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European Commission to help businesses recover an extra €600 million in cross-border debts

European Commission - IP/11/923   25/07/2011

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European Commission - Press release

European Commission to help businesses recover an extra €600 million in cross-border debts

Brussels, 25 July 2011 – A small Italian cheese company supplies mozzarella to a frozen pizza maker in France. After the French company falls behind on its payments, the Italian firm stops the shipments, but it’s stuck with thousands of euros of unpaid bills. How will the Italian company recover the debt? Today there is no easy answer. Fraudsters can easily move money from one Member State to another, stashing funds in several accounts in multiple countries. Citizens also suffer when goods bought online are never delivered or an absent parent fails to pay maintenance from abroad. At the moment, it’s up to national law to require a bank to pay the money from a client’s bank account to a creditor. The current situation in the 27 Member States is legally complicated, time consuming and expensive. Around 1 million small businesses face problems with cross-border debts and up to 600 million a year in debt is unnecessarily written off because businesses find it too daunting to pursue expensive, confusing lawsuits in foreign countries. The European Commission today proposes a new Europe-wide preservation order to ease the recovery of cross-border debts for both citizens and businesses.

“I want to make recovering cross-border debts as easy as recovering debts domestically," said EU Justice Commissioner Viviane Reding. "Companies lose around 2.6% of their turnover a year to bad debts. This is a weakness of our single market which we must remedy swiftly and energetically! Businesses need a simple solution – an account preservation order effective Europe-wide – so that the money stays where it is until a court has taken a decision on the repayment of the funds. In these difficult economic times, companies need quick answers. Every euro counts, especially for small businesses.

Small and medium-sized enterprises (SMEs) make up 99% of businesses in the EU. Around 1 million of these face problems with cross-border debts. Procedures for recovering debts from another country's jurisdiction are complex, multiplying the costs for businesses that wish to trade across EU borders. Typical problems range from differences in national law to the costs of hiring an additional lawyer and translating documents. Individuals face similar difficulties when seeking to get their money back from a rogue trader or maintenance defaulter in another EU country.

Today's legislative initiative aims to facilitate these cross-border claims and gives creditors more certainty about recovering their debt, thereby increasing confidence in trading within the EU’s single market. It is part of the Commission's “justice for growth” agenda, which seeks to harness the potential of the EU's common area of justice for trade and growth.

Background

The Regulation would establish a new European Account Preservation Order that would allow creditors to preserve the amount owed in a debtor's bank account. This order can be of crucial importance in debt recovery proceedings because it would prevent debtors from removing or dissipating their assets during the time it takes to obtain and enforce a judgment on the merits. This will raise the prospects of successfully recovering cross-border debt.

The new European order will allow creditors to preserve funds in bank accounts under the same conditions in all Member States of the EU. Importantly, there will be no change to the national systems for preserving funds. The Commission is simply adding a European procedure that creditors can chose to use to recover claims abroad in other EU countries. The new procedure is an interim protection procedure. To actually get hold of the money, the creditor will have to obtain a final judgment on the case in accordance with national law or by using one of the simplified European procedures, such as the European Small Claims Procedure.

The European Account Preservation Order will be available to the creditor as an alternative to instruments existing under national law. It will be of a protective nature, meaning it will only block the debtor's account but not allow money to be paid out to the creditor. The instrument will only apply to cross-border cases. The European Account Preservation Order will be issued in an ex parte procedure. This means that it would be issued without the debtor knowing about it, thus allowing for a “surprise effect”. The instrument provides common rules relating to jurisdiction, conditions and procedure for issuing an order; a disclosure order relating to bank accounts; how it should be enforced by national courts and authorities; and remedies for the debtor and other elements of defendant protection.

The proposed European Account Preservation Order Regulation will now pass to the European Parliament and the Council of the EU for adoption under the ordinary legislative procedure and by qualified majority.

For more information

European Commission – Justice newsroom: http://ec.europa.eu/justice/newsroom

European Commission – civil justice: http://ec.europa.eu/justice/civil

Homepage of Vice-President Viviane Reding, EU Justice Commissioner:

http://ec.europa.eu/reding

Memo/11/540

Contacts :

Matthew Newman (+32 2 296 24 06)

Mina Andreeva (+32 2 299 13 82)


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