GERMANY Law and Practice Contributed by: Konrad Schott, Jan Brinkmann and Johannes Vogel, Freshfields
3.1.3 Granting of Security to Foreign Lenders Borrowers may grant security to foreign lenders. Depending on the legal form of the corporate bor - rower, certain statutory restrictions exist if the lender is a direct or indirect affiliate or if security is granted for the liabilities of an affiliated person (upstream or side- stream collateral). The details depend on the specific corporate set-up. 3.1.4 Downstream, Upstream and Cross-Stream Guarantees In the case of a German limited liability company ( Gesellschaft mit beschränkter Haftung , GmbH) an upstream and/or cross-stream guarantee can expose its directors to personal civil liability unless it is ensured that the assets required for maintaining the registered capital are not distributed to or for the benefit of the GmbH’s direct or indirect shareholders or any of their respective subsidiaries. The same test applies to the general partner of a limited liability partnership (GmbH & Co. KG). Even stricter restrictions exist for German stock corporations ( Aktiengesellschaften ) and Soci - etates Europaea (established under German law). 3.1.5 Lenders’ Share in Security Over Domestic SPVs It would be usual in aviation finance transactions for a lender to take share security over a domestic spe - cial purpose vehicle which owns the aircraft. German law generally recognises share pledge agreements. Share pledges over German limited liability companies require notarisation with relatively high notarial fees. 3.1.6 Negative Pledges A negative pledge obliging the pledgor not to grant security to a third party is generally recognised as an obligatory arrangement but would not restrict the grantor’s ability to dispose of its assets. 3.1.7 Intercreditor Arrangements There is no material restriction or requirement imposed on intercreditor arrangements. Creditors can be con - sidered to form a civil law partnership with regard to any collateral held jointly in Germany or if the inter - creditor arrangements are governed by German law.
3.1.8 Syndicated Loans Syndication is generally permissible under German law. The role of an agent (such as the facility agent) under a syndicated loan is generally recognised in Germany and well established in the German lending market, including the aviation finance market. 3.1.9 Debt Subordination Generally, debt can be or become subordinated by means of a contractual subordination or a structural subordination as well as by operation of law (eg, in the case of a shareholder loan). 3.1.10 Transfer/Assignment of Debts Under Foreign Laws The concept of transfer and assumption of contracts (including the debt) is generally recognised in Ger - many. Certain implications of the Rome I Regulation may require specific attention. 3.1.11 Usury/Interest Limitation Laws Pursuant to the German Civil Code ( Bürgerliches Gesetzbuch ), usury is prohibited, and any agreement providing usurious consideration is void ab initio. Compound interest cannot be validly agreed upon in advance under German law. 3.2 Security 3.2.1 Typical Forms of Security and Recourse Typical forms of security and recourse granted in a domestic aviation finance transaction would be an aircraft mortgage, a security assignment (regard - ing rent payments, other lessor rights under a lease agreement, insurance proceeds, requisition and total loss proceeds), a share pledge, an account pledge, a parent company guarantee, cross-collateralisa - tion arrangements, airframe and engine warranties arrangements, a security deposit and a deregistra - tion power of attorney. The selection and details of the security instruments employed depend on the specific transaction structure and the parties involved. 3.2.2 Types of Security Not Available If the aircraft is registered in the German aircraft reg - ister ( Luftfahrzeugrolle ), no private law in rem secu - rity can be taken over the aircraft other than a Ger - man aircraft mortgage and a security transfer of title ( Sicherungsübereignung ).
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