Protecting Share Foreclosure Rights In German Bankruptcies

Law360, New York (December 7, 2015, 10:25 AM EST) -- On Sept. 24, 2015, the German Supreme Court held that secured lenders of insolvent German debtors are not stayed from foreclosing on stocks in a German corporation (Aktiengesellschaft) in an insolvency of the pledgor, but only where those stocks have been placed in trust for the benefit of the lenders.[1] Importantly, the court explicitly acknowledged but left open the question whether secured lenders also have authority to foreclose on pledged shares in German limited companies (Gesellschaft mit beschrankter Haftung, or "GmbH") or limited partnerships (Komman-ditgesellschaft, or "KG") in an insolvency of a pledgor where those shares have not been placed in a trust. The court's decision means that secured lenders must be more vigilant in negotiating secured lending structures in Germany. Moreover, even assuming that secured lenders successfully preserve their foreclosure rights, the challenges to actually effecting a German share or stock pledge foreclosure remain....

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