Asset recovery in Germany for international corporations

February 2022  |  SPECIAL REPORT: CORPORATE FRAUD

Financier Worldwide Magazine

February 2022 Issue

In recent years, the number of multinational fraud cases has increased significantly. Companies often find themselves damaged by complex international fraud schemes in which the perpetrators reside in a different country and assets are moved around internationally.

If there are reasonable grounds to believe that assets are located in Germany, German law grants effective measures for foreign corporations to secure those assets, and as an accompanying measure in cases where main claims are pursued in fraud litigation in another jurisdiction.

The first option would be to pursue the seizure of assets in ex parte interim relief proceedings against the perpetrator. Fraud litigation is an important instrument of asset recovery for injured parties. While this is a civil law instrument, it is often based on tort claims. The advantage over confiscation and seizure by authorities is that civil measures in interim relief proceedings can usually be carried out more quickly and the injured party has greater control over the measure.

It enables seizing all movable or immovable assets up to the amount of the applicant’s claim. Such assets may include real estate, valuable objects, company shares or funds in a German bank account. Often, the measure is aimed at seizing funds in those bank accounts to which the incriminated funds could be traced. In this case, all payment claims against the bank as third-party debtor are seized up to the amount covered by the claim.

In addition to a claim, such an application requires grounds for seizure. Grounds for seizure exist if it is feared that without issuing the seizure warrant, subsequent execution of a judgment would be frustrated or made considerably more difficult. This may be the case, for example, if there are indications of international transfers of assets or criminal offences against the assets.

An irrebuttable presumption exists if a subsequent judgment would have to be enforced abroad and reciprocity is not guaranteed. The applicant must sufficiently substantiate the requirements, which is usually done by producing affidavits and documentary evidence.

A huge benefit for damaged corporations abroad is that the application can not only be filed at the district court that would have jurisdiction for the main proceedings, but also at the local court in whose district the assets to be seized are located.

The local jurisdiction also governs international jurisdiction. It enables the damaged party to file an application for the seizure of assets in Germany in support of foreign main proceedings. However, if a foreign judgment on the merits is to be enforced in Germany, it must be eligible for acknowledgement and enforceable.

Usually, courts rule on a well-prepared application for ex-parte interim relief within 1-2 working days. If the application is granted, it can be enforced immediately. The creditor is responsible for the enforcement. Regarding bank accounts, enforcement only requires service of the seizure order to the bank via the competent bailiff. Thus, bank accounts can be frozen within a very short time.

Banks usually also provide information about the account balance at the time of the seizure. If requested, the bailiff can also seize the debtor’s movable property and solicit an asset statement. If the debtor refuses to provide the asset statement, the bailiff can obtain information through third parties.

After enforcement has been initiated, the creditor must serve the seizure order to the debtor within one week. All enforcement measures must be initiated within one month after the order was announced or served to the party on whose application it was issued.

If the asset seizure was successful, the debtor can petition the asset seizure or request that main proceedings be initiated. If the petition is rejected, the assets remain frozen until either a judgment in the main proceedings is issued or parties agree on a settlement and seized assets are released to the creditor.

If the application for an asset seizure is not successful and the main claim relates to a criminal act, for example embezzlement or fraud, the damaged corporation has the option to approach the criminal prosecution authorities and seek to have the alleged perpetrator’s assets seized in order to secure subsequent confiscation. The alleged perpetrator is thereby prohibited from disposing of all or part of his or her assets long before a court decision is issued. Of course, this option is not dependant on a prior application to the civil courts, it can also be an alternate approach.

Criminal charges can also be filed in connection with or after a seizure order has been granted by the district court or local court and has been executed by the creditor. In some cases, civil courts also pass on the application for asset seizure to the criminal prosecution authorities. In cases where the execution of the seizure order in interim relief proceedings was not successful because assets have been moved or concealed, the criminal investigation may be helpful in tracing the assets.

Yet, if after a successful asset tracing the prosecuting authority makes use of its competence to order an asset seizure as a provisional measure, assets are usually not released until proceedings are completed. Since it is becoming increasingly common, especially in white-collar crime, for criminal proceedings to drag on for several years, the assets would essentially be frozen for this period. For the person affected by an asset seizure – but even more crucial for the damaged party – this can mean that the seized assets or substantial parts of the assets cannot be accessed for years. Yet while there are no statutory maximum periods for seizure following reform of criminal asset seizure in 2017, this does not mean that a seizure order can be maintained indefinitely.

Recent jurisprudence confirmed that the seizure can only be maintained if it is suitable and necessary to secure the assets until the proceedings are concluded. The line is to be drawn where the maintenance of the seizure leads to a disproportionate burden on the person affected.

This also drives home one of the major disadvantages of asset seizure by the prosecuting authority: the damaged corporation is not in the driver’s seat. It usually has no influence on whether and when the seized assets will be released to satisfy its claims. It also has no influence on the conduct and thus the duration of the criminal proceedings. In contrast, the damaged corporation is able to actively steer the civil proceedings (at least up to a certain extent) which is why this option is often the first choice to retrieve defrauded funds.

 

Michelle Wiesner-Lameth is a partner at Rosinus Partner. She can be contacted on +49 (69) 874 0306 0 or by email: m.wiesner@rosinus-partner.com.

© Financier Worldwide

BY

Michelle Wiesner-Lameth

Rosinus Partner

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