Cleanzine: your weekly cleaning and hygiene industry newsletter 18th April 2024 Issue no. 1110
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A solution to cross-EU border credit problems?
On Monday the European Commission proposed a new legal tool to freeze the bank accounts of debtors, in a bid to facilitate the recovery of cross-border credit and boost the EU-wide activities of small and medium-sized enterprises.
Brussels believes that around one million SMEs face problems with recovering cross-border debts, estimating that a total of some 2.6% of small businesses' yearly turnover is lost to bad debts.
This, it says, is down to the fact that when companies provide a service in an EU member state other than their own, they are more at risk of not being paid because they have less legal protection to recover the credit.
As anticipated by EurActiv in February, in a bid to address the problem, EU Justice Commissioner Viviane Reding has unveiled proposals for a new European procedure to complement national measures, which would enable creditors to prevent the transfer or withdrawal of a debtor's assets in any bank account located in the European Union.
Under her plan, once creditors are able to demonstrate that their claims are well-founded and that there is a concrete risk of not recovering the credit, they can request the issuance of a 'European account preservation order', which would block the amount of money owed in the bank accounts of the debtor, no matter where in the EU they are located.
The order is a 'protective' measure which will not allow money to be paid out to the creditor, but it is nevertheless expected to increase the certainty of payments.
The order will be applicable only to cross-border cases, as they are covered by EU legislation. It will be applied to debtors' accounts with no prior notice.
Obviously, if the debtor is able to demonstrate that a claim is unfounded, the alleged creditor will be forced to cover the costs of the procedure. As a further safeguard for fairness, the court may request the creditor to provide security to ensure compensation for any damage suffered by the debtor if the order was subsequently set aside as unjustifiable.
Exemptions from the amount to be frozen are also envisaged to protect the livelihood of a debtor and his family or for allowing a company to continue its ordinary course of business. National rules will be applied to determine when these exemptions can kick in.
The regulation must be approved by a qualified majority of EU governments in the Council and backed by the European Parliament. It would not be directly operational in Denmark, Ireland or the UK, because those countries have opted out of legal provisions related to justice.
28th July 2011