1. Security Rights and Law Reform in Continental Europe - The German Perspective Prof. Dr. Moritz Brinkmann, LL.M. Institut für deutsches und internationales Zivilprozessrecht sowie Konfliktmanagement der Universität Bonn Security Rights and the European Insolvency Regulation - Conference May 19th 2015

2. The Peculiar Approach of German Law in the Field of Secured Transactions - and Why it Has Worked (So Far)

3. Security Rights and the European Insolvency Regulation Outline I.Overview over the German Law on Secured Transactions with Respect to Movables II.Why the German Approach has Worked (so far) III.New Challenges in a Changing Environment

4. Security Rights and the European Insolvency Regulation Overview over the German Law I.The Peculiarities of German Law 1. German law of secured transactions over movables is to a great extent not codified but judge made 2. Essentially no publicity requirements regarding security rights over movables 3. No functional approach

5. Security Rights and the European Insolvency Regulation A. Tangibles as Collateral 1.BGB provisions on the pledge largely irrelevant in practice because of transfer-of-possession requirement 2.Parties resort to a fiduciary transfer of ownership (Sicherungsübereignung) a) Agreement to transfer ownership from grantor to secured party (sect. 929, 930 BGB) Creditor acquires title to the collateral, Creditor has contractual duties against the grantor Very flexible: May cover all present and future inventory No formalities Transfer of possession is not required b) Recharacterization in insolvency: In insolvency proceedings the creditor is treated not as a full owner but as a secured creditor

6. Security Rights and the European Insolvency Regulation B. Receivables as Collateral 1.BGB provisions on the pledge of receivables largely irrelevant in practice for the notification requirement 2.Parties resort to a fiduciary assignment (Sicherungsabtretung) a) Agreement between creditor and grantor suffices Third party debtor has not to be notified No formalities Very flexible: Assignment may cover existing as well as future claims b) Recharacterization in insolvency: In insolvency proceedings the creditor is treated not as the holder of the claim but as a secured creditor

7. Security Rights and the European Insolvency Regulation C. Retention of Title Devices 1.Very important with respect to financing of inventory a) No formalities required 2.Even before complete payment buyer may be allowed to sell on or process the delivered goods ➡ By virtue of a extended title retention clause seller acquires a security right in the proceeds that enjoys super priority 3.In insolvency the seller has a reclamation right with respect to the sold goods with respect to the proceeds he enjoys only the rights of a secured creditor.

8. Security Rights and the European Insolvency Regulation II. Why the German Approach has Worked (so far) A.Judge made work arounds such as „Anwartschaftsrecht“ or the doctrine of „Over-security“ B.German Financing Practices, in particular: The „Hausbankprinzip“ Strong form of relationship lending Close relation between creditor and borrower reduces the need for publicity for the Hausbank as it is fully informed anyhow for third parties as they know where to turn to for information ➡ The nexus between secret security rights and relationship lending

9. Security Rights and the European Insolvency Regulation III. New Challenges in a Changing Environment A.Growing importance of Cross border transactions German security rights are in many instances not recognised internationally B.New Players on the German Credit Market and the demise of the Hausbank-principle Basel accords force banks to diversify their risks Some German companies (big and medium sized, e.g. Siemens, Trumpf) have established their own banks to provide financing to their international customers

10. Security Rights and Law Reform in Continental Europe - The German Perspective Prof. Dr. Moritz Brinkmann, LL.M. Institut für deutsches und internationales Zivilprozessrecht sowie Konfliktmanagement der Universität Bonn Security Rights and the European Insolvency Regulation - Conference May 19th 2015