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Security Interest in Mobile Equipment and Registration Requirements

For the creation of in rem collateral, strict requirements apply under German law. First, only certain types of security interests are available under German law (nume- rus clausus of property rights). Next, only specifically identified assets can be subject to a security interest (so-called principle of speciality). Finally, the content of most security interests is not at the parties’ discretion but - to a large extent - defined by mandatory law. This is in stark contrast to the emphasis the Cape Town Convention places on party autonomy. On the other hand, no filing or registration requirements exist under German law for the creation or perfection of security interests in mobile equipment (subject to the exceptions for aircraft and ships specified below).

More specifically, German law provides for the creation of a possessory pledge in relation to moveable assets of - almost - any kind for the benefit of the pledgee.[1] Transfer of possession to the pledgee is required for the creation of this security interest. In the absence of a registry where notice of the pledge could be given to third parties, transfer of possession is the legally prescribed method of making the existence of the pledge public and thus satisfying the so-called principle of publicity. This, in turn, brings about that the pledgor is barred from exercising physical control over the collateral for the purpose of generating revenue that could be utilized towards discharge of the obligations secured by the pledge.

Against this background, the security transfer of ownership (SicherungsUbereignung) is the security interest that is usually granted in relation to moveable assets as it allows the security provider to retain possession of the collat- eral.[2] Full ownership of a moveable asset (but not its possession) is hereby transferred to the creditor who assumes the legal position of a fiduciary. The security agreement usually requires the debtor to turn over the collateral to the secured creditor for the purpose of its sale (only) in the event of a debtor default. Because the debtor retains possession of the collateral prior to the occurrence of a default, the security by outright transfer of ownership is not apparent to third parties. By way of an example, third parties will not be able to tell without further enquiry whether or not the operator of railway rolling stock has transferred ownership of such railway rolling stock to a financier for security purposes. The financier, in turn, will be under an obligation to re-transfer the ownership to the debtor once the secured debt has been satisfied.

In the case of aircraft (and also ships) registered in Germany, the legal situation is different. The adequate security interest in relation to these assets is a registered mortgage. Special rules, filing and registration requirements, which are similar to those for real estate mortgages, apply. Pursuant to the German Aircraft Mortgage Act (Gesetz uber Rechte an Luftfahrzeugen), German law mortgages over aircraft must be registered in the Aircraft Mortgage Register (Register fur Pfandrechte an Luftfahrzeugen) which is maintained by the local court (Amtsgericht) in the city of Brunswick.

The registration of a mortgage in the Aircraft Mortgage Register is a constitutive element of the creation of this security interest.[3] It will also accord the mortgage priority.[4] In the absence of knowledge to the contrary, a creditor can rely upon the content of the Aircraft Mortgage Register (provided that no opposition to its accuracy has been registered therein).[5] Aircraft mortgages created pursuant to the German Aircraft Mortgage Act extend to engines not permanently separated from the aircraft if ownership of the engine rests with the owner of the aircraft that is subject to the aircraft mortgage.[6] The creation and registration of separate security interests in aircraft engines is not provided for under German law at present. For this reason, ratification of the Cape Town Convention is expected to significantly ease aircraft financing in Germany.

Retention of title and leasing agreements are generally not treated as secured transactions under German law. What is more, it is not possible to file or register retention of title arrangements or lease agreements with a registry or authority in Germany in order to establish, protect or perfect the rights and interests of the seller or lessor. Hence, ownership of, or interests in, a leased asset that is in the possession of the lessee can be acquired from the lessee by a third party according to the principles of good faith acquisition. In order to reduce the risk of such good faith acquisition, lessors typically request the installation of a nameplate or other evidence of their ownership on the asset. Registration of the lessor position in the International Registry under the Cape Town Convention will require a paradigm change under German law and greatly improve the legal protection of lessors and conditional sellers.

  • [1] Cf. Sections 1204-1259 of the Civil Code (Burgerliches Gesetzbuch).
  • [2] Cf. Sections 929, 930 of the Civil Code (Burgerliches Gesetzbuch).
  • [3] Cf. Section 5 (1) of the Aircraft Mortgage Act (Gesetz uber Rechte an Luftfahrzeugen).
  • [4] Cf. Section 25 (1) of the Aircraft Mortgage Act (Gesetz uber Rechte an Luftfahrzeugen).
  • [5] Cf. Section 16 (1) of the Aircraft Mortgage Act (Gesetz uber Rechte an Luftfahrzeugen).
  • [6] Cf. Section 31 of the Aircraft Mortgage Act (Gesetz uber Rechte an Luftfahrzeugen).
 
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