Germany: Two Major Problems In Dealing With Fraud Cases In Germany

In fraud and asset tracing cases, the first goal is to obtain a Writ of Attachment which allows for pre-judgment seizure of the debtor’s assets. However, since such seizure is a material restriction for the debtor, the Writ will only be granted if specified grounds can be proved. Such grounds are, for example, criminal offences against the creditor’s property, wasteful spending, and imminent transfer of assets abroad.

If no Writ of Attachment has been issued, the creditor must file an action in order to obtain a judgment as soon as possible. If the claimant relies entirely on documentary evidence, it could file a special summary procedure. Since the average time period until a judgment is granted varies considerably between the German Courts, it might sometimes be useful to investigate in detail whether another German Court has jurisdiction. In general, Courts in the Southern part of Germany come to a quicker decision.

Time is frequently one of the most important factors since dubious debtors often make tremendous efforts to conceal or transfer their property. If a judgment is granted in favour of the creditor, and if the debtor is suspected of having concealed or transferred its assets, an application could be filed with the enforcement Court that the debtor should be ordered to disclose his assets. The creditor has to enclose with such application the relevant judgment and a Bailiff’s Certificate stating that the debtor does not possess sizeable, moveable property (nulla bona). In practice, it is useful to have some personal contact with the bailiff, even by phone. Otherwise, it might take considerable time until such certificate is available since the bailiffs are nowadays inundated with work.

If the bailiff has issued a nulla bona certificate and the creditor has filed an application, the debtor will be ordered by the enforcement Court to fill in one or more forms. The debtor has to disclose every item of moveable property, no matter whether it is exempt from execution or whether he or a third party has actual possession. The debtor must state all his money claims, naming his debtors and giving the foundation of their claims, and must disclose the name of his current employees and their salaries. On completion of the schedule of property, the debtor has to give an affirmation, instead of an oath, as to the correctness of the schedule. A false affirmation is a criminal offence. However, an increasing number of debtors are not deterred even by criminal sanctions from making false statements.

The most common strategy to conceal assets, without making blatant misstatements to the enforcement Court, is an asset transfer to relatives, friends and other persons who act – at least in an economic sense – as trustee for the debtor. Fraudulent transfers and other comparable individual acts may be rescinded. Most actions for rescission are taken by insolvency administrators. However, similar rescission rights are granted to creditors if no insolvency proceedings have been commenced. Acts capable of being rescinded are, for example, gifts, transactions that have been entered into with a specific intention, incongruent guarantees, as well as congruent guarantees that were transacted within the last three months prior to filing insolvency proceedings. Transactions carried out with the intent to prejudice creditors are rescindable for ten years, though the recipient of the gift may only face rescission claims for four years.

In practice, the legal issues are frequently not as important as a thorough investigation of the debtor’s personal and business affairs. Such an investigation will frequently reveal where assets that could be subject to rescission rights are concealed.

"© Herbert Smith 2002

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