Attachment Orders: A Challenge for Banks and Insurers

As custodians of their clients’ assets, banks are increasingly confronted with attachment orders. Whether enforcement-related or precautionary, these measures require financial institutions to act swiftly and carefully. Any mistake can have serious consequences for them.

One of a banker’s primary responsibilities is to hold and safeguard clients’ assets, including funds held in bank accounts, securities and shares. However, in certain circumstances, a third party may intervene in this relationship, placing the banker in a delicate position.

“A creditor of a bank’s client may, on the basis of a court judgment or another supporting document (such as an invoice), seek payment of the amount owed or request that the client’s assets be frozen as security for the debt.

The financial sector professional then finds themselves caught between the creditor and the debtor, who is also their client. These attachment proceedings can have significant liability implications for the bank, even though it is not a party to the underlying dispute between the creditor and its client,” explains Nicolas Thieltgen, Partner at Brucher Thieltgen & Partners.

The Key Principles? Speed and Caution!

Banks are most commonly confronted with civil third-party attachment proceedings (saisie-arrêt) initiated by a creditor of one of their clients. The creditor seeks to recover the outstanding debt from assets deposited in the client’s bank account.

This type of attachment involves two stages:

During the first, precautionary stage, no court judgment has yet been issued. Nevertheless, the creditor may request that the debtor’s funds and assets be frozen pending a judicial decision, which may be delivered in the near or more distant future. The precautionary stage of the attachment targets the client’s claim against the bank for the return of the assets held in their account. In other words, the bank must freeze the assets held in the account on the date of the attachment, and the client can no longer freely dispose of those assets. “As soon as the judicial attachment order has been served, the bank must carefully examine the request and ensure that it freezes the assets belonging to the client concerned, rather than, for example, those belonging to the client’s company. The bank cannot afford to make mistakes, as doing so could expose it to liability and potentially require it to reimburse funds that were mistakenly released.” Financial institutions must also remain particularly vigilant regarding their banking secrecy obligations. Except in specific circumstances, they are not permitted to disclose to the creditor whether the debtor actually holds an account with the bank.

The second stage is the enforcement phase of the attachment proceedings. At this stage, a final court judgment, no longer subject to appeal, has been issued, establishing the existence of the debt and authorising the creditor to recover the amount owed from the debtor’s assets held by the bank. A bailiff then approaches the bank on behalf of the creditor to enforce the judgment. “The bank must ensure that the judgment is final and enforceable in Luxembourg. It must then freeze the relevant assets as at the date of the attachment, particularly to avoid exposure to market fluctuations where shares are concerned. These procedures therefore require both urgency and diligence.”

Operating according to similar principles, the European Account Preservation Order applies in a European cross-border context. “For example, if a judgment is issued in Belgium and the creditor believes that the debtor holds bank accounts in Luxembourg, the creditor may submit an application to the competent Belgian courts. The relevant judicial authorities will then notify the bank of the decision. If the identity of the bank is unknown, the creditor may contact the information authority of the Member State of enforcement (the CSSF in Luxembourg) to determine whether accounts exist and with which banks they are held. This procedure relies on effective communication between European judicial authorities.”

Finally, criminal asset seizures apply where a criminal judicial authority, such as an investigating judge, considers that funds derived from a criminal offence must be frozen. The bank and/or the suspected individual are promptly notified of such measures.

Insurance: A Particular Challenge

Unlike banks, insurers do not directly manage bank accounts holding securities and shares. Nevertheless, they may also be affected by attachment proceedings.

“The main difficulty is that there are no funds as such to be frozen.

It is only possible to attach the claims arising from a life insurance contract, either upon its maturity or in the event of surrender.

This can give rise to particularly complex technical and legal questions.”

Addressing Both Legal and Operational Aspects

Although attachment proceedings have always existed, banks are increasingly confronted with them.

“Ten or twenty years ago, we observed fewer disputes. The number of attachment proceedings has increased as society has evolved.

Few banks are fully equipped to handle these situations, even though the stakes are considerable.

The challenge for financial institutions is to strike the right balance between their legal obligations towards creditors and their duty of loyalty towards their clients.”

Faced with these complex situations, banks frequently turn to law firms for guidance.

“They have numerous questions. Thanks to our thorough understanding of the applicable procedures, as well as banking operations and financial products, we are able to advise them, explain the consequences of attachment proceedings and guide them towards the most appropriate course of action.”