Responding to Debt Default in Germany: Legal Options When a German Company Defaults

When international companies face debt default by a German entity, they are presented with various legal avenues to pursue regarding debt recovery. At the outset, negotiation and settlement can be utilised as a pragmatic approach for resolving disputes arising from debt default. Engaging in dialogue with the debtor allows international companies to explore the possibility of reaching a mutually agreeable settlement. Such negotiations may lead to a swifter resolution and potentially avoid the protracted litigation process and the attendant costs and uncertainties it entails.

Should negotiations falter or prove unfeasible, recourse to legal proceedings becomes imperative. International companies can initiate litigation against the debtor through the German court system to secure a judgment that validates their claim to the outstanding debt. Upon obtaining a favourable decision, international companies may turn to enforcement measures to compel the debtor to satisfy their financial obligations. These enforcement mechanisms wield considerable authority, encompassing actions such as asset seizure, garnishment of bank accounts, and imposition of liens on the debtor’s property. Through diligent enforcement proceedings, creditors endeavour to exert pressure on the debtor, incentivising compliance and facilitating debt recovery.

When pursuing these legal options, international companies must carefully weigh the advantages and drawbacks inherent in each approach. While negotiation and settlement offer practicality and flexibility, they may entail concessions on the creditor’s part and hinge upon the debtor’s cooperation. Conversely, legal proceedings and enforcement measures provide a robust framework for asserting creditor rights but entail the risk of prolonged litigation and resource-intensive enforcement efforts.

Ultimately, the choice of legal strategy hinges upon the unique circumstances of each case, as well as the objectives and constraints of the creditor. At Schlun & Elseven Rechtsanwälte, our legal team is ready to advise international companies and other clients about the most suitable approach to pursue their debt recovery case. Our firm provides comprehensive legal guidance and seeks to safeguard the interests of our clients while pursuing debt recovery with diligence and determination.

Enforcing foreign judgments within the German legal system can be a complex process requiring a thorough understanding of German procedural rules and international legal frameworks. The legal team at Schlun & Elseven Rechtsanwälte takes a comprehensive approach to this task, beginning with a careful review of the foreign judgment and its compatibility with German law.

The German Code of Civil Procedure (ZPO) governs enforcement procedures in the country, and our team is well-versed in the intricacies of this legal code, ensuring that our clients receive precise guidance through each phase of the enforcement process. We collaborate closely with our clients to analyse the ZPO’s requirements for recognising and enforcing foreign judgments, providing clarity on procedural rules, jurisdictional considerations, and criteria for judgment authenticity. By leveraging our expertise in the ZPO, we mitigate procedural risks and streamline the enforcement process, facilitating efficient debt recovery for our clients.

Moreover, international agreements play a pivotal role in shaping the enforcement landscape in Germany. As a signatory to the New York Convention, Germany is committed to facilitating the recognition and enforcement of arbitral awards from other contracting states. Our team’s familiarity with the New York Convention enables us to guide clients through the complexities of enforcing arbitral awards efficiently and effectively. Additionally, Germany’s membership in the Lugano Convention facilitates cooperation in civil and commercial matters among European countries, further enhancing the framework for debt recovery in cross-border cases.

When recognising foreign judgments in Germany, particularly those from EU member states, adherence to the European Regulation on Jurisdiction and the Recognition and Enforcement of Judgments is essential. This regulation streamlines the recognition process for judgments from EU member states, eliminating the need for a particular procedure. However, criteria outlined in § 328 ZPO must still be met, including reciprocity of recognition. If the German court recognises a foreign judgment, it typically refrains from altering the decision.