The European Commission proposed new rules on Monday to make it easier for creditors to recover debts from debtors' bank accounts anywhere in the 27-country bloc. EU companies lose about 2.6 percent of turnover every year to unrecovered debts, according to the Commission, the EU's executive. About 60 percent of cross-border debt remains unrecovered every year, a total of 600 million euros ($860 million), it added.
The new rules, which still need to be approved by EU governments and the European Parliament, would help creditors to recover money lost in cross-border deals, said officials. Under the proposal, a creditor in one EU state would be able to use a single procedure to ask authorities in another country to block the funds in the debtor's bank account.
Ireland and the United Kingdom will not have to implement the legislation, unless they decide to at a later date, as both have opt-in clauses for issues regarding judicial matters under EU legislation. "I want to make recovering cross-border debts as easy as recovering debts domestically," European Justice Commissioner Viviane Reding said in a statement.
At the moment, a creditor owed money by a person in another country has to pursue the money through that country's legal system, a complicated and time-consuming task. The legislation would ultimately help not only small businesses that cannot afford to undertake the lengthy and costly process of retrieving funds, but also, for example, consumers who have money lost in cross-border transactions that have not been honoured, a growing category with online purchases.
It would also aid individuals recoup money owed to them in a private capacity, such as unmet child support payments. Under the Commission's proposal, national systems for blocking funds will remain in force in parallel with the proposed EU system. Sarah Garvey, lawyer at Allen & Overy, said the regulations would help claimants, though it would also increase the burden of red tape for banks and national governments in the EU.