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Enforcement of Security Interests in Mobile Equipment

Enforcement of German law security interests depends upon the type of security granted under the security documents. A multitude of mandatory statutory provisions must be observed with respect to certain types of security while in other cases the enforcement is chiefly governed by the contractual arrangements between the parties.

As a general rule (and with a very limited number of exceptions only), no selfhelp remedies are available in Germany to expedite repossession if the defaulting debtor does not voluntarily deliver the asset to its creditor. Enforcement of a repossession claim therefore usually requires the assistance of official bodies (i.e., courts, bailiffs).

In order to enforce an aircraft mortgage, the mortgagee must act in accordance with the provisions of German procedural law. Once the creditor has initiated the enforcement process, the competent court (i.e., the local court in Brunswick) will take all necessary steps to secure the aircraft and proceed with a public sale of the aircraft by way of an auction pursuant to the Act Governing Auctions and Sequestrations (Gesetz Uber die Zwangsversteigerung und die Zwangsverwaltung) which mainly deals with immoveables.[1] In principle, this is the only permissible way of realizing an aircraft mortgage in Germany. A private sale of the aircraft by the mortgagee is ruled out by law unless specifically agreed between the mortgagor and the mortgagee after the mortgage has become enforceable.[2] Similarly, prior to the mortgage becoming enforceable the parties cannot validly agree that ownership of the aircraft shall vest in the mortgagee, which is fully in line with Article 9 (1) of the Convention.

In contrast, the sale of collateral that is subject to a security transfer of ownership is far more flexible and can be sketched out in detail by the parties in their security agreement. For instance, financiers of railway rolling stock usually insist on being granted the right to sell the rolling stock by private sale or private auction on behalf of the debtor if the latter defaults under the financing agreements. The proceeds from such sale will be used towards the satisfaction of the secured debt. In addition, the parties may stipulate in their security agreement that the creditor’s default remedies include the right to grant a lease over the collateral and collect the lease rentals in satisfaction of the secured debt. However, rolling stock of railways providing public transportation which is subject to a security transfer of ownership cannot be sold for the purposes of debt recovery without the consent of the relevant governmental supervisory authority.

In the context of leasing agreements, the lessor has the right to demand delivery of the lease object from the lessee if and when the lease has terminated. To the extent the lease is governed by German law, the lessor has a statutory right to termination of the lease without a notice period for compelling reasons (including payment defaults of a certain magnitude).[3] It is important to note that as long as the lease agreement is in place, the leased asset remains subject to the lessor’s covenant of quiet enjoyment vis-a-vis the lessee. Consequently, any attempt by the lessor to recover the possession of the lease object would be unlawful prior to termination of the lease agreement.

Depending on the factual situation and the asset category, additional laws and procedures may become relevant. For instance, preliminary measures (einstweilige VerfUgungen) which a secured creditor, lessor or conditional seller initiates with a view to grounding an aircraft are subject to restrictions under German law if the aircraft is used for postal services or public transportation on scheduled routes, or if the aircraft is about to take off for the commercial transportation of people or goods.

  • [1] Cf. Section 47 (1) of the Aircraft Mortgage Act (Gesetz uber Rechte an Luftfahrzeugen).
  • [2] Cf. Section 49 of the Aircraft Mortgage Act (Gesetz uber Rechte an Luftfahrzeugen).
  • [3] Cf. Section 543 of the Civil Code (Burgerliches Gesetzbuch).
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