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Germany

Security interest law in Germany

Table of contents
  1. Guarantees
  2. Security
  3. Perfection
  4. Enforcement
Germany

Guarantees

1. Can an intercompany guarantee be granted? 

1.1 Upstream? 

Yes, but subject to limitation issues (cf. Q3).

1.2 Downstream?

Yes

1.3 Lateral?

Yes, but subject to limitation issues (cf. Q3).

2. Can a guarantee be given under foreign law (e.g. English law)?

Yes, but such choice of law might be considered not valid if there is no foreign link at all.

3. Any special arrangements (e.g. to deal with transfer pricing/corporate benefit)?

In particular with respect to corporations (AG, GmbH) statutory capital maintenance rules need to be taken into account and are often subject to “limitation language”.

Security

4. Can a security interest be granted in the following type of asset?

4.1 Real property

Yes

4.2 Shares (privately held)

Yes

4.3 Shares (marketable securities)

Yes

4.4 Receivables 

Yes

4.5 Bank account

Yes

4.6 IP/Trademark

Yes

4.7 Equipment/Plant/Machinery

Yes

4.8 Inventory

Yes

4.9 Insurance 

Yes

4.10 Rights under a contract

Yes

5. Can security interests be granted to a foreign lender?

Yes

6. Can multiple security interests be granted over the same asset?

Depending on type of security: In case of e.g. pledges and land charges several security rights with different rank/priority can be created, while security transfers of receivables or movable assets can be only created in favour of one transferee/to a group of transferees with the same rank at the same time.

7. Can a security interest be granted to secure liabilities of a holding company, a subsidiary or any other affiliate? 

Yes

Perfection

8. In order to be enforceable against third parties, must a security interest be?

8.1 Notarised?

Generally no, however notarisation required in case of e.g. land charges and GmbH share pledges.

8.2 Registered?

Generally no, however registration required in case of e.g.land charges and certain IP rights.

8.3 Other? 

Notifications: A notice of pledge is necessary to perfect a pledge and a notice of assignment is im-portant to avoid defences of the debtor to the ef-fect that he had not been aware of the assignment.

9. Does registration in most cases protect the secured creditor against the debtor’s subsequent dealings with the secured asset? 

Yes

10. Is there any stamp or similar tax or duty payable on the security document?

No

Enforcement

11. For a security interest to be legally enforceable which items must be filed as part of the registration or notarisation process?

11.1 Entire security agreement?

Generally no filing requirements, except e.g. in case of land charges or security over certain IP-rights

11.2 Names of pledgor and pledgee?

Cf. Q 11.1

11.3 Description of secured asset in general terms?

Cf. Q 11.1

11.4 Description of each individual secured asset? 

Cf. Q 11.1

11.5 Documents concerning ownership of secured asset?

Cf. Q 11.1

11.6 Documents concerning debt in respect of which the asset is being secured? 

Cf. Q 11.1

12. Can a right to enforce security arise:

12.1 When the secured debt is unpaid and due?

Yes

12.2 When there is some other breach of the pledge/security agreement? 

Yes, provided that pledges can only be enforced for due but unpaid monetary claims (i.e. following acceleration).

12.3 When the debtor becomes insolvent?

Yes

13. Can the creditor enforce its security interest by taking possession of the asset and selling it without court assistance?

Generally no, exceptions in certain cases if a commonly the case in connection with share pledges and land charges the debtor as (notarially) submitted itself to “immediate forced execution”).

14. Is an instrument for direct enforcement necessary/available/market practice?

Immediate enforcement in certain exceptions possible (see also Q13).

15. Are powers of attorney to the secured party used to facilitate a sale of secured assets in an enforcement situation?

Generally no, since under German law powers of attorney can be revoked at any time and will automatically terminate in an insolvency.

16. If a sale is permitted without court assistance does it have to be made by public auction?

Generally not possible, under German law enforcement will in most cases require court proceedings.

17. Can a transfer of all or part of the debt be made without affecting the security over the assets?

Depending on type of security: While accessory securities (such as e.g. pledges) will automatically be transferred together with the secured debt non-accessory securities (such as e.g. land charges) will need to be transferred by a separate agreement.

18. Is there anything else of which a lender should be aware as unusual or particularly difficult?

No