GERMANY LAW AND PRACTICE Contributed by: Wolfram H Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
Gewinnabführungsvertrag ) in place between the stock company and the financially assisted company, the prohibition on financial assistance does not apply. On the other hand, a transaction carried out in violation of the financial assistance rules is void. As a corporate benefit rule, managing directors are legally obliged to act as prudent business people vis-à-vis their company. In upstream or cross-stream loans within a group, there is an obligation on the lending entity to take security if there is a credit risk in relation to the borrowing entity. Furthermore, the German Code of Cor - porate Governance applies to members of the managing board and the supervisory board of German listed stock companies. An infringement of corporate benefit rules does not lead to the invalidity of a transaction, but to the possible liability of the directors, managing board, and/ or supervisory board. In addition, other rules deriving from corporate and insolvency law apply, including rules relating to capital maintenance, restrictions on transac - tions between a company and its affiliates other than its own subsidiaries, and provisions relating to transactions that disadvantage creditors and have been entered into within a certain period before the commencement of insolvency pro - ceedings. 3.6 Formalities When a Borrower Is in Default In addition to contractually agreed prerequisites for the enforcement of security, such as serving an enforcement notice to the security grantor and the borrower, and giving the chance of heal - ing the default, additional statutory requirements apply to the enforcement of a land charge/mort - gage. It must be terminated with a mandatory six months’ notice period and the enforceable
copy of the land charge/mortgage deed must be officially served to the property owner. Only once this has been done can enforcement pro - ceedings via forced administration and/or forced auction commence. A forced auction procedure takes a minimum of several months; in some cases it can take more than one year. Additional steps to give priority to a lender’s security interest are not required. No new restrictions on a lender’s ability to enforce security have been implemented as a response to the COVID-19 pandemic. Although the percentage of non-performing loans has multiplied within the last year, and preparations for enforcement of real estate secu - rities are underway in some cases, a significant number of actual enforcements has not been initiated. Lenders largely still tend to agree on a standstill and issue waivers or reservation of rights letters. 3.7 Subordinating Existing Debt to Newly Created Debt Existing secured debt can be subordinated both by agreement and by law. A creditor can agree to subordinate its exist - ing debt to that of another creditor by means of a subordination agreement or an intercredi - tor agreement. If the existing debt is secured by a land charge/mortgage and such land charge/ mortgage will be subordinated to a newly cre - ated land charge/mortgage, registration of such subordination is required in the land registry in order for it to become effective. Shareholder loans and other arrangements equivalent to shareholder loans are subordinated to the claims of all other creditors by law, except:
281 CHAMBERS.COM
Powered by FlippingBook