The Debtor's Defence to the Freezing of his Bank Accounts (Defence to Conservative Seizure in the Hand of a Third Party)

legal insight    

September 2023

Christina Kapourani, M.Sc. (mult.), PgCert, Lt. 

Introduction: One of the most frequent means of securing the creditor of a monetary claim (whether it is a banking or general financial institution, a commercial enterprise or even an individual, and so on) is the imposition of a provisional seizure on the debtor's claims held by third parties (such as, for example, deposits in banking institutions, rents from a real estate lease agreement, the price from the sale of goods, and so on). Provisional seizure in the hands of a third party (like in the hands of the debtor himself) is a protective measure and is imposed not to satisfy the creditor (i.e. to collect his claim), but to prevent the debtor from being alienated from his assets until the creditor obtains a final enforceable title to initiate enforcement (i.e. execution for recovery). Provisional seizure in the above form, in addition to the case imposed following an injunction ordering it, may also be imposed by the creditor who has issued a payment order or a final court decision awarding the claim due (art. 724CCP). We will attempt, herewith, to examine briefly the debtor's means of defence when the provisional seizure against him in the hands of a third party is based on the last two titles mentioned above (order of payment and final judgment) and, as a result, it is imposed without prior proceedings.

I. Conditions for the imposition of a conservatory attachment (Article 724 of the CCP) in the hands of a third party: 

Article 724 of the Code of Civil Procedure states "The creditor may, on the basis of a final judgment as well as by an order for payment of monetary claims, request the registration of a mortgage lien and impose a conservative attachment in the hands of the debtor or a third party for an amount awarded in the judgment or specified to be paid by the order for payment". As regards, in particular, the method of enforcement of the conservative attachment of claims in the hands of a third party, it follows from Article 712 of the same Code that the valid enforcement of the attachment requires: (a) the service on the third party of the instrument evidencing the seized claim together with a check not to pay it to the debtor, but to proceed, in substance, to "freeze" it; and (b) the service on the debtor of a document stating the imposed conservative attachment within eight (8) days of service on the third party. The third party is obliged to submit a statement within eight (8) days of the enforcement informing the garnishee of the existence of the claim and the "freezing of the claim" (Art. 712(2) in conjunction with Art. 985(1) CCP). 

Directly, therefore, from the law follows (as an exceptional right) the right of the creditor to secure by imposing a conservative attachment without a prior court decision ordering it.  This, of course, if he has succeeded in: either: a) obtaining a payment order upon written proof of his claim (Example: A banking institution, after the termination of a loan agreement with a commercial enterprise, applies for and unilaterally obtains an enforceable title, proving the outstanding claim from its commercial books, i.e. the movements of the loan account, and with this title "freezes" the accounts of the enterprise one day after its issuance), or b) the issuance of a final judgment, following an action and a hearing in which the debtor will, as a rule, have been present (Example: A supplier maintains a claim for payment of a price from the sale of building materials against a construction company and, on the basis of unsigned delivery invoices, brings an action to claim it. The court of first instance issues a judgment on the latter, resolving the dispute and awarding the claim. The plaintiff, after the judgment has been issued, 'binds' the company's overdue claims under a project contract in the hands of the principal). It should be clarified, moreover, that the judgment that is issued and resolves ('intersects', as it is typically called) the dispute (and is not, e.g, suspensory or ordering proof), need not, according to the most correct position, oblige the debtor to pay (a judgment of set-off), but it is sufficient that it merely acknowledges the existence of the claim (see the judgment of the Court of First Instance of the European Communities, which is not a judgment of set-off). TREFAT 1970/2021, TPN IBA, TREFOD 118/2021, TPN Qualex, MEfPair 526/2020, TPN NOMOS).

Further, no prior notice to the debtor that the enforcement of the protective measure is to follow is required (as is the case, e.g., with the imposition of a forced attachment, which is legally initiated only after the service of a cheque and the waiting of three (3) working days - Art. 926 CCP). Especially in the case where the measure is based on a payment order (and therefore has not been preceded by a hearing, as is the case with a final judgment), the debtor may not even be aware that the contested instrument has been issued, since no prior service on him is necessary. Moreover, the enforcement of the provisional measure is not prevented either by the suspension of the enforceability of the instruments or by the suspension of the possibility of enforcement (see Article 632(2)(b) of the Convention). 3 of the CCP and Professor B. Chatziioannou, Autonomous Security Measures, p.  128, 130, 131). 

II. The remedies available to the debtor: 

The main remedies constituting the debtor's means of "defence" are provided for in Art. 2 and 702 of the Civil Code, which respectively provide for the following: "The court that issued the final judgment or the payment order may, upon application by the party against whom the judgment or payment order is directed and in accordance with the procedure provided for in Article 702 para. 1, may suspend in whole or in part the enforcement of the interim measures referred to in paragraph 1. 1, if it is probable that the claim in respect of which the final judgment or order for payment has been issued will be paid or will not exist, in whole or in part, or to limit enforcement to certain assets if it is probable that these assets are sufficient to secure the claim", "Disputes concerning the enforcement of a judgment ordering provisional measures or revoking in whole or in part a judgment in respect thereof shall be heard by the court which issued the judgment and the provisions of Art. 686 et seq. shall apply", "Disputes concerning the enforcement of a judgment ordering provisional measures or revoking in whole or in part a judgment in respect thereof shall be heard by the court which issued the judgment and the provisions of Art. 686 et seq. shall apply". - i.e. the provisions of the procedure for interim measures. It should be clarified that despite the legislator's use of the term "suspension of the measure" in Art. 2, the protective scope of this does not only include cases where the enforcement of the measure is pending, but also those in which it has been completed (because, otherwise, the debtor who had no knowledge of the issuance would be left unprotected, e.g, In such a case, the debtor would not have been aware of the fact that, for example, a payment order and the freezing of his assets by it - see in this respect also no. In this regard, see also, in this regard, see also M.B.R.A.T. 6718/2008 and T.R.E.F.A.T. 2226/2020, TPN Qualex, according to which " {...} given that the suspension of enforcement is conceivable if it has not been completed by the imposition of a conservative attachment, while after its imposition the question of its revocation arises, with the consequence that the term "suspension" of the protective measure of conservative attachment used in the provision of Art.724 par. 2 has the meaning of revocation of the protective measure').

Thus, the debtor, both before the measure is imposed (preventive protection) and after it (repressive protection), has at his disposal judicial means of "defence" aimed at either (a) suspending the status of the title as a means for the imposition of a conservative attachment, i.e. "freezing" the title as regards the imposition of provisional measures (if its existence is known), or (b) revoking the attachment in whole or in part (with the limitation, e.g, (b) or by replacing the attachment by a guarantee under Article 4(1)(b), or by imposing the attachment in whole or in part (e.g. by limiting the attachment to certain assets of the debtor or by replacing it by a guarantee under Article 4(1)(b)(c)). 705 CCC) or, in any case, the annulment of the enforcement procedure of the title due to formal defects; suspension and revocation may also be applicable when the request is made to simultaneously lift the imposed conservative attachment (because the claim, for example, has been extinguished) and to weaken the title for the future, so that the same title cannot support another conservative attachment on other assets of the debtor.

i) The application for revocation/suspension of Art. 2 CCC and the individual grounds for the relief. These are: 

a) The payment or non-existence of the claim: the claim is paid when it has been paid off in the ways prescribed by law and this can be proven to the satisfaction of the court {forms of payment are: mainly the payment by the debtor himself under Art. 416 CC, payment by a third party following an internal agreement with the debtor pursuant to Art. 417 CC, instalment in lieu of payment pursuant to Art. 419 CC (agreement, e.g, whereby a commercial claim is settled by the transfer of real estate instead of payment in cash), public deposit under Article 427 CC, where the creditor refuses to receive his claim without justification, and so on.} The claim is non-existent when it is time-barred after the debtor has lodged the relevant objection (cf. See also TrEfDod 118/2021, Qualex TPN, according to which "An overstated claim must also be equated with a non-existent claim if the limitation period is invoked by the debtor"), when, before the measure was imposed, another debtor has assumed the payment of the claim by means of a debt assumption agreement with the discharge of the defendant of the conservative seizure (see TFEU 118/2021, Qualex TPN, in which "the claim is also equated with a non-existent claim if the limitation period is invoked by the debtor"). (see also TFEU 69/2021) or where a prior enforcement order for the collection of the debt has been cancelled (see also TFEU 69/2021). and TrEfAth 2226/2020, Qualex TPN in which "In view of these after the final annulment of the execution accelerated by the Fund {....} against {.... } to satisfy the claim of the defendants against the SA and the obligation of the latter to reimburse {......} the aforementioned amount to {......}, it is presumed that the claim of the defendants against {......} is non-existent, as the latter collected their fees from the District on their behalf, but in the context of a final annulled execution and annulment of the payment order in suit, in respect of which the relevant proceedings are pending before this court". 

(b) The extent of the conservative attachment to assets that exceed the claim (ground for limitation): A classic case of partial revocation of a conservative attachment in favour of a third party is the extension of the attachment to assets that exceed the claim (indiscriminate 'freezing', for example, of all the debtor's bank accounts at all banking institutions, whereas the attachment of only one or two of them was sufficient to cover the claim). Indeed, the basic principle of injunctions, which is also reflected in the law (Art. 692(3)), is to impose as few restrictions as possible and, therefore, the least possible interference with the debtor's property when the creditor's claim is not at risk (cf. and TREFAT 261/2021, TPN LAW, limiting the seizure to individual bank accounts from those originally frozen). However, the criterion for limitation may be not only the overcollateralization of the claim but also the risk of "financial suffocation" of the debtor, especially when the latter is a commercial enterprise. Thus, in Trimmefath 1970/2021, TPN Isokratis, although the creditor's claim was found to be valid, a limitation of the conservative attachment imposed in the hands of banks was ordered in order to maintain the operation of the business (according to the said decision " {....} the conservative attachment imposed, as mentioned above, on all the aforementioned accounts of the applicant up to the amount of 895. 309,60, is likely to paralyse the applicant's business and effectively lead to its closure, given that the collection of its claims and the payment of its arrears is made through the above-mentioned bank accounts, on which a conservative attachment was imposed and the balance of which was frozen, i.e. it exceeds the measure appropriate and necessary to safeguard the defendant's right. For that reason, the application being granted and the application being in part well-founded, the validity of the declaratory judgment of the Athens Court of First Instance No 3577/2020 should be partially suspended as the instrument for the independent imposition of the conservatory attachment and the conservatory attachment of the bank accounts No 3577/2020 should be revoked. {..., ...} and {...} accounts maintained by the applicant with ETHNIKI BANK, as well as the imposed conservative attachment on the applicant's account No GR {...} with ALPHA BANK for the amount in excess of 500,000 euros and maintains the conservative attachment on this account up to the amount of 500,000 euros'.

(c) The lack of risk of satisfaction of the creditor's claim for which the measure was imposed:  Despite the lack of reference as a reason for revocation in the law (Art. 724(2)), perhaps the most basic principle in the law of provisional measures is the existence of a risk to the secured claim (Art. 682(1) CCP). If such a risk does not exist for the creditor, then the conservative attachment imposed must be revoked, because the creditor will be able to be satisfied when his claim becomes final. Thus, where the creditor is adequately secured by collateral and personal guarantees, the debtor has an active and profitable business activity, has no other debts to public and social security funds, has not made bad faith efforts to sell his assets to the detriment of the creditor, and so on, then the freezing of accounts and other claims in favour of third parties is not justified. This was also held by MEFATH 300/2019, TPN NOMOS, wherein "It is further presumed that in the present case there is no case of imminent danger or urgency that justifies the imposition of the above protective measure of conservatory attachment imposed by the respondent by virtue of the above final judgment, as the applicant validly claims in the second ground of the application under appeal. In particular, it is presumed that the applicant is a company that continues to operate professionally, maintains bank accounts in three banks that exceed the defendant's claim and has not taken any action to divest itself of its assets in order to render any enforcement action against it ineffective. Furthermore, the fact that, when it received the first products ordered from the defendant, the applicant, as the defendant itself acknowledges, paid the price of those products immediately, in compliance with its contractual obligation under the sales contract concluded by the parties, demonstrates the solvency of the defendant in its commercial transactions, and it is not likely that it has any other outstanding debts to third parties'.

ii) The objections raised by the debtor against the procedure for the enforcement of the protective measure (in this case, the conservative attachment in the hands of a third party), which are in essence the defects concerning the enforcement of the measure and the validity of the enforcement order, may be raised by means of the objection under Art. 702 CCP (which is in fact a more specific opposition to enforcement under Art, violation of the provisions on service (for example, late service of the conservatory attachment on the debtor and, as a result, its invalidity, vagueness of the attachment to the third party and incomplete description of the legal relationship from which the seized claim derives, and so on). With regard to the enforcement order (and in particular the order for payment issued without the debtor being heard), the validity of the order is affected by the grounds for its validity, such as, for example, failure to serve it within two months, the issuing of an order without written proof of the claim or for a claim that is not yet certain and settled, according to the prevailing position in our jurisprudence, are reasons that do not affect the actual existence of the claim (i.e. the non-existent title does not mean a non-existent claim) and, therefore, do not justify the suspension of Art. 724, but only the present appeal. More correct, however, is the opposite position with little resonance in case law (cf. for example, MPPir 1039/2016, in which the non-existence of a claim was presumed in the absence of the validity of the title of the payment order, which was issued for a claim that was not certain and settled) since it is extremely unfavourable for the debtor to accept the imposition of measures with a title that subsequently, after its annulment, has proved to be powerless and incapable of supporting the further satisfaction of the secured claim by means of enforcement (which, after all, is what the measure was intended to ensure! ). Such an opposition, unlike the application for revocation/suspension, which is untimely, is filed within forty-five (45) days of the imposition of the attachment and, usually, is cumulated with the application under Art. 2.

(iii) The main remedies or remedies against the titles for the imposition of a conservatory attachment: the above remedies are exercised independently and do not affect the main proceedings for the annulment of the payment order (by means of an opposition under Article 632 or 633 of the CCP, as well as the subsequent transfer of the dispute to the Court of Appeal or the Supreme Court) or for the disappearance of the final judgment, following an appeal (or an appeal for errors of the Court of Appeal). In particular, the decision on the application under Art. 2, in which the probable non-existence, extinction or payment of the claim is adjudicated, is a decision that is provisionally valid and does not affect the main case as regards the monetary claim, since the application for suspension/revocation does not depend on any remedy or remedy against the title or claim. Therefore, the court, by granting suspension or revocation to the applicant, grants interim judicial protection. And the annulment of the execution of the measure, following the acceptance of the objection under Art. 702, requires, at the very least, the issuance of a final judgment.

(iv) Provisional judicial protection in the form of an interim order: Under both of the above remedies, an interim order under Art. 691 CCP may also be granted pending a decision on the application/objection. The latter may suspend the status of the title as an instrument for the imposition of a conservatory attachment, provided that the measure has not yet been imposed (cf. See also the order of 22.1.2022 of the Arta Single Judge Court of First Instance, unpublished, which suspended the possibility of imposing a conservatory attachment by the contested payment order, inter alia, on certain accounts of a commercial company until the application is discussed). However, even if the conservative attachment has been completed, as mentioned above, there is a ground for protection of the defendant who can apply for an interim order prohibiting the third party from filing a statement (if there is still an 8-day time limit in this respect), thus suspending further proceedings for the enforcement of the measure. In addition, even after a declaration has been made, an interim order may prohibit the re-freezing of amounts credited, for example, to the debtor's accounts. It is difficult to lift the conservative attachment in its entirety by means of the 'fast-track' procedure of an interim order, as is also indicated by the lack of a relevant case-law precedent.