GERMANY Law and Practice Contributed by: Michael Josenhans, Lucas Lengersdorf and Karl Kuhn, Freshfields
Pledge by the Account Bank Account banks usually have a right of pledge over the accounts opened with them based on their general terms and conditions for any claims arising against the pledgor. Account pledge agreements therefore usually request the pledgor to undertake reasonable efforts such that the account bank waives or subordinates such pledge. A strict requirement for such waiver or subordination is usually not included, given the limited scope of the secured obligations under such a pledge pursuant to the general terms and conditions. Landlord’s Right to Movable Assets on Leased Premises A landlord of leased premises has a statutory right of pledge over the lessee’s assets brought onto the premises for any claims arising in con - nection with the lease. Given the limited scope of the secured obligations under such a pledge, it is unusual to include a requirement that such a pledge be waived. However, recent transactions have sometimes seen a requirement for the les - see to regularly provide proof of rent payments, in order for lenders to be able to assess the risk associated with the prior ranking pledge of the landlord. 5.9 Cash Pooling and Hedging/Cash Management Obligations Cash pooling is widely used in Germany for corporate liquidity management, with funds centralised into a single account typically man - aged by a parent company. While efficient, this practice poses challenges for private credit lenders, especially in insolvency scenarios. The cash pooling bank is typically not secured by the security package provided under the financing agreements and, therefore, is not considered a “beneficiary” under the intercreditor agreement. Instead, the cash pooling bank is secured sole -
receivables) can only be established once and can therefore only exist in one rank. However, it is possible to ensure that the proceeds of such security be applied in a different order to groups of creditors, by providing the security to a securi - ty agent and contractually agreeing on the order of application – for example, in an intercreditor agreement. Such arrangement will, however, not have an in-rem effect on the ranking of said security interest but will survive the insolvency of the borrower. Security interests over shares/interests/stocks, bank accounts and land can be provided in dif - ferent ranks. Such security interests will rank in the order of the timing of their valid estab - lishment (priority rule). Nonetheless, in non- distressed financings, usually only one rank of security is established, and the order of applica - tion is agreed in an intercreditor agreement, as described above. In deviation thereof, in sce - narios in which different secured claims face dif - ferent insolvency claw-back rights, it is common to provide individual, different-ranking security rights to different creditor groups. Further, lenders may require security confirma - tions and junior ranking pledges when doing an upsize or amend/extend transaction. With regards to add-on acquisitions financed by incremental debt, borrower’s counsel should ensure that securing such incremental debt is pre-baked into the security documents to the extent legally possible. 5.8 Priming Liens and/or Claims There are two types of security that, in practice, usually rank prior to the contractual security rights of lenders.
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