GERMANY Law and Practice Contributed by: Michael Josenhans, Lucas Lengersdorf and Beatrice Zobel, Freshfields
7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes
If the EU regulation is not applicable but the funda - mental criteria for recognition (or rejection) are gov - erned by an international treaty, German courts will apply those criteria. In all other cases, the foreign judgment must be both final and binding. According to Section 328 of the Code of Civil Procedure (ZPO), a foreign judgment will be acknowledged in Germany if no grounds for rejection are applicable. The party seeking recognition bears the responsibility of proving that the elements required for recognition are present. 6.4 A Foreign Private Credit Lender’s Ability to Enforce Its Rights A foreign lender can generally enforce its rights in the same way as a domestic lender. 6.5 Timing and Cost of Enforcement An enforcement process of German collateral usually takes between two and twelve months. The timing and cost of enforcement are determined by the respective enforcement process and the type of security, as out - lined in 6.1 Enforcement of Collateral by Non-Bank Secured Lenders . Generally, enforcement processes involving courts, public auctioneers or authorities are more costly and time-consuming. Therefore, the enforcement of account pledges and security assign - ments over claims is typically the most time and cost- effective option. 6.6 Practical Considerations/Limitations on Enforcement As mentioned in 5.3 Downstream, Upstream and Cross-Stream Guarantees there are some limitations on enforcement pursuant to German capital mainte - nance rules. As a consequence, so-called limitation language in the financing documentation must be included in these cases (see also 5.4 Restrictions on the Target ). In addition, when accelerating secured obligations, lenders need to enter into stand-still agreements with borrower’s management to avoid triggering any per - sonal liability for management due to non-compliance with mandatory insolvency filing requirements.
The German Insolvency Code ( Insolvenzordnung - InsO) contains the statutory framework for the initia - tion, process and termination of insolvency proceed - ings. The court order opening insolvency proceedings cus - tomarily imposes an automatic stay on any enforce - ment actions by unsecured creditors against the com - pany. Unsecured creditors can only enforce their rights within the legal framework of insolvency proceedings – ie, substantially filing their claims to the insolvency table with the insolvency officeholder to receive the insolvency dividend (pro rata payment). In practice, the court often imposes such a stay even prior to the formal commencement of insolvency proceedings in so-called preliminary insolvency proceedings. The InsO does not impose an automatic stay on the enforcement by third parties/certain (secured) credi - tors. Generally speaking, the following rules apply. • Third parties who can demonstrate that they have ownership (title) in an asset or similar rights in rem or other absolute rights which, therefore, are not part of the insolvency estate (segregation right, Aussonderungsrecht ) have a claim for restitution of the relevant asset – eg, suppliers with (simple) reservation of title rights ( einfacher Eigentumsvor- behalt ). • Creditors with security interests in assets forming part of the insolvency estate have a right to sepa - rate satisfaction ( Absonderungsrecht ) – ie, they may seek preferential satisfaction of their claims from the proceeds of the liquidation of the relevant asset. The InsO provides for specific rules regard - ing the responsibility for and processing of the enforcement of such security interests. 7.2 Waterfall of Payments The proceeds realised by the insolvency officeholder (note the exceptions under 7.1 Impact of Insolvency Processes ) will generally be distributed to the credi - tors pursuant to the following waterfall:
67 CHAMBERS.COM
Powered by FlippingBook