formed and it should appear more CJEU cases interpreting EAPO issue conditions in future.

To issue or not issue?

Although the introduction of EAPO procedure has established the conditions to improve the creditors‘ position in the cross-border matters, preservation of debtor‘s foreign bank accounts still remains the complicated process, in which high proof standards are raised for the creditors as well as the requirements to provide the information about the debtor, which receipt is often complicated. There is a hope that the forming national and CJEU case law will create some guidelines, simplifying the issue of EAPO.

Article by: Benjamin Kolyško, associate.

[1] The ruling of the Court of Appeal dated on November 28, 2017 in civil case No. e2-1387-178/2017.
[2] The ruling of the Court of Appeal dated on May 3, 2018 in civil case No. e2-519-196/2018.
[3] The ruling of the Court of Appeal dated on September 24, 2019 in civil case No. e2-776-943/2019.
[4] Judgment of the Court of Justice of the European Union dated on 7 November, 2019 in civil case No. C‑555/18.