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After surviving an early attempt to blunt the legislation, the soon-to-be-released European Order for the Preservation of Assets and its sister law, the European Order for the Disclosure of Assets, could be effective in the cross-border fight to take back assets, if they are enacted.
Asset recovery* professionals in the European Union expecting to learn more about a potentially potent weapon will have to wait a few weeks longer, according to the continental parliament. At the earliest, the European Order for the Preservation of Assets (EOPA) and the European Order for the Disclosure of Assets (EODA) will not be in force until 2013, and the next draft of the legislation will not be released until the end of July.
"The proposal will be presented in the coming weeks. I cannot tell you a precise date yet but [it will be] towards the end of July," said Mina Andreeva, press officer for European Commission vice president Viviane Reding.
Arlene McCarthy, member of European Parliament (MEP) from Belfast, led the early work on the bill, which was a response to the difficulties faced by creditors and fraud victims trying to recoup assets across European borders. The proposed law is intended to clear the path for creditors trying to enforce their judgments from country to country within the EU.
EOPA 'will be enormously important'
"If adopted, the EOPA will be enormously important," said Bruce Zagaris, an expert in international criminal law and partner at Washington, DC-based Berliner Corcoran & Rowe. "It is sweeping. It applies to civil and criminal cases and applies at any stage: prior to court action, and pre-judgment, and the order can apply to future assets."
Much like a Mareva injunction*, the EOPA could "freeze" accounts or funds belonging to alleged fraudsters or debtors.
While experts agree that as a vehicle for asset recovery* EOPA could one day be a force to be reckoned with, it almost never got the chance. In March, a handful of proposed amendments by MEP Alexandra Thein of Germany threatened to neuter the nascent legislation by prohibiting orders ex parte, or without the other party knowing.
These "secret" actions are standard in many jurisdictions for asset recovery* purposes. If a fraudster is alerted to the forces aligning against his criminal empire, the thinking goes, he will use his considerable resources to hide the assets before they can be frozen and, ultimately, recovered. Ex parte motions, usually requiring the victim to show evidence of a crime, mask the storm clouds gathering on the horizon.
Proposals could have forbid ex parte
MEP Thein's rejected proposals reworded several sections of the law to explicitly forbid these secret actions – actions that can be an asset recovery* professional's best friend.
In Recital J, for instance, wording providing that EOPAs "must be available where appropriate ex parte, with surprise effect," was removed. Thein also proposed changing Part 3, Recommendation 6 from "[t]he European Parliament is of the opinion that it is essential to be able to obtain an EOPA ex parte, that is, without initial notice being served on the party whose assets are concerned. The order should be available before, during, and after the main proceedings" to "[t]he European Parliament is of the opinion that an ex parte EOPA should not be possible. Such an order should not be possible until after an unappealable judgment has been delivered."
Parliament rejected all of Thein's proposed changes. Its final report states: "[t]he European Parliament is of the opinion that it is essential to be able to obtain an EOPA ex parte, that is, without initial notice being served on the party whose assets are concerned."
Weakening could have been concession to member nations
Some EU members forbid ex parte applications on freezing orders, and the proposed weakening of the EOPA could have been a concession to them. (While Switzerland’s laws are some of the most rigid in the world governing such orders, the country is not an EU member.)
Requests to discuss the amendments were not answered by Thein or her office.
"Whilst the proposed amendments to the report were rejected, [it is an] important point in asking why an MEP would propose such amendments in the first place," said Sion Richards, a partner in the London offices of international law firm Jones Day. "I think that the answer lies in some of the differences between the various European jurisdictions."
Still, in jurisdictions where such orders are allowed, the burden on the claimant is considerable.
Duties incumbent on UK freezing order applicants
Currently, when applying for a freezing order in the UK "[a]pplicants have a duty of full and frank disclosure (which requires them to highlight to the judge weaknesses in their case). Ex parte relief is generally only granted on an interim basis with a second hearing – at which the respondent can make submissions – deciding whether the interim relief should be continued and, if so, on what terms," Richards said.
"Moreover, applicants are generally required to provide an undertaking to the Court to compensate the respondent for any loss caused by the freezing of their assets if this is ultimately found to have been inappropriate, and can be asked to provide security in respect of this undertaking." Recommendation 12 of the European Parliament's Report on EOPAs proposes certain safeguards, but there is no specific reference to a duty of full an frand disclosure.
Often, working secretly is the only way to ensure any assets are left by the time they are located. The EP estimates are that about 60 percent of cross-border debt is never recovered, accounting for about £48 billion annually.
"Even with a duty of full and frank disclosure, there are clear potential issues about the right to a fair hearing," Richards said. "Moreover, the creation of such a remedy can significantly change the balance of power between debtors and creditors."
With the next iteration due out at the end of July, Richards said Thein and other legislators could "try to influence the legislation again at that stage.
"Hopefully they will not be successful."