Disruption in collateral enforcement
In the focus of increasing sensitivity: Why the sovereign auction pursuant to section 12 35 of the German Civil Code (BGB) calls into question the business model of private distressed M&A sales
Deutsche Pfandverwertung replaces complex, consultation-intensive negotiation procedures with a clearly regulated, legally based, market-efficient procedure with clear finality.
Status quo:
- Non-transparent traditional M&A processes, dependence on consultants, high costs, long duration
- Contractually agreed norm reversal and de facto circumvention of the law can trigger compensation for damages.
- Insolvency liquidation by administrators or M&A advisors, often with individual authorizations, legal uncertainty and potential for disputes.
- Circumvention of law and reversal of the BGH ruling of 27.10.2022 IX ZR 145/21 (no application of Section 166 (1) InsO in the case of rights) through usage and utilization agreement.
- Sale by private treaty on the basis of a contractual agreement by the insolvency administrator, which can regularly trigger liability risks — for all parties involved: Pledgee, pledger and administrator.
Our approach:
- Public auction as a final act of sovereignty with incontestable knockdown (§§ 383, 1235 BGB).
- Digital-live, i.e. accessible at any time, while maintaining confidentiality, documentable.
- Final: No room for renegotiation (renegotiation), minimized risk of rescission.
Disruption in collateral enforcement — what are we doing differently?
The classic distressed M&A practice follows a familiar pattern: negotiation-driven processes, confidential bidding circles, complex contracts, very high consulting costs — and in the end often disputes about value, fairness and responsibilities.
Deutsche Pfandverwertung deliberately breaks with this pattern. We rely on a legally standardized, public and final procedure — sovereign collateral enforcement by public auction in accordance with Section 1235 of the German Civil Code[1] — and thus do something that has rarely been consistently implemented on the market to date:
- We replace negotiation with decision: The award of a contract is a sovereign act conferring rights — not a negotiable contract[2].
- We eliminate renegotiation (renegotiation): There is no “renegotiation node” after the award — the process ends with a clear result that cannot be renegotiated.
- We open up the market instead of restricting it: Transparent conditions of participation, competitive bidding, documented valuation.
- We reduce unnecessary complexity without sacrificing legal quality: Standardized procedure instead of over-structured M&A architecture.
- We are shifting the position of power: away from non-transparent individual solutions — towards a legally legitimized, neutral procedure in the interests of all parties involved.
In this context, disruption does not mean “volume”, but rather a structured break with an established but legally and economically vulnerable status quo: the market is characterized by free-hand distressed M&A sales in accordance with section 1245 of the German Civil Code (BGB) — an exceptional norm. We are bringing it back to the legal foundation: Section 1235 BGB as the rule, public, sovereign, final.
This position paper shows why the private sale of M&A assets pursuant to section 1245 of the German Civil Code (BGB) is not a modern standard, but a liability-laden evasion — and why the consistent use of public auctions is the disruptive, superior form of realization.
What we do differently: From the negotiated exception to the standardized rule
Status quo in the market:
Distressed M&A processes are presented as “state of the art”.
The sale by private treaty pursuant to section 1245 of the German Civil Code (BGB) is de facto the standard, although it is only an exception by law.
Creditors, pledgers and administrators operate in a field that is legally fragile and fraught with liability.
Our approach — breaking with customary law in practice
1. take the standard case seriously: We treat section 1235 BGB for what it is: the standard legal route for collateral enforcement. The public auction is not the “ultima ratio”, but the first option.[1]
2. Exception as an exception: Section 1245 BGB remains what the legislator intended: a narrow, consent-dependent exception — with clear application limits and considerable liability risks.[3]
3. Sovereign act instead of deal story: The value is determined by award — as a sovereignly legitimized final decision, not by a narrative-laden transaction story.[2]
4. Game-theoretical disruption: We design the realization as an endgame situation: fixed date, clear rules, transparent bidding process, no renegotiation point after award. The process is geared towards the final decision node from the outset (backward induction).
Result: The public auction pursuant to Section 1235 of the German Civil Code (BGB) is changing from a supposed “emergency nail” to a disruptive leading procedure that reorganizes the rules of the distressed case.
Legal framework: Why the market thrives on exceptions — and why we are bringing it back to the norm
- Section 1235 of the German Civil Code (BGB) — legally enshrined disruption: The public auction is the legal standard for collateral enforcement in accordance with Section 1235 BGB. It guarantees:
- transparent procedures instead of confidential individual deals,
- market opening instead of selective bidder selection,
- sovereign determination of value by knockdown instead of economic narratives and expert opinions.
It thus creates precisely the parameters that distressed M&A promises, but structurally cannot guarantee: Legal clarity, fairness, traceability and finality.
- Section 1245 BGB — the narrowly limited exception: In contrast, private sale in accordance with section 1245 BGB is only permitted with the express, current consent of the pledger and is expressly designed as an exception to the auction. The usual practice to date has turned this into a “standard route”. DPV’s disruption consists of consistently breaking through this informal market standard — in favor of the formal legal standard.
Distressed case: why the exception here is particularly dangerous
In a distressed case, the situation is extremely sensitive: going concern, creditor interests, board diligence and reputational risks all come together. Every decision to liquidate the company on the open market is potentially liable.
Nevertheless, the market often works with private M&A realization as an “all-purpose solution” — with information asymmetries, selective investor selection, high consulting costs and overheads, tedious processes and, in the end, often disputes over value.
DPV counters this with a structure: clear deadlines, a fixed award date, public bidding competition, documentable value determination through a sovereign act and an end point that is no longer up for discussion. This makes the public auction a disruptive instrument in the distressed case: it ends the state of permanent provisionality that M&A processes often produce and transforms collateral enforcement into a legally compliant, final decision.
Consent requirement as a fault line: Where M&A is vulnerable — and the public auction remains robust
Consent in accordance with Section 1245 of the German Civil Code (BGB) is the core of the risk associated with private sale. It must be current, informed and specific. A general consent previously granted in the pledge agreement, usually a long time ago, is not sufficient because section 1245 para. 2 BGB expressly excludes an advance waiver of the statutory realization provisions.[3][4]
In practice, these limits are often overstretched — with corresponding risks: unlawful realization, nullity according to § 134 BGB, continuing pledge of rights, risks of reversal and damages.
The disruptive strength of the public auction lies in the fact that it makes these discussions superfluous: the public auction does not require consent to deviate from the legal standard — it is the standard. There is no lack of consent, no circumvention of the legal model and no imbalance in the burden of proof.
Gross does not equal net: value determination, burden of proof and liability
In the private M&A process, gross purchase prices, multiples and “enterprise value” are often used. However, the decisive factor is what actually reaches creditors and owners after transaction costs, consultancy fees, delays and legal risks — the net result.
At the same time, the pledgee bears the burden of proof for a realization in line with the market in a private M&A process. Expert opinions, indicative offers and peer comparisons can only support this burden of proof imperfectly; there is no official determination of value.
The public auction works in a fundamentally different way: the knockdown documents the price as the market value resulting from bidding competition and is legally binding in court.[2] This transforms the economic value into a legally final, hardly contestable legal value. At this point, disruption means that it is not the gross price on the slide that is optimized, but the net result for the parties involved — both legally and economically.
Economic disruption: market opening instead of market narrowing
The classic M&A logic works with narrowness and interpretative sovereignty: limited circle of investors, selective access to information, high entry hurdles and interpretative sovereignty for advisors.
The public auction offers a disruptive alternative: an open bidding circle, clear conditions of participation, a uniform level of information, bidding dynamics and real-time pricing. This undermines several narrative pillars of traditional distressed M&A: the assertion of exclusive information quality, the supposed necessity of complex contract architecture and the role of the advisor as gatekeeper to the market. Instead, the market itself becomes the value determination mechanism — and the auctioneer acts as a neutral process designer.
Strategic consequences: Why the private treaty route becomes a liability risk and the auction a governance solution
This means for banks, financiers, board members and insolvency administrators: Anyone who realizes assets in a distressed case by private contract in accordance with section 1245 of the German Civil Code (BGB) is leaving the statutory standard case, consciously accepting increased liability and evidence risks and will have to justify in future why they did not use the more robust, neutral and sovereignly legitimized alternative.
Those who opt for a public auction in accordance with Section 1235 BGB, on the other hand, are guided by the legal model, secure a strong defense position in the event of liability and contestation and anchor governance, transparency and finality in the process.
The actual disruption is therefore a governance disruption: the benchmark is not the spectacular deal, but the legally compliant, comprehensible and final procedure.
Conclusion: The public auction as a disruptive infrastructure for collateral enforcement
M&A realization by private treaty pursuant to Section 1245 BGB is not a modern standard solution, but rather a liability-laden exception with a high susceptibility to disruption.
The public auction in accordance with Section 1235 of the German Civil Code (BGB) is the legal rule — and at the same time the structurally superior procedure: public, sovereign, final, market-opening and strong evidence.
Deutsche Pfandverwertung does not use this process as a stopgap solution, but as a disruptive core model — and thus creates a new realization logic in the distressed case.
Disruption here means: End of the permanently negotiated state of limbo, end of renegotiation (renegotiation), start of a clear, comprehensible and final decision-making process.
Footnotes and sources
[1] Section 1235 BGB — public auction; available via laws-on-the-internet and current online commentaries, as of 2025.
[2] For the classification of the knockdown as an act constituting legal rights and a final act characterized by sovereignty, see literature and case law on public auctions as well as current commentary on § 1235 BGB.
[3] Section 1245 BGB — Deviating agreements; in particular para. 2 on the inadmissibility of an advance waiver of the statutory realization provisions.
[4] Cf. freely accessible online commentaries on Section 1245 BGB and, in more detail, Palandt/Ellenberger, Section 1245 BGB, and MüKo-BGB/Schwab, Section 1245 BGB.
Author
Fritz Eberhard Ostermayer
President of BvV e.V. (Berlin) — Bundesverband öffentlich bestellter, vereidigter und besonders qualifizierter Versteigerer
General publicly appointed and sworn auctioneer for all types of auctions (§ 34b GewO)
IfUS-certified restructuring & reorganization consultant (Heidelberg)
Over 15 years of experience in the liquidation of company shares
Contact:
E‑mail: office@deutsche-pfandverwertung.de | Phone: 08027 908 9928
Disclaimer
The information, assessments and legal explanations contained in this article are for general technical information purposes only. They do not constitute legal advice in individual cases and cannot replace an individual legal examination by a lawyer.
Deutsche Pfandverwertung does not act as legal advisors, but as publicly appointed, sworn auctioneers, specialists in the realization of rights and collateral assets within the framework of legally prescribed procedures and as certified reorganization and restructuring consultants.
All content is based on publicly accessible sources, relevant case law and practical experience from exploitation practice. Liability for the accuracy or completeness of the content is excluded.
We are publicly appointed, sworn auctioneers (auctioneers) with over 15 years of experience in the realization of legal and contractual pledges of rights in legally compliant online auctions with live stream.
Do you have a specific case? Then get in touch with us: TO THE CONTACT FORM.
Contact us — together for a successful result!
Further articles on the topic
M&A‑Abbruch bei Insolvenzeröffnung: zwingend bei Absonderungen verpfändeter Unternehmensanteile und IP-Rechten
Verwertung von verpfändeten Unternehmensanteilen oder Rechten im Insolvenzfall
Sonderrechte des Gläubigers bei Insolvenz des Schuldners
Pfandrechte an Geschäftsanteilen: optimiertes Verwertungsinstrument in der Forderungsrealisierung durch Anteilsverkauf
A pledge of rights can relate to things, i.e. physical objects, as well as to rights of any kind, such as company shares, patents, securities, IP rights, domains, licenses or trademark rights. See this video for more details:
