Preservation Order: Facing debtors maintaining bank accounts out of Cyprus
An EU Regulation (655/2014)1 which establishes an ex-parte Union procedure enabling a creditor – natural or legal person - to obtain a European Account Preservation Order against a debtor – natural or legal person - (“Preservation Order”) will be implemented in Cyprus on 18.01.2017. The said procedure and Preservation Order intend to prevent the subsequent enforcement of the creditor’s claim from being endangered through the transfer or withdrawal of funds up to the amount specified in the Preservation Order which are held by the debtor or on his behalf in a bank account maintained in a member state.
When does it apply?
The Regulation applies only to pecuniary claims in civil and commercial matters in cross-border cases i.e. in cases in which the bank account(s) to be preserved by the Preservation Order are maintained in a member state other than the member state of the court which tries the application for the Preservation Order or in cases in which the bank account(s) to be preserved are maintained in a member state other than the one in which the creditor is domiciled. Nevertheless, the Regulation does not extend to revenue, customs or administrative matters or to the liability of the State for acts and omissions in the exercise of State authority (‘acta iure imperii’). Further, the Regulation does not apply, inter alia, to rights in property arising out of a matrimonial relationship, wills and succession, claims against a debtor in relation to whom bankruptcy proceedings, proceedings for the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions, or analogous proceedings have been opened, social security and arbitration.
At this point it should be noted that the Regulation does not apply to the UK and Denmark, which have opted out. This means the procedure will not be available for bank accounts which are maintained in those member states or to creditors domiciled in those member states. In relation to this provision, concerns have been raised that this may be discriminatory on grounds of nationality, contrary to fundamental principles of EU law 2.
When can a creditor obtain such an Order?
According to Article 5 of the Regulation, the Preservation Order shall be available to the creditor either (i) before the creditor initiates proceedings in a member state against the debtor on the substance of the matter, or at any stage during such proceedings up until the issuing of judgment or the approval or conclusion of a court settlement; or (ii) after the creditor has obtained in a member state a judgment, court settlement or authentic instrument which requires the debtor to pay the creditor’s claim.
The Preservation Order shall be issued by the court when the creditor has submitted sufficient evidence to satisfy the court 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. Where the creditor has not yet obtained in a member state a judgment, court settlement or authentic instrument requiring the debtor to pay the creditor’s claim, the creditor shall also submit sufficient evidence to satisfy the court that he is likely to succeed on the substance of his claim against the debtor.
Is it automatically recognized in other member states?
One of the most important characteristics of this Regulation, which shows how drastic the latter is, is that a Preservation Order issued in a member state in accordance with this Regulation shall be recognized in the other member states without any special procedure being required and shall be enforceable in the other member states without the need for a declaration of enforceability.
Although the mechanism introduced by this Regulation may be harsh on future successful defendants in case a Preservation Order is issued before a court decision is issued (although the creditor shall be liable for any damage caused to the debtor by the Preservation Order due to fault on the creditor’s part), the Regulation will certainly provide a solution to all the successful creditors who face wealthy debtors who retain bank accounts outside the jurisdiction and cannot enforce any judgment against them in the Republic Cyprus.
1 EU Regulation establishing a European Account Preservation Order (EAPO) procedure to facilitate cross-border debt recovery in civil and commercial matters (Regulation (EU) 655/2014).
2 https://www.lawscot.org.uk/media/298130/brussels_agenda_june2014.pdf - see The European Account Preservation Order: the discrimination concerns