Mobilizing crisis response forces: agreeing contractual pledges of rights

Any company can be hit by crises. It is essential to protect yourself in advance with pledges of rights and to expand your risk management system so that it acts correctly in the event of an emergency. Alternatives for managing payment risks are indispensable.

The agreement of contractual pledges of rights is not a formality — pledges are a strategic instrument for active risk management.

The once excellent payment behavior of German companies is dwindling. Germany’s companies are paying their invoices later and later — or not at all. According to credit insurer Atradius, only 33% of all receivables between companies will be paid on time in 2024. This means that 67 percent of invoices were overdue. In ten percent of cases, outstanding debts remained uncollectible. This is an ominous early indicator that sets off a dangerous chain reaction.

This trend is also confirmed by the new Coface Payment Survey 2025: 81% of German companies reportthat they are now affected by late payments — a drastic increase compared to previous years. Coface indicates the proportion of companies that are confronted with late payments at all — i.e. almost 4 out of 5 companies. It is not only the number of late payments that is increasing, but also their duration: payment terms are being met less and less frequently, and many companies now have to wait significantly longer for their money than just a few years ago. The economic pressure runs through the entire supply chain — if you don’t get paid on time, you in turn pay late.

An ongoing increase in overdue notifications is expected for Germany.

Germany is experiencing a quiet industrial decline. The transportation and logistics sector is particularly hard hit with 55%, steel and metal processing with 25% and mechanical engineering with 45% of payments overdue. The increase is slightly lower in the household goods and furniture, automotive and construction materials sectors, at 16% each.

The construction and real estate sector is facing a massive recession, not least due to planning uncertainty triggered by the Heating Act and higher interest rates. The excessive regulatory frenzy continues to weigh heavily on the sector and is also preventing the urgently needed construction of new homes: the Cologne Institute of the German Economy recorded 3,300 standards that apply nationwide. Added to this are the requirements of the federal states and local authorities. The Central Real Estate Committee, which represents the interests of large real estate companies and associations, calculates a total of around 20,000 building regulations. The result: We have four times more bureaucracy than in 1990, when the regulations were already much more numerous than in other European countries.

This means nothing other than that the economic activity rate is on a downward trend never before experienced in the Federal Republic of Germany.

However, if invoices that are due are not paid as agreed, this triggers liquidity problems, especially for small and medium-sized companies. In the end, they lack the funds to meet their own payment obligations.

Almost a quarter of companies doubt whether they are still financially robust enough to face the current challenges. Banks are now responding to requests for short-term financing in a noticeably more restrictive manner when granting loans — knowing full well that more company insolvencies are leading to a significant increase in non-performing loans and loan defaults. This is understandable as, according to the banking supervisory authority, bad loans have more than doubled compared to the previous year.

In 2025 and 2026, entrepreneurs are likely to be confronted with the recession and expensive interest rates, a shortage of raw materials and supply chain problems, ongoing geopolitical crises and a contraction in the supply of credit. Many companies in Germany are inadequately prepared for this complex situation.

Viewed soberly, there is no reason to be optimistic that the constellation currently entrusted with government responsibility will be able to deal with even a small part of the problems in the foreseeable future. The situation is precarious and is becoming increasingly precarious.
For small and medium-sized businesses, this means If you want your company to survive, you need to be flexible in the way you set up your accounts receivable management. The answers already exist. The legislator provides them.

Most entrepreneurs are aware that sooner or later a wave of sluggish payment behavior, including payment defaults and insolvencies, can inevitably overwhelm almost any company. It is therefore high time to readjust internal debtor management for subordinated receivables.

Another driver of this development is the politically desired expropriation of creditors legitimized by the legislator and driven forward step by step by interested parties. Many entrepreneurs consider it an unacceptable undermining of the property rights enshrined in the German Basic Law if they are unintentionally called upon to reorganize and restructure their defaulting debtors by means of ongoing amendments to insolvency law such as the StaRUG, ESUG and the Insolvency Code. This is also perceived as unfair if not even the implied promise is kept that creditors will at least retain the restructured debtor as a customer after the end of the insolvency proceedings.

In practice, however, companies that are no longer solvent are restructured by means of change management and then released back onto the market, often with a completely new business model. The beneficiaries of this system are the consulting industry, interim managers, insolvency administrators and their specially installed and sometimes owned liquidation companies. The possibility of insolvency under self-administration opens the door to moral hazard.

Informed entrepreneurs use alternative courses of action:

In their risk management, forward-looking SMEs are now using newly developed instruments to hedge receivables for larger credit exposures or trade receivables.

This is based on the application of contractually agreed pledges of rights.

This provides additional planning security and opens up the opportunity to react immediately at the first sign of a breach of contract. Securing receivables via agreed pledges of rights to company shares or other rights (license rights, trademark rights, domains, IP rights or patents) is particularly advantageous.

If the contract is drafted in advance (by a lawyer specializing in this field), the creditor will be in an advantageous position vis-à-vis the insolvency administrator in the event of insolvency.

In the case of non-performing loan commitments, there are always information deficits and loss of control, sometimes even driven by criminal energy. Transparency and new options for action vis-à-vis the previous management, also with regard to possible criminal misconduct, arise when changing from creditor to active owner. This can be compensated for by the timely, complete takeover of the borrowers by way of a public auction, which the lender is entitled to do in accordance with Section 1239 of the German Civil Code (co-bidding by creditors and owners).

The acquisition of pledged company shares incurs manageably low costs for the creditor. Control is obtained by acquiring the debtor’s shares by public auction. The creditor can offset the purchase price called in the auction against his pro rata claim to repayment of his claim, i.e. he does not have to pay the purchase price as long as his bid does not exceed the claim. The purchase price is irrevocably and definitively determined by public auction. A fiduciary model is also conceivable if the creditor wants to gain control indirectly and does not want to acquire the shares himself.

It is very important to have the right partner on board for the timely and legally compliant auction of pledged company shares or rights.

The generally publicly appointed, sworn auctioneers of Deutsche Pfandverwertung specialize in the liquidation of pledged company shares.

For many years, we have successfully conducted auctions of all kinds of rights such as GmbH shares or other company shares as well as securities, patents, IP rights, license rights, trademark rights and domains. As generally publicly appointed, sworn auctioneers, we are authorized by the German state to carry out this sovereign act as an organ of the administration of justice.

In the event that the creditor does not wish to take over the company shares pledged to him, Deutsche Pfandverwertung has contacts to interested risk investors.

Act now for the future of your company.