Legal Report: CJEU Clarifies Enforcement Issues

Overview

On 11 November 2021, the Court of Justice of the European Union (“CJEU”) Bank Sepah v. Overseas Financial Limited & Oaktree Finance Limited, creditors of authorized entities may apply enforcement measures (e.g. garnish orders) without prior authorization from the national competent authority in relation to frozen funds or economic resources in the context of EU common law. clarified that it is precluded from doing so. A foreign and security policy that establishes the right of preferential payment in relation to other creditors.

Background

In April 2007, the Paris Court of Appeal (the “Court of Appeal”) awarded Bank Sepah (the “Bank”) to Overseas Financial Limited and Oaktree Finance Limited (collectively, the “Creditors”) approximately EUR 1.8 million and EUR 1.1. ordered the payment of $1,000,000 each, interest at the statutory rate from the date of the judgment of the Court of Appeal.

Creditors shall, following the receipt of partial payments of such amounts until 2011, by the French Minister of Economy (“Ministers”) for the respective outstanding amounts due to creditors in accordance with the Council Regulations (EC). requested to approve the release of No 423/2007 (the “Regulations”), as subsequently amended, imposed sanctions on banks.

This request was rejected by the Minister, and the creditors subsequently asked the competent courts of Paris to revoke the Minister’s decision. However, the relevant courts also dismissed the creditors’ claims.

In May 2016, creditors requested another tribunal, this time the District Court of Paris (“District Court”), to authorize the issuance of enforcement actions (e.g. garnish orders) on a number of the bank’s assets. In January 2017, the District Court agreed to the creditors’ demands and authorized the issuance of related enforcement actions.

The Bank has challenged the District Court’s decision to issue the relevant enforcement action on the following grounds: Among other things, The case prevented the payment of an outstanding debt to a creditor. force majeure, That is, the result of the EU sanctioning the bank under the regulation, and then freezing its assets.

During the course of the litigation, two basic issues were raised in the French courts. The first issue is that the relevant provisions of the Regulation do not allow enforcement measures without marker effect (such as judicial lien or preventive seizure) to be applied to frozen food without prior authorization from the national competent authority. The question was whether it should be construed as precluding it from being enforced. Bank property. The second question, then, was whether the basis for the creditor’s claims was independent of the scope of the Regulation (ie, Iran’s nuclear and ballistic programs) and relevant to the answer to the first question. regulation.

CJEU Considerations

With respect to the first question mentioned, the CJEU shall regulate all funds and economic resources belonging to, owned, held or controlled by persons, entities and entities listed in Annex IV of the Regulation. I started by mentioning that the banks) were frozen.

We then delved into the meaning of the concepts of “freeze funds” and “freeze economic resources” for the purpose of the rule. Noting that the regulation defines such a concept very broadly, the CJEU explained that the concept of “freeze funds” includes any use of the resulting funds. Among other things, change the destination of those funds (including in the circumstances of the case under consideration, where the enforcement action establishes a priority for the creditor to be paid over other creditors of the bank), or permit using frozen economic resources to obtain funds, goods or services; even if the use of such funds is ineffective in depleting the assets of the debtor’s estate.

He further pointed out that the definition of the concept of “freeze of economic resources” clearly captures the encumbrance of such economic resources, and that this measure would not have the effect of removing assets from the debtor’s estate.

In its consideration of this issue, the CJEU also made it sufficiently clear that a definition of the concept was not only justified but essential to ensure that the purpose of the regulation was achieved. also mentioned the opinion of The meanings of “freeze funds” and “freeze economic resources” are broadly interpreted. In the Attorney General’s eyes, this would help prohibit evasion of imposed sanctions and exploitation of weaknesses in the sanctions framework.

As far as the second question referred to is concerned, the CJEU believes that the concepts of “freezing of funds” and “freezing of economic resources” make no distinction with respect to the basis of claims brought in court against licensed entities. I pointed out that I didn’t. According to the CJEU, the rule is admissible on the grounds that the basis for such claims is deemed irrelevant to the scope of the rule (i.e., Iran’s nuclear and ballistic programs) and/or on the basis that: I didn’t mention the situation. They predate the entry into force of the restrictive measures.

In conclusion on this point, the CJEU notes the importance of the objective pursued by the regulation, namely, the importance of establishing a system of restrictive measures that impose negative consequences on designated operators, even if they are of a substantive nature. repeated sex. We do not take any responsibility for the circumstances leading to the adoption of the measures in question.

CJEU Judgment

In light of the above considerations, the CJEU ruled that: (ii) the grounds of the creditor’s claim, even if such action does not have the effect of depleting the assets of the debtor’s estate; is irrelevant to the scope of the Regulation (i.e. Iran’s nuclear and ballistic programs) and occurred prior to the Regulation’s entry into force. does not matter.

Luigi Farrugia is an advocate for Ganado Advocates.