Pledge of rights — rea­liza­ti­on: rele­vant con­di­ti­ons

A sta­tu­to­ry or con­trac­tu­al pledge of rights ser­ves to secu­re a valid cla­im in rem. It grants the cre­di­tor the right to satis­fy its cla­im by resort­ing to a spe­ci­fic asset of the deb­tor. 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.

Civil law requi­re­ments for the pledge of rights

• Accor­ding to § 1204 BGB, the cre­di­tor must have a spe­ci­fic pledge of rights, i.e. a cla­im that is due. Accor­ding to § 1204 (2), the pledge of rights can also be crea­ted on future claims or a con­di­tio­nal cla­im
• matu­ri­ty of the pledge, i.e. the due date of the cla­im, in accordance with Sec­tion 1228 (2) BGB must have occur­red
• accor­ding to § 1234 BGB thre­at of sale: The cre­di­tor must threa­ten the owner (deb­tor) with the sale in advan­ce and spe­ci­fy the amount of money for which the sale is to take place.
• In accordance with § 1220 BGB, the thre­at of auc­tio­ning the pledge must be made, sta­ting the time and place of the auc­tion.
• Accor­ding to § 1237 BGB, the owner (deb­tor) must be noti­fied of the auc­tion date.
• the cre­di­tor must be in pos­ses­si­on of the pledge, i.e. have actu­al con­trol over it. Accor­ding to Sec­tion 1231 BGB, the cre­di­tor has the right to demand that the pledge be han­ded over for sale, eit­her to hims­elf or to a cus­to­di­an — such as a publicly appoin­ted auc­tion­eer sworn to his inde­pen­dence — who under­ta­kes to make the pledge available for sale.

Notes on depo­sit return and depo­sit matu­ri­ty

Pled­ging, i.e. the rem­oval of a pledge by the deb­tor, is punis­ha­ble under Sec­tion 289 StG and is punis­ha­ble by a fine or impri­son­ment of up to three years.

The cre­di­tor or his lawy­er shall con­firm the matu­ri­ty of the pledge to the auc­tion­eer.

A basic distinc­tion is made bet­ween sta­tu­to­ry and con­trac­tu­al pled­ges of rights.

Sta­tu­to­ry pled­ges of rights ari­se by law wit­hout the need for a sepa­ra­te agree­ment. They ser­ve to secu­re the cre­di­tor’s jus­ti­fied claims against the deb­tor. They entit­le the cre­di­tor to rea­li­ze the sei­zed pro­per­ty or rights (such as com­pa­ny shares) if the deb­tor does not meet his obli­ga­ti­ons.

Con­trac­tu­al pled­ges of rights ari­se through a con­trac­tu­al agree­ment bet­ween the pled­gor (deb­tor) and the pled­gee (cre­di­tor). In con­trast to sta­tu­to­ry pled­ges, which ari­se by ope­ra­ti­on of law, con­trac­tu­al pled­ges of rights are based on an expli­cit agree­ment bet­ween the par­ties. Pre­re­qui­si­tes: Pledge agree­ment: Con­trac­tu­al agree­ment on the pledge. Trans­fer of pos­ses­si­on: Trans­fer or at least indi­rect con­sti­tu­ti­on of pos­ses­si­on in favor of the pled­gee. Cer­tain­ty: The pled­ged objects must be deter­minable. They ser­ve as secu­ri­ty for the ful­fill­ment of a cla­im by giving the cre­di­tor the right to uti­li­ze a spe­ci­fic item if the deb­tor does not ful­fill his con­trac­tu­al obli­ga­ti­ons, the repay­ment agree­ment of his loan in part or in full.

Enforce­ment and rea­liza­ti­on of the pledge of rights

Obli­ga­ti­on to sell at public auc­tion (§ 1235 BGB)

• A pledge may not be enforced by way of a pri­va­te (free­ly nego­tia­ted) sale; rather, rea­liza­ti­on must occur through a public auc­tion. Such auc­tion must be con­duc­ted by a publicly appoin­ted and sworn auc­tion­eer (öffent­lich bestell­ter und ver­ei­dig­ter Ver­stei­ge­rer) acting in accordance with the sta­tu­to­ry defi­ni­ti­on set forth in Sec­tion 383 of the Ger­man Civil Code (BGB).
  The pro­vi­si­ons of the Ger­man Code of Civil Pro­ce­du­re (ZPO), the Ordi­nan­ce on Com­pul­so­ry Auc­tion and Admi­nis­tra­ti­on (ZVGA), and the Bai­liff Ser­vice Regu­la­ti­ons (GVGA) do not app­ly to the auc­tion­eer in this con­text.
  For the avo­id­ance of doubt, the nota­ri­al rea­liza­ti­on of pled­ged shares con­sti­tu­tes a pri­va­te bid­ding pro­cess and does not qua­li­fy as an auc­tion in the legal sen­se. Accor­din­gly, it is sub­ject to the typi­cal lia­bi­li­ty expo­sure and avo­id­ance (chall­enge) risks asso­cia­ted with a pri­va­te sale.
  By con­trast, a pro­per­ly con­duc­ted public auc­tion results in a final and con­clu­si­ve rea­liza­ti­on wit­hout sub­se­quent ren­ego­tia­ti­on, with mate­ri­al­ly redu­ced expo­sure to chall­enge, and the­r­e­fo­re gene­ral­ly repres­ents the lower-lia­bi­li­ty, expe­di­ted, and cost-effi­ci­ent method of enforce­ment.
• The auc­tion must be made public (§ 1237 BGB).

Exclu­si­on of self-help

The cre­di­tor may not satis­fy hims­elf wit­hout aut­ho­riza­ti­on (sec­tion 1243 BGB Unlawful sale): (1) The sale of the pledge is not lawful if the pro­vi­si­ons of sec­tion 1228 subs. 2, sec­tion 1230 sen­tence 2, sec­tion 1235, sec­tion 1237 sen­tence 1 or sec­tion 1240 are vio­la­ted. (2) If the pled­gee vio­la­tes ano­ther pro­vi­si­on appli­ca­ble to the sale, he shall be lia­ble to pay dama­ges if he is at fault.

• The public auc­tion gua­ran­tees the best pos­si­ble sales pro­ceeds for the deb­tor.

Deut­sche Pfand­ver­wer­tung is aut­ho­ri­zed to auc­tion off pled­ged items or rights. It is important to make a distinc­tion here: We are publicly appoin­ted and sworn auc­tion­eers and not pawn­bro­kers. Our man­da­te is to car­ry out the sove­reign act of public auc­tio­ning as part of the admi­nis­tra­ti­on of jus­ti­ce.

Pledge of rights and rea­liza­ti­on in pledge auc­tions Auc­tions as online auc­tions Online auc­tion Lien rea­liza­ti­on by public auc­tion publicly appoin­ted sworn auc­tion­eer Auc­tion­eer