Loan collateral

Business transfers and the sale of individual asset components often require financing. Existing companies also often have a need for regular capital injection, for example as part of project development or as part of investments. Capital requirements are often met by borrowed funds in the form of loans.

Depending on the type and extent of the financing as well as the borrowers and lenders, there exist different needs and possibilities for securing loans.

Classical loan collateral includes mortgages, pledges of shares, assignment of receivables, and securities.

Within real estate financing, mortgages play a leading role as loan collateral. In corporate financing, the pledging of business shares on behalf of lenders or trusteeships is also frequently used as a means of security.

Both the creation of mortgages and the pledging of business shares in a limited liability company (GmbH) are subject to notarial form in accordance with the applicable statutory provisions.

Of the legally (conclusively) standardised mortgages, the land charge is of greatest importance in practical terms as collateral for a loan. It is the most often used as a security in connection with real estate loans - most frequently taking on the form of a book land charge (Buchgrundschuld), less frequently the form of a letter right (Briefrecht). Mortgages have only little practical relevance as classic security. However, mortgages offer advantages over land charges, especially in terms of financing by private individuals. Often mortgages occur in the form of security mortgages in the context of non-performing financing, or otherwise with impeding insolvent debtors who have real estate holdings.

As it is conceived in statute, the land charge – in contrast to the mortgage, which is hardly in use anymore – basically exists as an abstract form of the underlying, secured legal relationship. As an abstract means of security, the land charge requires special attention when financial advice and notarial supervision is given. Sellers of real estate must be protected from claims made by the lender, who is secured by the land charge, against payment of the purchase price though meticulous arrangements. These constructions restrict the usability of a land charge that has been ordered as part of purchase price financing. Borrowers must be informed about the effects of land charge deeds, the content of which is generally specified by the lender. Formally, the land charge order that is to be entered into the land register must be notarised as a bare minimum. The land charge forms specified by the lenders, but also the sequestration submissions made by the borrower regularly provide for both enforcement in the case of the real estate itself, but also in the case of other assets belonging to the borrower on account of acknowledgements of debt regularly made within the scope of land charge orders. In these cases, land charge orders must not only be notarised for authenticity, but also certificated.

Contracts for the pledging of shares as security for a loan granted to a shareholder or to a company also require notarised certification due to formal legal requirements. Here, too, the content – in particular the provisions on the purpose of the security, the scope of the security, the event for which security is provided, and the manner in which the pledged shares are to be realised by the pledgee – is specified, as a rule, however, by the lender acting as the secured party.

To the extent that the granting of loan collateral requires notarial form, LEONHARDT RATTUNDE's notaries have the necessary expertise for notarial support in the careful preparation and implementation of such agreements.

In crisis situations, our lawyers at LEONHARDT RATTUNDE are able to react quickly and professionally thanks to their expertise in insolvency law and their extensive practical experience. They can advise and represent the parties concerned with respect to the optimum protection of their rights within insolvency proceedings or as part of out-of-court reorganisation. Our satisfied clients include borrowers as well as institutional and private lenders, suppliers and investors.

Loan collateral plays an important role in business life whether as part of crisis management or otherwise.

Aktuelle Veranstaltungen

Specialist Course in Insolvency Law - Module 8: Insolvency plan proceedings, self-administration, insolvency plan proceedings

Date: 02-06-2020
Speaker: Prof. Dr. Torsten Martini
H4 Hotel Hamburg-Bergedorf

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