Collateral enforcement —
How it works
Pledges of rights — realization: The application of contractual and statutory pledges of rights and other realization rights enables entitled creditors to realize their claims in a legally compliant and economically advantageous manner by way of public auction — faster and more efficiently than lengthy dunning and court proceedings or M&A processes.
The publicly appointed, sworn auctioneer is authorized by the state to carry out sales based on contractual or statutory pledges of rights and thus fulfills a sovereign task within the administration of justice. Find out more in the video.
The realization of a pledge of rights is a sovereign act that is subject to strict compliance with legal provisions. In our information video, Avatar Katharina explains in detail how you can initiate a legally compliant collateral enforcement (public auction) quickly and easily. In addition, she provides valuable tips on commissioning a publicly appointed, sworn auctioneer.
Note: The privileges of the exclusion of warranty pursuant to Section 445 of the German Civil Code (BGB) and, in particular, of acquisition in good faith pursuant to Section 935 (2) BGB also apply to a voluntary, publicly announced and publicly accessible auction by a publicly appointed and sworn auctioneer, which distinguishes this form of sale by us from voluntary sales such as NPL or M&A transactions in a legally advantageous manner.
Thank you for your interest and we recommend that you watch the video in full.
Afterwards, please click on “Initiate collateral enforcement: directly to determine the maturity of the deposit” in the navigation bar on the left. An overview of the relevant forms for specific cases is available to registered users. Once you have registered, select the appropriate form, complete it and send it to us directly. As publicly appointed, sworn auctioneers, we are sworn to secrecy towards third parties.
Registered users can also access the form overview via the homepage (“Home”) directly via “Login” (top right) or via “Home” > ‘scroll down to the blue footer > “Direct to” and then “Initiate collateral enforcement”.
We will contact you shortly after receiving your form to determine whether you are ready for a pledge. Based on this information, we will talk to you specifically about your case.
The advantages of collateral enforcement.
Take the conventional legal route via the dunning and legal action process
The better alternative: Application of contractual and statutory pledges of rights to remedy faults
This legal process enables entrepreneurs to realize due receivables efficiently and cost-effectively or to reduce liabilities. The seizure and realization procedure takes place within a proven legal framework.
The advantages for the creditor:
1. willingness of the debtor to pay
Debtors usually overestimate the material value of the items or rights pledged by the creditor. They fear a sale below their expected value and the supposed loss of reputation of a public auction. In the case of an auction of pledged company shares, experience has shown that previous managing directors want to prevent the transparency about the company that the creditor can obtain after the auction. Some debtors become willing to pay at the latest when the auctioneer informs them of the upcoming auction date.
2. reduction of the amount in dispute
If the realization proceeds are not sufficient to cover the entire claim, the value in dispute of any subsequent dunning or legal proceedings is reduced by the amount already realized. This reduction in the value in dispute has a direct influence on the attorney’s interest in fees. In practice, it can therefore be observed that some lawyers sometimes give preference to court proceedings — not necessarily for reasons of efficiency, but in light of the economic effects of a previous successful public collateral enforcement.
3. freeing up blocked real estate or storage space
Items left behind by the debtor block storage space and real estate and cause not only costs but also loss of use. Through the public auction and the associated legally compliant transfer of ownership to third parties or, if applicable, to the creditor himself, the property can be cleared immediately after the bid is accepted — the premises are thus immediately available to the creditor again. Time is money: A short-term eviction can be realized in a legally compliant manner via the landlord’s lien pursuant to Section 562 BGB or by way of a limited enforcement order pursuant to Section 885a ZPO in conjunction with Section 383 BGB.
4. short-term realization of receivables
Due claims can be realized at short notice, provided that the pledged assets serving as security for the creditor are sufficient, valuable and realizable. In these cases, the realization usually takes place by way of public auction in accordance with Sections 1233 et seq. BGB, whereby the knockdown to the highest bidder leads to the immediate, at least partial, repayment of the claim due.
5. valuation by sovereign act
The proceeds from the sale are irrevocably determined in the public auction by knockdown to the highest bidder and constitutes a sovereign act. The knockdown not only transfers ownership with legal effect, but also irrevocably establishes the market value of the auctioned item or right. Subsequent correction or contestation of this value is excluded, as the knockdown as a sovereign act marks the legally compliant conclusion of the liquidation procedure. This legal effect creates legal conformity and transparency for both the creditor and the debtor with regard to the amount of the realized proceeds.
6 Significant advantages in insolvency proceedings
If debtors fail to meet their liabilities as they fall due, there is usually a risk that insolvency proceedings will be initiated. Apart from any restructuring or reorganization measures at the expense of the creditors, the purpose of these proceedings is to satisfy the claims of all creditors from the insolvency estate on a pro rata basis only. According to surveys by the Federal Statistical Office and various studies (including the IfM Bonn and the ZInsO), the average insolvency rate for unsecured creditors has remained constant at around 3% to 5% in recent years — in some cases even significantly lower.
Creditors with contractually or legally secured pledges of rights enjoy a preferential legal position in these proceedings: Their claims are deemed to be rights to separate satisfaction pursuant to Sections 49, 50 InsO and are to be serviced preferentially from the realization proceeds of the encumbered collateral — regularly in full and before all other insolvency creditors.
It is therefore strongly advisable to ensure legally compliant collateralization through contractual pledging at an early stage, especially in the case of valuable receivables. The pledging of company shares (Sections 1204 et seq. BGB) has proven to be particularly effective in this context. Pursuant to section 161 (1) InsO, the insolvency administrator is not entitled to dispose of pledged rights; realization remains with the pledgee. The Federal Court of Justice expressly confirmed this in its ruling of October 27, 2022 (IX ZR 145/21):
“A GmbH share pledged by the debtor is not subject to the insolvency administrator’s power of administration and disposal in insolvency proceedings. It is realized exclusively by the pledgee, for example by way of public auction.”
Conclusion: Those who establish pledges of rights in good time and initiate their realization by a qualified, publicly appointed, sworn auctioneer secure a privileged legal and economic position — and effectively protect their claims against the possible threat of devaluation in insolvency proceedings.
7. minimization of the managing director’s liability (duty to mitigate damages, cf. § 43 (1) GmbHG)
As fully qualified merchants, managing directors and board members are subject to an active duty to minimize damages — based on Section 43 (1) of the German Limited Liability Companies Act (GmbH-Gesetz ) and their responsibility towards the shareholders. If they breach this duty, they may be liable to the company in accordance with § 43 Para. 2 GmbG.
Legislation has created clear instruments for the realization of receivables in the form of contractual and statutory pledges of rights. Managers who want to limit personal liability risks are obliged to make consistent use of these strategic debtor management options — especially in the event of impending payment default, insolvency or chain reactions within the corporate group.
The costs?
The realization of claims through contractual and statutory pledges of rights is basically free of charge for the creditor, as the debtor, as the originator, must accept all costs arising from the proceedings. These costs are to be offset in the first place from the auction proceeds.
The publicly appointed, sworn auctioneer involved in the liquidation process is sworn to independence and conscientious conduct in the proceedings. He must be economically independent of the client (the creditor). He therefore receives an appropriate premium from the buyer.
Reputable auctioneers will discuss the creditor’s objectives with him. They will always point out to the creditor if the costs arising from the liquidation procedure are not in proportion to the resulting opportunities and benefits.
Legal provisions — implementation of collateral enforcement:
- If the requirements under civil law pursuant to Sections 1220 and 1234 are met, the emergency sale of seized items or rights by way of public auction pursuant to Section 1235 of the German Civil Code (BGB) can generally be completed within two to four weeks.
- Controlled procedure by regulatory authorities and chambers of industry and commerce, in accordance with Section 3 of the Auctioneers Ordinance (VerstV) (obligation to notify every auction)
- The Code of Civil Procedure does not apply to the publicly appointed, sworn auctioneer in the performance of his duties. He must comply with the provisions of the BGB, HGB, GmbHG, AktG, VerstV, GeWO and the Money Laundering Act. This provides greater leeway in the organization of the liquidation procedure. It provides better options than realization by bailiffs in accordance with the provisions of the ZPO and GVGA.
- Exclusion of warranty: Rights or objects sold by public auction are always sold under exclusion of any warranty in accordance with § 445 BGB.
- Exclusion of liability towards third parties: In accordance with Section 935 (2) BGB, all rights and items purchased by public auction are always acquired in good faith.
- The transfer of ownership of the pledge to the highest bidder is legally effective upon acceptance of the bid by official act.
- The value of objects or rights is determined by knocking them down by public auction (surrogate principle).
- If necessary, the bailiff must conclude a so-called amicable agreement with the debtor (partial payment settlement, extended in time). On the other hand, the creditor’s property rights are safeguarded by the public auction, as the procedure is concluded when the bid is accepted.
Advantages of involving Deutsche Pfandverwertung in the proceedings:
- The realization of liens by us is a tried and tested procedure.
- Know-how in legally compliant processing, many years of experience and always short-term implementation of the procedure (usually within 14 days to 3 weeks; in the case of perishable pledged goods, at short notice).
- Existing contracts for quick adaptation to specific requirements. We work with contracts drawn up and checked by lawyers.
- Continuously optimized processes with the integration of AI.
- Commercial expertise in the proactive generation of suitable prospective buyers, nationally and internationally, for the highest auction proceeds. Numerous existing contacts with buyers.
- Publicizing the auction via advertisements (print and online), press, newsletters, mailings, relevant social media channels and creating videos for social media communication.
- Technically proven infrastructure for legally compliant online live auctions with live stream on a German server; data security in accordance with EU directives. We have created the technical prerequisites for conducting auctions using our proprietary online live procedure with extremely low latency (instead of knockdown using a time algorithm). With us, the auctioneer personally awards the bid live (in accordance with § 156 BGB) in a legally compliant manner. Bidders can follow the auction live on their screens. This creates trust. Online live bidding has considerably increased the number of participating bidders. This ensures the best possible auction results.
- We have achieved the short-term realization of receivables worth millions for hundreds of companies.
Further advantages:
You save time and money
- Short-term commercial solution: The Code of Civil Procedure and Bailiff’s Code are not relevant for us.
- Realization of the claim usually within 14 days to three weeks.
- The public auction will take place irrevocably on a fixed date.
- No court proceedings and titling necessary: The pledge of rights arises by law or contract.
- Causes short-term clearance of blocked properties or storage areas.
- The proceedings ultimately cost you nothing. The debtor is responsible for the costs of the proceedings. The costs are paid from the assets, provided these are sufficient.
Proven process and financial benefits
- For hundreds of companies, we have succeeded in realizing their claims in the millions.
- Benefit from our many years of experience in the auctioning of property and rights of all kinds.
- Implementation with proven, experienced processing and technically proven infrastructure for legally compliant online live auctions with live stream.
- Pro-active sale, appropriate advertising of the auctioned items and rights.
- Sale at the highest bid in a public auction as a face-to-face event or as a live online auction in accordance with the Auctioneers’ Ordinance (knockdown live in person, very low latency); irrevocable transfer of ownership by knockdown.
- Network of national and international prospective buyers enables the best possible realization results.
- Immediate transfer of the proceeds.
Optimization of your options
- Best possible chance of reducing the amount in dispute.
- No application of Section 166 (1) InsO for rights such as pledged company shares, securities, license rights, trademark rights, IP rights, domains, patents (see BGB ruling 27.10.2022, IX ZR 145/21).
- As a rule, realization by a publicly appointed, sworn auctioneer brings higher returns.
- Safeguarding the creditor’s property rights: With the public auction, you avoid a so-called amicable settlement between the bailiff and the debtor (partial payment settlements, extended in time).
Legally compliant processing and discretion
- Procedure by a publicly appointed auctioneer sworn to independence and conscientious conduct.
- Including contracts checked by a lawyer.
- Many years of experience in dealing with debtors and their lawyers.
- Controlled procedure by the regulatory authorities: Review of the requirements under commercial law.
- Exclusion of warranty for the sale of the pledge. (§ 445 BGB)
- In principle, acquisition in good faith by the buyer (Section 935 (2) BGB). Irrevocable transfer of ownership and determination of value by virtue of a sovereign act.
- The risk of follow-up lawsuits is reduced.
- As publicly appointed, sworn auctioneers, we are sworn to secrecy towards third parties in the proceedings.
