A new European Commission measure to freeze the assets of British businesses deals a severe blow to the UK’s rescue culture, warns insolvency trade body R3. The European Account Preservation Order (EAPO) is set to give courts anywhere in the EU the power to freeze funds in UK businesses’ banks accounts without warning. The new measure comes without the protections crucial to similar procedures in English law.
R3 President Frances Coulson comments: “The new measure would drive a coach and horses through attempts to rescue businesses formally or informally. Cash flow is critical during delicate rescue work. Removing access to substantial funds without notice gives a single creditor the right to jeopardise hopes of business preservation, harming creditors as a whole.”
Though intended to help creditors protect assets from concealment or removal by directors, the EAPO’s loose drafting enables the measure to be granted for a range of reasons unrelated to a serious risk to assets. As such, they risk being routinely granted in cross-border debt recovery cases.
Coulson continues: “The UK is seen as an international leader in business rescue, benefitting creditors who usually receive higher returns in rescue than terminal procedures. If EAPOs are supposed to protect assets from dodgy directors, the new regulation should reflect this objective. As they stand, the proposals are dangerous and draconian.”
The UK Government now must decide whether to opt out of the plans, which are moving apace.
NEWS UPDATE:
The European Account Preservation Order (EAPO) aims to freeze the bank accounts of debtors to help settle disputes across the EU.
But the Ministry of Justice (MoJ) has decided against accepting the order in the UK, following a consultation which raised concerns that the legislation would allow the freezing of UK business bank accounts without warning.
Despite its decision, the Department said it hopes to opt in to the EAPO at a later stage after it has been adopted.
Frances Coulson, president of R3 – which has warned of the potential threat to the UK’s rescue culture – welcomed the decision.
She said: “Although they were designed to make it easier to recover debts in cross-border cases, in practice the plans would give courts anywhere in the EU power to freeze funds in UK businesses’ banks accounts without warning.
“The rigorous checks and balances over the validity of the claim that we have in the UK were sorely missing from the proposals. We are pleased this threat to the UK’s rescue culture has been recognised by today’s decision.”
According to the MoJ the consultation process identified doubts about the proposal’s ‘lack of adequate safeguards’ for defendants.
The threshold for obtaining an order was feared to be too low and concerns were raised about the claimant not needing to provide any security to compensate a defendant for losses suffered from the wrongful granting of an order.
Consultation feedback also warned it would be too easy to grant an order, increasing the possible dangers posed to companies in the process of restructuring or rescue.
But Lord McNally, the minister of state, said: “Although the government has decided that the UK should not opt in to the proposal now, it intends to participate fully in the negotiations with the hope that sufficient changes will be made to enable a post-adoption opt in.”
Source: www.justice.gov.uk