Separation and segregation rights correctly classified in law and used strategically — what creditors need to know!
In this article, we clarify how special rights can give creditors a decisive advantage in insolvency proceedings. We use practical cases to show when a right to restitution (segregation) applies and in which constellations a right to segregation exists — for example through a statutory pledge of rights, transfer by way of security or retention of title.
We also look at typical mistakes, for example when asserting claims against the insolvency administrator or when realizing assets.
Whether you are a freight forwarder, warehouse keeper, owner of goods or holder of collateral such as financial institutions and lenders — this episode is aimed at anyone who wants to secure their access to assets despite insolvency.
Contents of this article:
- Definition and differences: segregation vs. separation
- The role of section 47 InsO and section 51 InsO
- Who has a right to segregation? Who has a right to separate satisfaction?
- Importance of statutory pledges of rights (e.g. section 475 HGB)
- Realization by publicly appointed auctioneers
- Communication with the insolvency administrator: dos and don’ts
- What to do in the event of unjustified requests for surrender?
- Practical examples: logistics, machinery, merchandise, intangible assets such as company shares and other rights.
When a debtor becomes insolvent, access to collateral is often crucial. In this episode, we talk about special rights that secure creditors a strong position even in insolvency proceedings — specifically, rights of segregation and separation. An article for anyone who wants to know how they can actually gain access in insolvency.
At first glance, it may seem a rather dry, right-wing topic — but it’s worth the effort to look into it. Because it already affects many entrepreneurs today — or could affect them in the near future.
We start by providing a legal classification of the topic and explain to non-lawyers in an understandable way what separation and segregation rights are actually about and what roles the parties involved play in insolvency proceedings.
We then use our many years of practical experience to show creditors what options they have to secure their rights — and to save what can be saved.
As publicly appointed, sworn auctioneers and certified reorganization and restructuring consultants, we know the Insolvency Code not only from the textbook, but from its daily application — even where others are often at a loss. Today, we will give you valuable tips from our liquidation practice on how you can protect your property rights in insolvency proceedings — legally compliant, efficient and with a clear strategy.
What are separation and segregation rights?
Both terms stand for special rights that give creditors a preferential position in insolvency proceedings — because they either own an asset or have a special security interest in it.
They limit the insolvency administrator’s access to the assets — partially or completely.
The practical consequence:
A creditor with a right to separate satisfaction or separation does not have to be referred to an — often modest — insolvency quota. Instead, they can directly access “their” asset or at least receive the proceeds of the asset as a priority.
1. the right to separate satisfaction — regulated in sections 47, 48 InsO
What does that mean in concrete terms?
A creditor has ownership or an equivalent right to an object — even though this object is owned by the debtor.
This is the case, for example, with rent, leasing, tenancy or retention of title — in other words, wherever the debtor uses the object but does not own it.
A practical example:
You have delivered a machine to a customer subject to retention of title. The machine was never paid for. Now the customer is insolvent.
Because you are still the owner, you can demand the return of the machine.
In legal terms, this means:
The insolvency administrator must hand over the item. You do not participate in the distribution of the insolvency estate — your property is separated from the estate.
2. the right to separate satisfaction — regulated in sections 49 to 52 InsO
How does it differ from the right to separate satisfaction?
In the case of a right to separate satisfaction, the creditor is not the owner but has a special security interest in an asset of the debtor.
Although this is part of the insolvency estate, the creditor has the right to preferential satisfaction from its liquidation.
Typical security interests that establish a right to separate satisfaction are:
- a contractually agreed pledge of rights,
- a transfer of ownership by way of security,
- a mortgage by way of security,
- or a statutory pledge of rights, for example under the German Commercial Code.
Contractual pledge:
This form of security is often used in financing agreements — for example in construction projects, leasing models or to secure company shares, trademark rights or license portfolios.
The creditor receives a pledge of rights to secure his default risk — e.g. on company shares or intangible assets.
Particularly relevant for creditors:
The insolvency administrator is not authorized to realize contractually established pledges of rights, as Section 166 (1) InsO does not apply to rights such as company shares, securities, trademark rights, patents and other rights. In the case of rights, only the secured party is entitled to the right of realization. This clear distinction was expressly confirmed by the Federal Court of Justice in its ruling of October 27, 2022 (case no. IX ZR 145/21).
In these cases, realization may only take place by public auction — in accordance with Section 1235 BGB. Any other form of realization — such as a private sale — is only permitted if it has been expressly agreed in the contract (Section 1235 (2) BGB).
But be careful:
Even if a private sale is contractually permitted, it can be legally contestable or strategically risky in the event of insolvency — especially if third parties or the insolvency administrator express doubts about the valuation or the procedure. A public auction by a publicly appointed, sworn auctioneer creates clear conditions here: It is legally compliant, independent, transparent — and is also regularly accepted as fair by the debtor.
Particularly in the case of disputed assets — such as company shares, trademark rights. patents or other rights — the public auction is not only formally safer, but also often the better way economically.
Who has rights of separation?
- financiers with contractual pledges of rights,
- freight forwarders, carriers, warehouse keepers with statutory pledges of rights,
- landlords, contractors, lessors,
- as well as merchants, for example with transfers of ownership by way of security.
Strategic implementation of the liquidation:
Particularly in the case of complex collateral, it is advisable to work with a publicly appointed, sworn auctioneer who meets the legal requirements, ensures independence and knows the market mechanics.
This not only increases acceptance among debtors and administrators — but also the economic efficiency of the liquidation.
The three parties involved in the proceedings
In order to enforce segregation and separation rights in insolvency proceedings in a targeted and effective manner, you need to know who the relevant parties are — and what role they actually play in the proceedings.
In practice, there are exactly three players whose interaction is important:
Firstly: the creditor with a right to separate satisfaction.
He is the party who claims access to an asset or its proceeds outside the insolvency quota — either because he is the owner or because he holds a special security interest.
This could be a supplier with retention of title, a warehouse keeper with a statutory pledge, a financier with a transfer of ownership by way of security or a lender with a contractually agreed pledge — for example on company shares, receivables or trademark rights.
Depending on the legal basis, the creditor has either a right to restitution (Section 47 InsO) or a preferential right of realization (Sections 49 et seq. InsO).
In the case of contractual pledges of rights of all kinds, the right of realization lies solely with the creditor — the insolvency administrator is not authorized to realize the rights. BGH, judgment of 27.10.2022 — IX ZR 145/21.
Secondly, the insolvency administrator.
It administers the insolvency estate in the interests of all creditors and is responsible for examining and processing any special rights asserted.
He or she is the contact person for requests for surrender, agrees on ways of realization — and must properly distribute the proceeds from assets subject to segregation to the secured creditor if he or she is legally entitled to realize them.
Important:
In the case of statutory pledges of rights — such as those of freight forwarders or warehouse keepers — the administrator may realize the assets themselves and must transfer the proceeds (section 170 InsO).
In the case of contractual pledges of rights, on the other hand, the creditor has the exclusive right of realization (section 166 (1) InsO). In this case, the administrator has no power of realization of his own.
Thirdly — and particularly important in terms of implementation: the user.
And according to the current legal situation, this is clearly the publicly appointed, sworn auctioneer.
Since the amendment of Section 383 (1) BGB, he is expressly named as the first permissible instance for collateral enforcement.
Other liquidators — such as the bailiff — can only be considered in theory, and even then only in simple cases within his district.
In the case of complex, high-value or immaterial collateral, the bailiff is effectively excluded.
The publicly appointed auctioneer is not only responsible for the legally compliant execution of the sale.
He has another decisive strength:
He has an established national and international network of interested parties for property and rights of all kinds — from machines and vehicles to company shares, trademark rights, patents, domains, licenses or IP rights.
And: He can act at short notice, without costly tenders or lengthy coordination processes.
This is its core competence:
Legally compliant exploitation — plus independent market implementation with a targeted approach to bidders and commercial professionalism.
This is a clear strategic advantage for creditors, particularly in the case of assets with a short value window, high time pressure or high potential for dispute.
The public auction makes the process more transparent, independent and comprehensible — not only for the administrator, but also with regard to potential co-shareholders or financing banks.
Creditors who want to enforce their rights in insolvency proceedings need to know who is allowed to do what — and with whom and how to cooperate.
Only the cooperation of creditors, insolvency administrators and a publicly appointed auctioneer enables a realization that is legally compliant, efficient and economically viable.
Enforcing special rights — recognizing and strategically resolving conflicts
Special rights in insolvency proceedings are not a sure-fire success.
Particularly when it comes to rights to separate satisfaction, we see time and again that creditors are formally in the right — and yet are confronted with stubborn resistance.
This section looks at why this is the case — and how to master such situations confidently and in compliance with the law.
First of all, the interests involved:
A creditor entitled to separate satisfaction does not want to be relegated to the quota, but would like to realize the value of its collateral — as quickly as possible, while preserving the value and independently of the overall proceedings.
It is also entitled to do so — its claim is secured by law (sections 49 et seq. InsO, section 166 InsO).
In practice, however, it is precisely this right that often clashes with the interests of the insolvency administrator — who is not primarily tasked with satisfying creditors, but has the legal mandate to restructure the company and preserve it as far as possible (Section 1 InsO).
Collateral is then declared “necessary for operations”, realizations are delayed and rights are called into question.
There is also another structural disadvantage:
Creditors entitled to separate satisfaction are not entitled to vote in the creditors’ meeting (section 77 InsO).
This means that they cannot have a say in the direction of the proceedings — for example, whether liquidation or restructuring is pursued.
In contrast, representatives with other interests regularly sit on the creditors’ meeting:
- employee representatives,
- banks,
- social security institutions,
- and often also the public sector as guarantor, which wants to support the preservation of the company for political or regional economic reasons.
All of these players pursue the goal of maximizing the insolvency estate or ensuring the continuation of the company — often against economic reason.
The individual security of a single creditor plays no role there — it is often even perceived as a nuisance.
This makes it all the clearer:
Those who have separation rights must actively enforce them themselves.
This is because they have no political weight in collective proceedings — only what they can prove legally and enforce operationally.
This creates a systemic conflict of objectives:
▶ The creditor wants to realize its collateral.
▶ The administrator wants to retain the restructuring option.
▶ And the proceedings remain blocked — to the economic detriment of the creditor.
How can a creditor counter this?
The answer lies in the combination of legal clarity, professional communication — and strategic implementation.
The decisive factor here is the creation of the pledge.
This is because — whether statutory or contractual — a pledge of rights is not created by law or agreement alone, but only if the necessary conditions are met:
- A non-contractual pledge of rights arises upon conclusion of an effective pledge agreement (Section 1205 BGB). Possession by the creditor is not required for this.
- A statutory pledge of rights arises automatically upon possession of the collateral by the creditor — e.g. in accordance with Section 464 HGB (forwarding agent’s lien) or Section 475 HGB (warehouse keeper’s lien). Notification to the debtor or the debtor’s insolvency administrator is not a prerequisite for the creation of the pledge of rights, but merely serves the purpose of strategic communication.
In the case of statutory pledges, no effective pledge of rights within the meaning of Sections 1204 et seq. BGB — and consequently also no right to separate satisfaction in insolvency proceedings pursuant to Sections 49 et seq. InsO.
Conclusion of this chapter:
Anyone wishing to enforce their statutory pledge of rights must not only prove the contractual basis (e.g. rental agreement) — but must also be able to prove when and how possession was transferred.
Decline in value as a risk factor
Another argument that is often overlooked:
Many securities are subject to a rapid and sometimes considerable decline in value — which is precisely why they must not be blocked by the insolvency administrator for an unnecessarily long time.
Typical examples are:
- vehicles and machines with high wear and tear,
- seasonal merchandise,
- perishable goods,
- technical equipment with a fast innovation cycle (e.g. IT, medical technology),
- but also intangible rights such as trademarks, domains or software licenses,
- as well as company shares whose value is heavily dependent on ongoing projects or personnel constellations.
In all these cases, the following applies:
Loss of time is loss of value.
And the creditor must not be forced by the insolvency administrator to watch his security lose market relevance month after month — just because the proceedings are geared towards continuation.
In the case of these assets in particular, rapid realization by the creditor entitled to separate satisfaction itself — and by public auction — is economically and legally necessary.
Damages and personal liability of the insolvency administrator
If there is nevertheless a culpable delay on the part of the insolvency administrator — for example through obstruction, inactivity or deliberate blocking — this can result in a personal liability for damages.
Section 60 InsO clearly states that the insolvency administrator is personally liable if he culpably breaches obligations under insolvency law and this causes damage to a party — in particular a creditor entitled to separate satisfaction.
This also expressly includes the loss of value of a security interest if prompt liquidation was unlawfully prevented or frustrated.
This is an aspect that should be addressed early and verifiably in communication with the administrator.
If there is a concrete risk of a decline in value or loss of the collateral, the creditor entitled to separate satisfaction can also demand that the insolvency administrator take suitable measures to secure the collateral — for example by taking out insurance.
If the administrator does not comply with this, his liability risk increases — because personal liability under section 60 InsO remains in place.
And what does this look like in practice? Two examples:
Example 1: Realization of GmbH shares
A financier had granted a construction company a project loan package — secured by a contractual pledge on the GmbH shares.
The company went bankrupt, the creditor registered his pledge of rights in due time — including all evidence.
The administrator acknowledged the claim, but refused to realize it — with reference to a “planned restructuring” and the preservation of the shareholder structure.
What did the creditor do?
He invoked § 166 InsO — the right of realization lies exclusively with him, the insolvency administrator may not realize the property.
The realization could only take place by public auction, as no other form of realization had been contractually agreed — as required by § 1235 BGB.
A publicly appointed, sworn auctioneer was therefore commissioned.
The auction took place within a few weeks — with a transparent process, several investors and a bid above the estimated value.
The creditor received the proceeds, the company was restructured — and the intended restructuring was even supported.
Example 2: Commercial landlord — fashionable clothing
Another case concerns a landlord of a commercial property whose tenant had stored fashion goods subject to retention of title.
After filing for insolvency, it turned out that the goods were high-quality but highly fashionable — and were losing market value dramatically with each passing month.
Despite the registered right to segregation, the insolvency administrator blocked the handover.
Although he paid the rent, he did not make a realization decision — with the argument that he wanted to examine the continuation.
The goods lay unused in the property for a year until the realization was then left — but at a fraction of the original value.
A clear case for liability under section 60 InsO: the administrator not only condoned the loss in value, but actively delayed it — to the detriment of the creditor and without any guarantees for a successful restructuring.
Conclusion of this chapter:
Creditors who not only want to be right, but also to get justice, need more than just a contract.
They need a clear strategy, clear communication — and a recovery partner who knows what really matters in the proceedings.
When the insolvency administrator liquidates — risks for creditors entitled to separate satisfaction
The liquidation of a collateral asset by the insolvency administrator sounds convenient at first glance:
You leave the operational business to the administrator — and receive the proceeds at some point.
However, this path harbors considerable risks. In practice, there are seven typical pitfalls that creditors entitled to separate satisfaction repeatedly stumble over — sometimes with serious economic consequences.
First: Delayed payment.
It is true that the insolvency administrator — formally on behalf of the creditor — liquidates the assets in accordance with section 166 of the Insolvency Code.
However, as a rule, he does not pay immediately, but only after the liquidation has been completed, all costs have been deducted and the section of the proceedings has expired.
This often means waiting periods of several months — in some cases until the final or special distribution.
Liquidity that would be urgently needed remains tied up.
Secondly, losses due to cost deductions.
Pursuant to section 171 (2) InsO, the administrator is entitled to deduct all costs of realization from the proceeds in advance.
This includes:
- the remuneration of liquidation service providers,
- costs for storage, transportation or even disposal,
- VAT on the sales proceeds,
- and last but not least the insolvency administrator’s own remuneration — up to nine percent of the gross amount.
As a result, the creditor quickly loses a considerable part of his security.
A rational entrepreneur would never agree to such conditions in the free market.
Thirdly: utilization at the wrong time.
The insolvency administrator alone decides when the asset is realized.
However, in the case of machinery, vehicles or merchandise, the timing is decisive for the value.
If the sale is too late, losses are incurred that cannot be compensated.
Fourthly: utilization under less than optimal conditions.
The insolvency administrator is usually a lawyer and not a businessman, has limited capacity per year for insolvency cases and therefore resorts to external liquidators or affiliated liquidation companies, which incur additional costs. In addition, there is the statutory liquidation fee for the insolvency administrator himself — up to 9% of the gross proceeds (Section 171 InsO).
In practice, we often see that:
- packages are sold en bloc,
- sold under time pressure,
- high-quality individual goods are sold to pre-selected buyers without a tender,
- or even sold to the insolvency administrator’s own liquidation company.
Yes, many large insolvency administrators operate their own collecting societies. These must operate profitably — the business lies in purchasing.
For the creditor, this means lower revenues and no control.
Fifth: Non-transparent billing.
The breakdown of revenues, costs and administrator remuneration is often incomprehensible.
Managing directors or board members in particular, who are obliged to monitor the company, have to make repeated inquiries — often laboriously, often without full disclosure.
The result is a loss of time, legal disputes and uncertainty.
Sixth: Loss of rights through passivity.
Anyone who does not register their right to separate satisfaction,
or does not respond to notifications from the administrator,
risks that their right will not be taken into account — or that the collateral will simply fall into the insolvency estate and be realized there.
Reaction is mandatory.
Seventh: Priority problems with other creditors.
In complex cases, several creditors claim security rights — such as banks, landlords or suppliers.
The insolvency administrator often decides who is entitled to what based on the files.
If you do not assert your position clearly and at an early stage, you will lose priority — and therefore possibly the entire proceeds.
Conclusion of this chapter:
At first glance, liquidation by the insolvency administrator may seem more convenient.
However, in practice, the risks often outweigh the benefits: Delay, costs, lack of transparency, incorrect timing and lack of control.
If you want to enforce your special rights, you shouldn’t wait — you should act.
Independent realization, for example by a publicly appointed, sworn auctioneer, ensures control, speed — and in many cases also better proceeds.
How should persons entitled to separate satisfaction proceed?
Insolvency administrators are among the most powerful players in German commercial law. They act with authority — sometimes like little kings in a system full of rules that they master perfectly. Their task is to assert themselves in a contentious terrain. But creditors should not be impressed by this. A confident demeanor is no substitute for a legal basis — and that is exactly what the creditor entitled to separate satisfaction has.
For logistics companies, landlords, lessors or machinery suppliers in particular, the insolvency of a customer is an absolutely exceptional situation. For the administrator, on the other hand, it is a daily routine. He knows the legal levers and knows which arguments he can use to impress or even discourage the creditor entitled to separate satisfaction from asserting his strong special right — but to leave the liquidation to him.
Insolvency administrators fulfill their legally defined mandate: they should restructure and preserve the company — if possible. But even if restructuring is the primary goal, it should not be at the expense of individual creditor rights.
In practice, most insolvency administrators are open to reasonable argumentation. Those who react immediately with legal threats rarely achieve the best results. Those who know their rights, remain objective and are confident negotiators often achieve more.
Note from practice: Dealing with commissioned third parties — such as interim managers, restructuring consultants or collecting societies acting on behalf of the insolvency administration — often proves to be particularly problematic. This group of people can sometimes behave in an overbearing or obstructive manner. For this reason, negotiations should always be conducted directly with the insolvency administrator and not with upstream third parties.
Creditors should not be put off, even if the administrator refers to precisely these third parties. Because: The insolvency administrator has the say. He is the central decision-maker in the proceedings and cannot make excuses to the creditors’ meeting or third parties. The creditors’ meeting is not a body in which the person entitled to separate satisfaction can participate — a reference to it is therefore legally ineffective and misleading.
Important: If you cause problems for the insolvency administrator or take a confrontational approach, there is a risk that they will use their extensive procedural authority to exert subtle or direct pressure. Many administrators know exactly which formulations and strategies lead to a creditor entitled to separate satisfaction giving up their rights or assigning them to the administrator.
Therefore: remain objective, but act consistently. Anyone who notices that delays or procrastination are taking place should not hesitate to take the direct route to the competent insolvency court. Only there can the person entitled to separate satisfaction enforce their rights emphatically and in a legally binding manner.
The following therefore applies to creditors entitled to separate satisfaction:
- Know your own legal position clearly,
- Communicate early and professionally,
- Do without escalation, but not without enforcement,
- Do not allow any decision to be taken,
- Seek contact at eye level with the administrator himself,
- If the blockade persists: arrange for legal clarification.
Because even if the proceedings are an everyday occurrence for the administrator, for the creditor they often involve high economic values. And the legitimate goal: securing their own rights in a difficult environment.
Who liquidates decides on the proceeds — how creditors retain control
Many creditors entitled to separate satisfaction make the same costly mistake in insolvency: they hand over the collateral to the insolvency administrator — in the hope that the latter will sell it properly and transfer the proceeds to them later. But this hope is often deceptive.
After all, whoever recycles decides the proceeds — and if you’re not careful, you lose twice.
It is not the task of the insolvency administrator to advise creditors or take their financial interests into account. His task — and this must be made clear — is to restructure and manage the insolvent company, not to enforce your special rights.
The problem here is that the interests of the administrator and the interests of the creditor entitled to separate satisfaction are not economically congruent. On the contrary — they are structurally contradictory. And this is precisely why it is so important not to relinquish control over the liquidation process.
If you are in direct possession of the pledged item, you are generally entitled to the right of realization — from the time you obtain possession. The pledge of rights arises automatically upon possession; prior notification or assertion is not required for it to arise. In the case of a contractually agreed pledge of rights to intangible assets — such as company shares, securities or other rights — only the pledgee is entitled to the right of realization. The insolvency administrator is not authorized to liquidate; section 166 (1) InsO does not apply in these cases (see BGH, judgment of 27.10.2022 — IX ZR 145/21).s
But what do you do if you are not in possession of the pledged property — for example, as the landlord of a commercial property that has been seized by the insolvency administrator? How do you obtain the surrender for your own use in accordance with sections 985 BGB, 166 para. 1 InsO — and how do you avoid typical mistakes?
First of all, you should actively register your lien or security interest at an early stage. Not generally — but specifically: with a description of the goods, secured claim amount, proof of ownership and deadlines. Document everything — in writing.
Then: Request the sale by a publicly appointed, sworn auctioneer — in accordance with § 1235 BGB. This way, you retain control over the process, timing and proceeds. And above all: you avoid unnecessary deductions, VAT and expensive delays.
It is also important to note that your consent to the liquidation by the insolvency administrator, provided he is in possession of the pledge, is not mandatory — but voluntary. You may refuse if the planned realization does not appear to be in line with the market or economically disadvantageous.
If the administrator does not comply with your request for release promptly, demand release in writing without delay. Do not allow yourself to be fobbed off with a “de facto release”. Without an explicit declaration, you will face uncertainty — with considerable risks.
If you notice that the insolvency administrator is delaying the liquidation process, offering unclear conditions or not responding to queries, set a deadline. And announce the independent realization via a publicly appointed auctioneer — for example via Deutsche Pfandverwertung. Such a step not only shows determination — it is also legally permissible.
If the goods are nevertheless sold by the insolvency administrator at a price that is clearly too low, even though a better offer existed or a market value was proven, you can assert claims for compensation — for breach of duty in accordance with Section 60 of the Insolvency Code.
To be on the safe side, have the value of the goods estimated by a publicly appointed auctioneer. Such appraisals have a high evidential value in practice — also in court.
If the property is actually sold by the administrator, request a detailed statement of account: Sales price, costs, deductions — transparent and complete. If the proceeds are conspicuously low or the statement is not comprehensible, you reserve the right to claim damages.
And if there is no other option — involve the insolvency court. A written threat of legal action is often enough for the insolvency administrator to react. After all, he also wants to avoid disputes.
One final note: In case of doubt, the insolvency administrator will invoke his discretionary powers. However, this does not release him from his duty to properly administer the assets. If he ignores offers, lets sales opportunities pass by or sells the goods below market value, he is in breach of his duties — and is personally liable.
The message is therefore: if you do nothing, you lose twice. Those who know their rights, communicate clearly and act professionally not only protect their pledge of rights — but also their economic claim.
If you are a creditor and want to assert a security interest: Do not wait. Don’t be put off. And don’t leave the realization to chance.
Contact a specialized, publicly appointed auctioneer at an early stage — and secure your position professionally.
Because: Whoever realizes the claim decides on the proceeds — whoever is not careful loses twice. Because creditors who do not exercise their rights lose both the claim and the collateral value. That is a double loss — economically and legally.
We are publicly appointed, sworn auctioneers with many years of experience in the realization of legal and contractual pledges of rights.
Do you have a specific case? Then get in touch with us: TO THE CONTACT FORM.
Contact us — together for a successful result!
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