GERMANY Law and Practice Contributed by: Michael Josenhans, Lucas Lengersdorf and Karl Kuhn, Freshfields
5.5 Other Restrictions The articles of association of entities to be pledged sometimes include provisions requiring the approval of all shareholders for pledges and/ or a sale of any shares ( Vinkulierungsklausel ). In such cases, shareholder consent for the pledge and for a potential future enforcement of such a pledge should be obtained. Ideally, the deletion of such provision is requested and implemented prior to, or at least shortly after, the execution of the pledge agreement. Other restrictions, such as pre-emption or redemption rights are less common but could be included in the articles of association. German insolvency law provides for certain hardening periods which would especially need to be considered in release-and-retake scenari - os and distressed financings. For further details see 7.5 Risk Areas for Lenders . 5.6 Release of Typical Forms of Security All types of security mentioned in 5.1 Assets and Forms of Security can be released by way of a release agreement, which can be executed by simple signature (ie, no notarisation is required in respect of the notarised security rights). The release of a land charge/mortgage needs to be entered into the land registry in order to become effective. All other security rights cease to exist at the time agreed in the release agree - ment. The release of the pledges and assign - ments is usually (but need not be) notified to the relevant debtors (if they have also been notified of the pledge or assignment). 5.7 Rules Governing the Priority of Competing Security Interests and/or Claims Certain security interests (in particular, security transfers of movable assets and assignments of
limiting enforcements of upstream and cross- stream security in such cases. 5.4 Restrictions on the Target The granting of guarantees, securities or finan - cial assistance is not generally prohibited under German law but is subject to certain restrictions, depending on the legal form of the target, to the extent that it qualifies as a payment to the share - holders of the target. Restrictions for Limited Liability Companies and Limited Partnerships and Stock Corporations If the target is one of the mentioned corporate forms, the granting of security or guarantees is subject to the restrictions set out in 5.3 Down- stream, Upstream and Cross-Stream Guaran- tees . Solutions There is no white-wash procedure in Germany, though the following procedures are – subject to certain requirements being met – usually implemented to avoid the legal consequences potentially arising from a breach of capital main - tenance rules: • inclusion of so-called limitation language in the financing documentation (see 5.3 Down- stream, Upstream and Cross-Stream Guar- antees ); • a so-called debt push-down – ie, an assump - tion of the debt by the target company; • a merger ( Verschmelzung ) of the target with the acquisition vehicle; or • the conclusion of a domination and/or profit and loss transfer agreement ( Beherrschun- gs- und/oder Ergebnisabführungsvertrag ) between the target and its shareholder(s).
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