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Brussels plans asset freeze for bad payers
EU Justice Commissioner Viviane Reding says we need to do more to support small companies that engage in cross-border trade by introducing a European order to freeze the bank accounts of bad payers across borders.
The European Commission estimates that 63% of cross-border debt is not recovered, mainly due to bureaucratic obstacles and legal uncertainty. Overall, the debt written off by EU business amounts to €55 billion a year, according to an internal paper by the EU executive.
However, procedures to recover domestic debt vary widely from one country to another. Legal certainty is therefore not always guaranteed for cross-border claims, since creditors may face completely different legal systems and rules.
"I want to make the recovery of cross-border debts as easy as recovering debts domestically. Trust is the currency of our single market," Commissioner Reding told EurActiv in an emailed statement.
A European order to freeze bank accounts may serve this purpose. It would introduce a simple common procedure allowing creditors across the EU to block a foreign bank account owned by a long-term debtor.
The measure is seen as an important tool to boost cross-border business activities within the single market. A survey carried out by the Commission in summer 2010 revealed that about 70% of companies interviewed considered that problems recovering debt in another country constitute an obstacle to engaging in cross-border activities.
A simple freezing order may reassure companies and eliminate a powerful deterrent from operating abroad, thus boosting the EU single market.
A proposal in this direction is listed under Commissioner Reding's top priorities for 2011 and the proposals indicate that there is likely to call for partial seizure of bank accounts.
"I would expect that the Commission could come forward with concrete proposals in this field in the first half of 2011," Martin Selmayr, the head of Viviane Reding's cabinet, told a panel of experts recently.
In a working paper, the Commission says that limiting the attachment to a maximum amount was the favoured option in most of the replies to the Green Paper on bank account attachments.
Banks are the main opponents of this plan because they fear they will be forced to bear the cost of monitoring and eventually blocking the accounts of clients hit by a freezing order.
To allay their concerns, the Commission is thinking of making debtors themselves pay for the extra cost. The maximum amount to be frozen "should include the amount of the claim, the legal fees and any interest. To simplify matters, the amount of the claim could be increased by a fixed percentage to cover costs and interest," reads the Commission document.
Viviane Reding's future proposals are part of a wider Commission plan to improve market conditions for small and medium-sized enterprises in the EU.
25th February 2011