This article explains everything you need to know about statutory and contractual pledges of rights.
Pledges of rights are an extremely important and effective instrument for creditors for several reasons. They serve to secure a claim — it is not for nothing that they are referred to as the “sharp sword” of the pledge of rights. Pledges of rights are among the most effective means of security available to creditors under German law. They enable preferential access to certain assets — even in the event of insolvency — and thus serve to specifically secure and enforce claims. The legislator has created a differentiated system that includes both statutory and contractual pledges of rights. Many of these arise automatically, particularly under commercial law — for example in favor of freight forwarders, warehouse keepers or landlords. The pledge of rights is an automatic safety net for creditors in crisis situations. With the pledge of rights, they retain control — not the debtor. A pledge of rights means they have the rule of law on their side. The public auction based on a pledge of rights is the most transparent market mechanism.
Pledges of rights are faster, cheaper and often generate higher proceeds than M&A or guarantees.
If you know how to use pledges of rights at an early stage and assert them with legal certainty in an emergency, you can not only limit financial losses, but often avoid them completely. We explain the legal principles, areas of application and strategic advantages of the pledge of rights — in a practical, understandable and legally sound manner.
A statutory or contractual pledge of rights serves to secure a valid claim in rem.
It grants the creditor the right to satisfy a claim by accessing a specific item belonging to 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. This article explains everything you need to know about statutory and contractual pledges of rights.
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 task is to carry out the sovereign act of the so-called public auction as part of the administration of justice. This differs from a voluntary auction — such as an art auction — which is conducted by an auctioneer who is not publicly appointed.
The prerequisite for this is confirmation of the maturity of the lien by the creditor or their lawyer. A basic distinction is made between statutory and contractual pledges of rights.
Legal pledge of rights: definition and examples
Statutory pledges of rights arise by law without the need for a special agreement between the parties. They serve to secure a creditor’s claims to a debtor’s assets by granting him the right to seize certain items if the debtor fails to meet his obligations.
A statutory pledge comes into force as soon as the statutory requirements are met, for example the landlord’s pledge of rights in accordance with Section 562 of the German Civil Code (BGB). This lien gives a landlord the right to establish a pledge of rights on the items brought into the rented premises by the tenant to secure his claims arising from the tenancy.
Such pledges of rights entitle the creditor to realize the item in question by way of public auction in order to satisfy his claim if the debtor does not pay.
Statutory pledges of rights in Germany: an overview
There are several statutory pledges of rights in Germany, each of which has specific purposes and areas of application. Here are the most important ones:
- Landlord’s lien (Section 562 BGB)The landlord’s lien secures the landlord’s claims to rent payments and other claims arising from the tenancy. It covers all movable property that the tenant has brought into the rented premises, provided that it is owned by the tenant and cannot be seized. Section 885a of the German Code of Civil Procedure (ZPO), which regulates a limited enforcement order, is related to the landlord’s lien.
- Lessor’s pledge of rights (§ 592 BGB)Securing the lessor’s claims to the lessee’s property.
- Contractor’s lien (§ 647 BGB)This pledge of rights secures the remuneration claims of a contractor (e.g. a craftsman) who has repaired, manufactured or processed an item. The contractor has a pledge of rights to the item he has worked on or manufactured until his claim has been settled.
- Freight forwarder’s pledge of rights (Section 440 HGB)A freight forwarder has a pledge of rights to the goods he transports for the client in order to secure his claims arising from the forwarding contract, including freight costs. The pledge of rights expires when the goods are delivered to the recipient.
- Pledge of rights of the carrier (§ 441 HGB)The carrier has a pledge of rights to the transported goods to secure his claims arising from the contract of carriage, such as freight costs and expenses.
- Pledge of rights of the warehouse keeper (§ 475b HGB)The warehouse keeper has a pledge of rights to the stored goods in order to secure his claims arising from the storage contract, including storage costs and expenses.
- Pledge of rights of the shipper (§ 623 HGB)Securing the claims of the shipper against the consignee of the freight.
- Theowner of the land has a pledge of rights to the fruits of the land (e.g. harvest) if the tenant wishes to remove them without paying the rent.
- Pledge of rights of the innkeeper (§ 704 BGB)An innkeeper has a pledge of rights to the property brought in by the guest to secure his claims.
- Pledge of rights of the merchant (§§ 369–392 HGB)
- § Section 369 HGB Pledge of rights due to claims from mutual commercial transactions
- § Section 371 HGB Right of satisfaction
- § 373 HGB Default of acceptance
- § 376 HGB Fixed trade purchase
- § Section 379 HGB Temporary storage
- § 388 HGB Defective goods on commission
- § 392 HGB distress sale.
- Pledge of rights of the commission agent (§§ 397–398 HGB)
- A commission agent who buys or sells goods on behalf of a third party has a pledge of rights to these goods to secure his claims arising from the commission business.
- § SECTION 398 HGB: Pledge of rights of the purchasing commission agent.
- Pledge of rights to property assigned as security (landmark ruling of the BGH)
- Securing claims in the event of transfer of ownership as collateral.
- Pledge of rights of the pawnbroker (§ 9 Pawnbroker Ordinance)
- Regulation of the pledge of rights in the context of pawnbroking.
- Pledge of rights for lost property (§ 979 BGB)
- Regulation of security rights for lost property.
- Rights of the pledger in the event of imminent spoilage (Section 1218 BGB)
- Regulation of the realization of pledged items in the event of imminent spoilage.
- Deposit of money and securities (§ 233 BGB)
- Securing receivables by deposit.
- Sale by private treaty (§ 385 BGB)
- Regulation on the private sale of pledged items.
- Cancellation of the entire estate (Section 1922 BGB)
- Rules on the distribution and dissolution of the estate.
- Deviating agreement (§ 1245 BGB)
- Regulations on deviating agreements for pledges of rights.
- Pledge of rights to a co-owner’s share (§ 1258 BGB)
- Regulation on the pledging of co-ownership shares.
- Pledge of rights to company shares and rights (§ 1273 BGB)
- Regulation to secure rights and shares.
- Pledging of bearer shares (Section 1293 BGB)
- Regulation on the pledging of bearer shares.
- Sale by private contract of securities to order (§ 1295 BGB)
- Regulation on the realization of order papers.
- Settlement in the community of heirs (Section 2042 BGB)
- Regulation on the distribution of the inheritance.
- Cancellation and auctioning of shares (Sections 21, 23, 27 GmbHG)
- Regulations on the realization of GmbH shares.
- Rights in accordance with the German Stock Corporation Act (e.g. Sections 65, 214, 226 AktG)
- Various pledges of rights and realization provisions under the German Stock Corporation Act.
- Settlement in the event of division (Section 731 BGB)
- Regulation on partition auctions in fractional communities.
- Partition auction for fractional communities (§ 741 BGB)
- Regulation on the dissolution of fractional communities.
- Cancellation (§ 749 BGB)
- Regulation on the cancellation of pledges of rights.
- Joint ownership (§ 753 BGB)
- Regulations on pledges of rights in joint ownership.
As a rule, these pledges of rights arise automatically by law and serve to secure the creditor’s justified claims against the debtor. They entitle the creditor to realize the pledged items or rights (such as company shares) if the debtor fails to meet his obligations. The statutory pledge of rights arises immediately upon the pledgee’s possession of the items handed over by the pledgor. A separate declaration or notification, for example to the insolvency administrator, is not required — even if the latter sometimes claims this.
What are contractual pledges of rights?
Contractual pledges of rights arise through a contractual agreement between the pledgor (debtor) and the pledgee (creditor). In contrast to statutory pledges, which arise automatically by law, contractual pledges of rights are based on an explicit agreement between the parties. They serve as security for the fulfillment of a claim by giving the creditor the right to realize a certain item if the debtor does not fulfill his contractual obligations (e.g. repayment of a loan).
Characteristics and functioning of contractual pledges of rights
- Contractual basis:
A contractual pledge of rights is created by an agreement between the parties involved. This can be in writing, verbal or through conclusive behavior. However, it is usually documented in writing to ensure clarity and legal certainty. - Specific pledged object:
A contractual pledge of rights relates to a clearly defined object (pledged object). This can be a movable object (e.g. a car or jewelry) or an immovable object (e.g. a plot of land). Rights, such as claims or shares (e.g. shares), can also be the subject of a pledge of rights. - Transfer of possession:
In the case of contractual pledges of rights to movable property (e.g. a car or jewelry), possession is usually transferred to the pledgee or a neutral custodian, such as a publicly appointed and sworn auctioneer. This ensures that the creditor has the opportunity to realize the pledge if the debtor fails to meet his obligations. In the case of immovable property (e.g. land), entry in the land register is required to secure the pledge of rights. - Right of realization in the event of non-performance:
If the debtor fails to meet his contractual obligations (e.g. repayment of a loan), the creditor has the right to realize the pledged property (by sale at public auction by a publicly appointed, sworn auctioneer in accordance with Section 1235 BGB) in order to satisfy his claim.
Examples of contractual pledges of rights
- Contractual pledge of rights on movable property (BGB pledge):
A borrower can grant a lender a pledge of rights on a specific movable item (e.g. vehicle or jewelry). The lender retains possession of this item until the loan has been repaid. - Pledge of rights in banking (Lombard loan):
With a Lombard loan, a customer gives the bank securities or other movable assets as collateral for a loan granted. If the customer does not repay the loan, the bank has the right to have the pledged securities sold by public auction. - Security through mortgage and land charge:
A mortgage or land charge is often entered in the land register to secure a loan. In the event of non-payment, the bank or creditor can realize the property by foreclosure. Alternatively, the creditor and debtor can agree to have the property auctioned off by a publicly appointed auctioneer. This agreement must be clearly formulated and recorded in writing, especially in the B2C contractual relationship. A voluntary auction differs from a court-ordered forced sale and can often be carried out more quickly and less formally, which is in the interests of both parties because, firstly, the liquidation procedure is usually faster than an auction by the judicial officer at the local court and, secondly, there is a chance of better liquidation proceeds.
The voluntary auction of real estate must also meet certain legal requirements to ensure that the rights of both parties are protected. This requirement is fulfilled by the involvement of a generally publicly appointed, sworn auctioneer, who is sworn to be independent and to conduct the auction conscientiously. A publicly appointed auctioneer is a person who is officially authorized to conduct auctions. They work independently and ensure that the auction is fair and transparent. The involvement of such an auctioneer should be stipulated in the agreement.
- Pledge of rights:
Rights, such as receivables or company shares (e.g. shares), can also be pledged. In this case, it is contractually agreed that the creditor receives a pledge of rights to these rights in order to secure his claim.
Auction by a publicly appointed, sworn auctioneer
In a voluntary auction, which is based on a contractual agreement between the creditor and debtor, the creditor can appoint a publicly appointed auctioneer. These auctioneers are independent and officially licensed (by the regulatory authorities or the Chamber of Commerce and Industry) and must ensure that the auction is fair and transparent. They are bound by legal regulations and ensure that the auction is conducted properly.
Procedure of the auction:
- Public announcement:
The auction must be publicly announced in accordance with Section 1237 of the German Civil Code (BGB) in order to give potential buyers the opportunity to participate. - Minimum bid:
The auction is usually based on a minimum bid which, in the case of real estate, is determined by an appraisal by a publicly appointed, sworn expert or is contractually agreed. - Use of proceeds:
The proceeds from the auction are used to satisfy the creditor’s claims. Any surplus remaining after the claims have been satisfied must be paid out to the debtor.
Excursus:
Can a pledge of rights be transferred? — Legal classification for the sale of NPLs
Pledges of rights are generally transferable — but almost never in isolation. As a rule, they are accessory, i.e. inseparably linked to the secured claim. If such a claim is sold or auctioned as part of an NPL process, for example, the pledge of rights is automatically transferred (Section 401 BGB). This applies in particular to statutory pledges of rights such as the forwarding or warehouse lien (Sections 464, 475 HGB), but also to mortgages or contractually agreed collateral.
The Deutsche Pfandverwertung enables the legally compliant transfer of a claim and an existing pledge of rights to a new purchaser at a public auction. The prerequisite is that the claim is assignable and the pledge of rights has effectively arisen — for example through possession, registration or a pledge agreement — and that the transfer of all rights takes place in a formally effective manner.
The pledge of rights therefore follows the claim. This gives creditors and purchasers clear, economically viable scope for action — even in complex liquidation situations.
Excursus: What is the difference between accessory and non-accessory collateral?
Accessory collateral (e.g. pledge of rights) only exists together with a claim. They cease to exist when the claim expires and are automatically transferred with the assignment. Non-accessory collateral such as a land charge or transfer of ownership by way of security, on the other hand, is legally independent and can also be transferred or remain in existence without a claim. In practice, this distinction is important for realization and transferability in the context of NPL transactions.
Disclaimer: We do not provide legal advice, but rather information from exploitation practice.
Please contact us if you have a specific case for a public auction: To the contact form
We have provided an explanatory video to provide information about the assignment: To the explanatory video for clients
Information on the auction process: To the explanatory video for bidders
> Video: Auctioning company shares — what is important!
