Finance

Anyone running a business usually requires external finance. Lenders, however, require collateral. The German legal system provides a strong framework for efficient and legally certain loans.

Whoever is registered in the land register as a mortgage does not have to worry about the borrower becoming insolvent. A registered mortgage can realise the property, taking priority over all other creditors. This protection has a binding effect on everyone.

With mortgage bonds (Pfandbriefe), the German jurisdiction has provided the banking sector with an internationally recognised and legally certain refinancing tool.

A Pfandbrief is a bond issued by a Pfandbrief bank. Its main feature is the fact that the investor does not have to rely on the credit rating of the issuing bank alone, but is – in the event of an insolvency of the issuing bank – also secured by a pool of cover assets (Deckungsmasse) of mortgages or public sector loans, which is reserved for the Pfandbrief holders.

In Germany, efficient financing solutions in trade and commerce are also created through flexible structures for chattel mortgages.

So it is for example possible to stipulate retention of title to a sold machine to protect its rights. As a result the seller of a sold machine remains the owner of the machine until payment of the last purchase price instalment is made and is therefore also protected in the event of insolvency of its customer.

A non-possessory lien by way of a chattel mortgage (Sicherungseigentum) and the retention of title secure the lender, even though the lender is not, or no longer, in possession of the chattel. In this regard, German law is considerably more flexible and efficient than other legal systems where a security interest can only be created if the secured party is in possession of the chattel.

Furthermore, German law permits the assignment of receivables by way of security.