New draft European Regulation on the freezing of bank accounts

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1 26 July 2011 New draft European Regulation on the freezing of bank accounts SPEED READ On 25 July, the European Commission published a new draft Regulation introducing European Account Preservation Orders (EAPOs). If implemented in its current form, this Regulation will mark a significant change for parties involved in crossborder litigation. It will enable a claimant to make a single application to the courts of one member state to obtain an order which will "freeze" monies held by a defendant in bank accounts in other member states, without further intervention by the courts in those member states. The Regulation introduces a uniform application process to obtain such an order. It also standardises the implementation process across member states. Applications will usually be made on an ex parte basis and on paper using standard form documentation. An EAPO can be granted before proceedings are initiated, during proceedings or after a judgment is obtained. A novel aspect of the draft Regulation is that it introduces a mechanism by which a claimant can obtain information from banks about accounts that may be held by a defendant. The Regulation also introduces a "national" form of EAPO which can be sought in the courts of the member state where the bank account is located, even if those courts do not have jurisdiction over the underlying dispute. This Regulation is likely to enhance opportunities for claimants seeking to track down and secure a defendant's assets across member states pending the outcome of litigation or, as EAPOs can be applied in respect of a defendant's judgment debt, to aid enforcement. For example, a claimant could seek an EAPO from an Italian court in respect of a claim it is to launch in Milan and that EAPO could be used to freeze monies held in the defendant's bank accounts in England, Germany and France. The claimant will no longer have to make 3 separate applications to the courts in those member states. The Regulation will, however, increase significantly the burden on banks who will have to implement and respond to such orders. In particular, the Regulation imposes extensive searching and reporting obligations on banks. The Regulation will also materially increase the administrative demands on member state governments who have to nominate a "competent authority" (CA) to administer in-coming EAPOs from other member states, specify amounts immune from attachment (eg amounts required for an individual's living expenses), despatch outgoing EAPOs to other CAs, and liaise with banks to obtain information about accounts and the preservation of monies in accounts. In the UK, there is currently no such body in existence. In the current economic climate, with constraints on budgets, it is unclear how member state governments will respond to this initiative.

2 New draft European Regulation on the freezing of bank accounts Background Ex parte orders such as freezing injunctions are not ordinarily enforceable in other member states. 1 If bank accounts are held by a defendant across Europe, then a claimant usually has to make a series of individual applications to the courts of each member state in which the defendant has an account and obtain a series of freezing orders/attachment orders. 2 There may be variations between member states as to the type of order that a claimant can obtain (eg whether the order is in rem or in personam), and the procedure for so doing. The Regulation signifies an important change in approach: it will establish a uniform procedure across member states for the application for such relief and the subsequent implementation of the order. For the first time, ex parte freezing orders of member state courts will be recognised and enforced in other member states. Some member states regularly grant such freezing or attachment orders eg England and the Netherlands; however, in certain member states this relief may be more novel. This draft Regulation appears to be part of a two-pronged strategy by the Commission to address what is perceived to be the "remarkably low" level of cross-border debt recovery. 3 The introduction of the EAPO is one part of that strategy, the other being to introduce a measure requiring debtors to disclose information about their assets. This Regulation does not contain provisions regarding the disclosure of assets by a debtor. We understand the separate European legislative initiative regarding the disclosure of a debtor's assets is scheduled for Council Regulation (EC) No 44/2001 (Brussels I Regulation) requires member states to recognise and enforce judgments of other member states but this has been held not to include judgments granted ex parte which are intended to be executed without notice (Denilauler v SNC Couchet Fréres 1980 ECR 731). The Higher Regional Court of Nuremberg (22/10/2010), file no. 14 W 1442/10) however recently declared a worldwide asset freezing order of the English High Court enforceable in Germany. 2 Under Article 31 of the Brussels Regulation. The current review of the Brussels Regulation may result in changes to this provision. 3 On 11 May 2011, the European Parliament approved a report of its Legal Affairs Committee which encouraged the Commission to address this problem and recommended the introduction not only of a measure to preserve assets (ie the EAPO) but also an order for the disclosure of assets. Rationale and ambit The Regulation establishes a 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 listed in the European Union. It will be an alternative to protective measures existing under national laws. The Regulation is to apply to cross-border civil and commercial matters, but not arbitration (see further below). "Cross-border" is widely defined. A matter "is considered to have cross-border implications unless the court seised with the application for an EAPO, all bank accounts to be preserved by the order and the parties are located or domiciled in the same member state" 1

3 (Article 3). The Regulation is also to apply to matters of matrimonial property where certain European legislation applies. It does not apply to bank accounts which are immune from enforcement (eg sovereign assets) or to "systems for the settlement of securities" (Article 2(3)). 1 This exclusion does not appear to cover payment systems. An EAPO granted in one member state will be transportable to another without the need for a declaration of enforceability or equivalent court intervention in that receiving state. The EAPO will be served by the CA in the place of the courts making the order (the place of origin) to the CA of the place where the bank account is located (the receiving authority) who will serve the order upon the bank or banks named in the order. One issue is timing. The Regulation envisages that the EAPO will be served between CAs in accordance with the Service Regulation. Experience shows that service by this route may take time. Given that freezing orders are often required as a matter of urgency, to secure assets which might otherwise be transferred out of the jurisdiction, then it does give rise to some concerns about its effectiveness. Service of the EAPO by the receiving CA on banks within the jurisdiction is to be effected under national law. 1 Designated by member states in accordance with Article 10 of the Settlement Finality Directive (98/26/EC) of the European Parliament and of the Council. Procedure by which to obtain an EAPO An EAPO will be granted if the claimant presents "relevant facts, reasonably corroborated by evidence" to satisfy the court that: (a) the claim appears to be "well-founded"; and (b) without the order, subsequent enforcement "is likely to be impeded or made substantially more difficult, including because there is the real risk that the defendant might remove, dispose of or conceal assets held in the bank accounts sought to be preserved" (Article 7). This test may not replicate the position under national law in member states. For example, the test is less stringent than that applied by the English courts on an application for a freezing injunction where an applicant must satisfy the court (amongst other things) that there is a "real risk of dissipation" of the assets, that there is a "good arguable case" on the underlying claim, that there is prima facie jurisdiction and it is "just and convenient" to make the order. Applications will be made on an ex parte basis and on paper (ie oral hearings will not be the norm). Applications are to be made on a standard form application, available in all official languages of the European Union. For pre-judgment EAPO applications, unless the court orders an oral hearing, the court has 7 calendar days to issue an EAPO from the lodging of application. For post-judgment EAPOs, the court has 3 calendar days (Article 21). After the bank has been served, the defendant is served with the EAPO (and all documents submitted with the application for that order). Service on the defendant is carried out by the CA. Where an EAPO is issued before proceedings are initiated, the claimant has 30 days (or such shorter period as specified by the issuing court) from the date of issue of the EAPO to initiate proceedings. 2

4 New draft European Regulation on the freezing of bank accounts Jurisdiction There are two forms of EAPOs provided for in the draft Regulation: a pan-european EAPO and a "national" EAPO. Jurisdiction for issuing a pan-european EAPO lies with the courts having jurisdiction for the substance of the matter in accordance with the applicable rules on jurisdiction. Article 6(2) continues "where more than one court has jurisdiction for the substance of the matter, the court of the member state where the claimant has brought proceedings on the substance or intends to bring proceedings on the substance shall have jurisdiction". A claimant also has the option to apply to the courts where the bank account to be frozen is located for a "national" EAPO. These courts have jurisdiction to issue an EAPO that only operates within that member state. This alternative jurisdiction for a "national" or non-transportable EAPO will allow claimants to make targeted applications in member states for an EAPO under a predictable European procedure. This may well save time because they will not have to wait for service of the EAPO between member states CAs via the Service Regulation. However, when making an application for an EAPO, a claimant has a duty to inform the court if any other courts are seised with an application for an EAPO (or equivalent measure under national law) against the same defendant and in respect of the same debt (Article 19). There is an apparent lacuna in the draft Regulation it is silent as to what happens if there is a jurisdiction challenge in the courts at the place where an application for a pan-european EAPO is made. It therefore remains unclear whether a challenge to the jurisdiction of the courts seised with the substantive dispute jeopardises a claimant's ability to obtain a freezing order. Locating bank accounts to be frozen In an application for an EAPO, a claimant must provide "all information" with regard to the defendant and his bank account or accounts "necessary to enable the banks or banks to identify that defendant and his/her accounts". A claimant must provide the full name of the defendant, the name of the bank as well as the address of the bank's headquarters in the member state where the account is located, and either the account number(s), the defendant's full address, (if a natural person) the defendant's date of birth or national identity or passport number or (if a legal person) the number of that legal person in the business register (Article 16). Where the EAPO covers several accounts held by the defendant with one and the same bank, the bank shall implement the order only to the amount specified therein (Article 28). 3

5 What does a bank have to do when served with an EAPO? A bank served with an EAPO has to implement it "immediately upon receipt" by ensuring the amount specified therein is not transferred or withdrawn (Article 26). Any funds exceeding the amount specified in the EAPO must remain at the disposal of the defendant. There is no guidance as to what is meant by "immediately", save that it provides that if the EAPO is received outside business hours, implementation can be delayed until the next business day. Where funds in a frozen account consist of financial instruments, their value is determined by reference to the relevant market rate applicable on day of implementation. There is no provision for banks to seek (and be granted) an extension of time. A recipient bank has 3 days from service of an EAPO to inform the CA by way of a declaration whether and to what extent funds have been frozen (Article 27). Such a declaration will be given by way of standard form. Again, there is no provision for a bank to seek (and be granted) an extension of time. The draft Regulation provides that a bank's liability for failure to comply with its obligations to freeze accounts and produce declarations are governed by national law (Article 26 and 27). Banks are only entitled to the recovery of a fixed fee in respect of the costs of implementing an EAPO if they are entitled to this under national law. Member states have to notify the Commission whether banks are entitled under national law to such recovery and if so, the amount of any recoverable fee. Banks may find that their administrative expenses exceed the figures provided. The Regulation also contemplates CAs recovering a fixed fee for administering an EAPO. What can be frozen? An EAPO prevents any transfer or withdrawal by the debtor or his creditors of the funds held in the account frozen. For pre judgment EAPOs, the claimant is able to secure the amount of the claim as well as any interest accrued on the claim. For post-judgment EAPOs the claimant can secure the amount of the judgment (the draft text appears erroneously to refer to EAPO) as well as any interest and costs (Article 18). The definition of bank account extends to accounts which contain cash and financial instruments held with a bank in the name of the defendant or in the name of a third party on behalf of the defendant (see further below). Financial instruments are defined by reference to Section C of Annex 1 of MiFID and includes transferable securities, money-market instruments, units in collective investment undertakings and certain derivative contracts. This very broad definition of financial instruments may cause difficulties for banks as it, amongst other things, includes assets held in pooled accounts (see further below). 4

6 New draft European Regulation on the freezing of bank accounts The draft Regulation provides that, where the law of the member state of enforcement permits it, certain amounts in the frozen account will be exempt. To the extent such exempt amounts "can be determined without the provision of additional information" the determination of these exempt amounts is made by the CA of the member state of enforcement (Article 32(3) and 32(4)). The CA will notify the banks of such exempt amounts. Exempt amounts will vary across member states and may include living expenses for an individual or for a company, amounts necessary "to pursue a normal course of business". This highlights the quasi judicial function the CAs may have to adopt. In England, living expenses and other exclusions from freezing orders such as amounts in respect of legal fees, are often hotly contested aspects of a freezing order. Joint and nominee accounts As to whether joint accounts or nominee accounts are covered by an EAPO, one has to look to the national law of the place where the bank account is located (ie the place of enforcement). This means that there may be some important distinctions in approach throughout member states. Those jurisdictions that recognise trusts and concepts of beneficial interest, may seek to impose EAPOs on a wider range of accounts than elsewhere. For example, monies owned by a defendant beneficially and in nominee accounts may be frozen in some jurisdictions, but not to others (Article 29). Member states must notify the Commission of the extent to which joint and nominee accounts can be preserved. Information about bank accounts If the claimant does not possess the minimum account information required to make an EAPO, a claimant can request that the CA of the member state of enforcement obtain the necessary information. Such a request is made in the application for an EAPO (Article 17) and the claimant requests that the CA in the member state of enforcement use "all appropriate and reasonable means available in the member state of enforcement" to obtain account information of the debtor. Once the information is obtained, the CA serves the EAPO on the bank. Information sought by a CA pursuant to an information request should be "relevant and not excessive" and should be limited to the existence of the account including the account number (but not the balance), the banks holding the defendant's accounts and the defendant's address. 5

7 To be able to satisfy the information gathering provisions, the Regulation requires member states to ensure that, under their national law, there is either: (i) legislation which requires all banks in their territory to disclose to the CA whether a defendant holds an account with them; or (ii) access by a CA to bank account information held "by public authorities or administrations in registers or otherwise". These provisions are unclear and may be problematic (see further below). In the UK at least, legislation will be required to implement this provision. Security Article 12 provides that the court may make the granting of a freezing order subject to the provision by the claimant of a security deposit "or an equivalent assurance by the claimant to ensure compensation for any damage suffered by the defendant to the extent the claimant is liable to compensate such damage under national law". No guidance is given as to the amount of security. In England, a claimant often provides security by way of a crossundertaking in damages, without the need for the actual payment of sums into court. It is unclear whether or not this will be sufficient as "an equivalent assurance". It is anticipated that there may be wide variations between member states in the practical application of this provision. There is no provision requiring claimants to give an undertaking to pay costs incurred by a third party such as a bank. This condition does not apply in respect of an application for an EAPO after judgment has been obtained. Set-off for banks? The Regulation does expressly address a bank's right of setoff eg if a defendant has two accounts at a bank, one account in credit but another in debit, the account in credit might be attached by an EAPO. Article 33 provides "The EAPO confers the same rank as an instrument with equivalent effect under the law of the Member State where the bank account is located. Member States shall inform the Commission about the equivalent instruments and the rank conferred by those instruments". In England, standard freezing orders expressly provide that "this injunction does not prevent any bank from exercising any right of set-off it may have in respect of any facility which it gave to the respondent before it was notified of this order". 6

8 New draft European Regulation on the freezing of bank accounts Challenging the order A defendant can apply for a review of the EAPO to the court having issued the order ie the court of origin (Article 34). There is an important exception to this rule, namely, that where a defendant is a consumer, employee or an insured they can apply to the courts of enforcement for a review of the EAPO (Article 36). This means that if a consumer domiciled in France has his bank account in Lille frozen pursuant to an EAPO issued in Romania, then the Frenchman will not need to apply to the Romanian court to set it aside, he can go to the French court instead. Such a review must be made promptly and in any event within 45 days from the date "the defendant was effectively acquainted with the contents of the order and was able to react" (this language seems likely to be the subject of litigation). The application for review is on a standard form. The court must take any decision to set aside the order within 30 days from date of service of the application on the claimant. A decision unblocking an account must be immediately served on the banks. An EAPO will be set aside if substantive proceedings have not been initiated within 30 days from the EAPO being issued, or if the requirements for its issue (see Articles 2, 6 and 7) were not met (Article 34). There are also certain limited grounds to set aside or limit an EAPO before the court of the member state of enforcement. For example, if a defendant wishes to challenge or vary the exempt amounts in a frozen account he needs to apply to the courts of enforcement (Article 35(1)(a)). Third parties have the right to raise objections against the order before the courts of the member state of origin or enforcement "insofar as the order or its enforcement prejudices their rights". Other provisions There are some gaps in the draft Regulation regarding the mechanism by which banks are to be notified of an EAPO that is set aside or modified. The draft Regulation provides that, where an EAPO is set aside or modified following an application for review by the defendant in the member state of origin, the decision will be immediately served on the bank to implement eg by unblocking the account (Article 34(7)). The draft Regulation does not say who has responsibility for notifying the bank and the claimant. Nor does it say how the bank will be notified of any other change to an EAPO (eg where the EAPO is modified following an application by the defendant for review in the member state of enforcement or where the defendant exercises his right to provide alternative security). Article 20 provides for communications and cooperation between member state courts in relation to applications for EAPOs "in order to ensure proper coordination between the proceedings as to the substance and the proceedings relating to the EAPO". Article 20(2) provides that where a court is seised with an application for an EAPO it may seek information 7

9 from the courts of the member state seised with the substantive proceedings as to "all relevant circumstances of the case". Alternatively it may require the claimant to obtain information such as the risk of dissipation (see also commentary on Article 19 above). Such inter court dialogue whilst attractive on paper, may well be difficult to achieve in practice. It may also slow down the process of granting an EAPO. Post-judgment EAPOs An EAPO can be made in aid of judgments (before the enforcement stage), settlement agreements and authentic instruments. This means that a judgment creditor in a crossborder dispute can apply for an EAPO to secure funds to help satisfy its judgment debt. The application process for an EAPO post-judgment is slightly different and easier. For example, post-judgment a claimant can address the application for an EAPO directly to the CA in the member state of enforcement (Article 14(3)). Further, there is no requirement for the claimant to provide security in respect of an EAPO issued post judgment. Next steps The UK government and the Irish government now have to decide whether or not to opt in to the Regulation (other member states excluding Denmark will be automatically bound by it). It is understood that the UK government seeks to make this decision by the end of October It is anticipated that this measure will be debated further at the European Parliament and within the Council later this year. We will be feeding back comments on the draft Regulation to the UK Ministry of Justice. If you have any comments on the draft Regulation, we would be delighted to hear from you. WHERE ON THE WEB Sarah Garvey PSL Counsel Litigation Contact Tel sarah.garvey@allenovery.com 8

10 New draft European Regulation on the freezing of bank accounts Views from litigators across Europe FRANCE Many sophisticated parties do not hold assets directly in their own names and may hold assets in multiple jurisdictions across the world. For example, international companies may structure their affairs so that they hold assets (such as shares) through special purpose vehicles with bank accounts in offshore jurisdictions. Although the draft Regulation provides a helpful tool to assist claimants securing bank accounts within member states, certain national forms of protective relief will undoubtedly remain important particularly in relation to assets within member states not caught by the draft Regulation (eg real property) and assets held outside Europe. Experienced litigants may also develop strategies where they realise one jurisdiction moves more quickly in granting EAPOs or is more amenable to granting such orders than others. The French system at present is fast and efficient. For defendants, the French system provides an early opportunity to question the validity of the order attaching the asset and therefore the draft Regulation provides a less favourable system for them. On the other hand, French creditors may find a pan European system guaranteeing uniformity of approach in other member states appealing. Bénédicte Chesnelong Counsel Litigation Paris Contact Tel benedicte.chesnelong@allenovery.com GERMANY The EAPO resembles in some respects provisions of German law concerning freezing orders and enforcement measures. One key difference is, however, the access to information about the defendant's bank accounts pursuant to Article 17 of the draft Regulation which the claimant can ask the CA to obtain for him. Whilst this will probably considerably improve the efficiency of enforcement for the claimant, the duties imposed on banks by the current draft may be challenging in practice. For example, the draft provides for two alternatives for member states to ensure that the CA can obtain account information. The first alternative is to oblige all banks to disclose account information to the CA (Article 17(5)(a)). Although German law generally provides for a possibility to request specific information from third parties in the enforcement process, the concept in the draft Regulation is novel as it requires the CA for each request to make enquiries of all banks as to whether the defendant has an account with them. This is likely to lead to a considerable increase in requests that banks will have to cope with. The alternative to this procedure, a register with the necessary account information that the CA can access (Article 17(5)(b)), is also likely to raise many concerns including regarding the security of such a database. Moreover, the duties of banks are not limited to providing information to the CA. They are also required to inform the CA and the claimant within 3 working 9

11 days following receipt of the EAPO whether and to what extent funds in the account have been preserved (Article 27(1)). This time limit is remarkably short. Overall, the standardised process and the improved access to information show the intention to make cross-border enforcement more efficient for claimants. However, the vagueness of some provisions, in particular the definition of a cross-border matter which is required for the application of the draft Regulation, may lead claimants to rely on the new instrument in cases where the cross-border aspects of the matter are tenuous, or even to engineer such aspects themselves, for example, by transferring the claim to a foreign claimant. It is not clear how such situations will be addressed under the draft Regulation. Daniel Bussse Partner Litigation Frankfurt Contact Tel daniel.busse@allenovery.com ITALY From an Italian perspective, many Italian banks will be concerned about the increase in administration and costs involved in carrying out the various activities prescribed in the draft Regulation. There will also be a concern about the time limits set out. Banks have to freeze accounts "immediately" and there is no provision for extensions of time. Further, it is not clear whether a 3 day period for production of the declaration that accounts are frozen will be a realistic timeframe for banks to implement these measures. Daniele Geronzi Senior Associate Litigation Rome Contact Tel daniele.geronzi@allenovery.com THE NETHERLANDS In the Netherlands there is already in place fairly extensive and pro claimant procedures for the attachment and preservation of assets. This measure will be a useful compliment to existing procedures. This Regulation proposal is published at a time when in the Netherlands the requirements for a national pre-judgment freezing order have become more onerous. Traditionally the Netherlands are known as an attachment friendly country, favourable to claimants. Until very recently, it was sufficient for the creditor merely to mention the basis of the claim and evidence did not have to be submitted. According to the new attachment guidelines of the courts (beslagsyllabus) of June 2011, the creditor must now submit the invoices, the contract or other documents which substantiate his claim, and disclose to the court the position the debtor is expected to take on the merits. Although a creditor must now give more specific evidence for his claim, what remains unchanged is that an attachment is usually granted in one day. In response to the Commission's Green Paper on the attachment of bank accounts published in 2006, the Dutch government defended the Dutch system and made clear that it did not want a European instrument as a substitute. Now that the EAPO is presented merely 10

12 New draft European Regulation on the freezing of bank accounts as an alternative, we believe it can be a very useful instrument for the claimant who knows or suspects that his debtor has money in bank accounts in many member states. Because of the principle of territoriality, a Dutch attachment order in principle only freezes funds held in the Netherlands. In exceptional cases, a Dutch court may allow a bank account attachment order to extend to funds held outside the Netherlands, but the conditions for this are strict and far from clear. In addition, there is no guarantee that such an order would be recognized in the country of enforcement. An EAPO is likely to be useful in particular in the fight against international fraud. There are many similarities between the procedure for obtaining an EAPO and the procedure for obtaining a Dutch national order for the freezing of bank accounts, but also a few differences. For an EAPO, a claimant must submit some additional information to the court. In case of attachment of a bank account of an individual, he must in principle know the account number. However, if the account number is unknown, it may be sufficient to provide the defendant's full address or his date of birth or passport number. As a claimant does not need an account number, address or passport number for a Dutch freezing order, this means that an EAPO requires slightly more effort. As regards attachment of a company's bank account, in practice there is no difference between a European and a Dutch freezing order. Unlike a Dutch freezing order that can be obtained within one day, issuing an EAPO may take up to 7 days (Article 21 this is the case if the EAPO is sought pre-judgment). On the other hand, the time limit for a bank to issue a declaration as to what funds have been frozen is substantially shorter for an EAPO. Article 27 provides the bank must do so in 3 days (although the guidance notes to the draft Regulation refer to 8 days) whereas with a Dutch freezing order, the bank has 4 weeks to issue its declaration. We believe this short time limit will require financial institutions to adopt efficient administrative procedures. In summary, we believe the EAPO will be a useful additional instrument in cross-border litigation. However, where the bank account of the debtor is only located in the Netherlands, and if assets other than bank accounts need to be attached, the traditional Dutch freezing order remains the best instrument. Marieke van Hooijdonk Partner Litigation Amsterdam Contact Tel marieke.vanhooijdonk@allenovery.com SPAIN Arbitration is excluded from this Regulation. Whilst the scope of the similar exclusion under the Brussels Regulation has been somewhat limited by case law, in the light of comments in the Explanatory Memorandum to this Regulation, it would appear that this carve out means a participant in arbitral proceedings or the beneficiary of an arbitral award would not be able to take advantage of an EAPO. This measure may mean the court process becomes more attractive to potential claimants than arbitration, in particular where freezing orders in aid of arbitration are unavailable. Under certain national rules, where the seat of arbitration is within that jurisdiction a claimant can apply to the local courts for a freezing injunction in aid of their claim made in arbitration. In other jurisdictions, such relief may not be available. Further, it should be noted that one of the controversial aspects of the ongoing review of the Brussels Regulation is the scope of the arbitral exception from that instrument. In particular, there is an ongoing debate about whether court proceedings in aid of arbitral proceedings should 11

13 be caught by the Regulation. Negotiations on the revisions of the Brussels Regulation continue. In the meantime there remains some uncertainty as to whether a creditor of a judgment which enforces an arbitral award will be permitted to seek an EAPO in respect of that judgment. Borja Fernandez de Troconiz Robles Counsel Litigation Madrid Contact Tel borja.fdetroconiz@allenovery.com ENGLAND & WALES One key difference for litigants in England and Wales under the Regulation is that the proposed EAPO will provide in rem relief (ie the order will be directed at the asset to be attached) whereas English freezing orders provide in personam relief (ie the order is directed at the defendant personally). One consequence of this shift is that English litigators will have to adapt their approach when applying for (and resisting) EAPOs. They will need to focus on certain technicalities of the EAPO, such as whether assets are located at a particular branch or location and what the account number is. The EAPO may not be effective if the application is directed to the wrong account number, even if the defendant has monies in other accounts at that institution. A related point concerns the ability to freeze assets held indirectly. As a matter of English law, a freezing order directed at a defendant would seek to attach all his assets whether held directly or indirectly. The EAPO refers back to national law to determine whether or not an account held in a third party's name is frozen. It therefore seems that when an application for an EAPO is made in respect of an account in England (ie English law applies as per Article 29), monies held beneficially for the defendant or by a nominee may be frozen (provided that there is evidence that satisfies the court that this is the case). This approach may not be the same under the law of other member states where the concept of trusts, or beneficial ownership, may not be widely recognised. As noted above, the Regulation does not provide for the provision of information by a debtor of his assets (including assets outside those in European bank accounts) or the provision of information to enable a claimant to trace assets. The standard English freezing order requires a defendant to provide information as to his assets in an affidavit. These may be further reasons claimants continue to apply for English freezing orders. Mona Vaswani Partner Litigation Banking, Finance & Regulatory Contact Tel mona.vaswani@allenovery.com 12

14 New draft European Regulation on the freezing of bank accounts Key contacts If you require advice on any of the matters raised in this document, please call any of our partners or your usual contact at Allen & Overy. 13

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