UK: Effective Methods for Securing Assets in Germany

German law offers defrauded parties a unique opportunity to secure claims for restitution of property and for damages by combining freezing orders pursuant to private law with seizure orders from the German criminal law authorities. This article outlines how this tool can be effectively utilised.

Freezing orders are designed to secure the main claim which is, or may become, the subject matter of a lawsuit. Freezing orders aim to prevent a defendant from removing assets out of the reach of a claimant, and thus to frustrate the enforcement of the judgment. A freezing order is granted by the competent German court without notice to the defendant if the following conditions are met:

In accordance with Art. 31 of Council Regulation 44/2001, the German courts apply their autonomous law to determine international jurisdiction and venue. The claimant can choose to file his application for a freezing order either with the court competent to hear the main lawsuit or with the Local Court (Amtsgericht) within the district in which the assets to be seized are located. The German courts usually assume broad jurisdiction.

The application for the freezing order must contain all the facts upon which the main claim to be secured by the order is based. For these facts, prima facie evidence has to be provided by the claimant. The court will determine the content of the applicable law. If the main claim is subject to foreign law, however, the claimant is under an obligation to provide sufficient evidence that the legal claim exists under the applicable law. In practice, affidavits of lawyers qualified in the respective jurisdiction are widely accepted by the courts.

The claimant also has to furnish prima facie evidence that the enforcement of its main claim would be impeded or prevented without the issuance of the freezing order. The German courts are quite strict in endorsing this requirement to balance the broad jurisdiction with the fairly low standard of proof for the main claim. If a claimant cannot provide convincing evidence that the defendant is actually trying to remove assets from the reach of the claimant, or that assets are being squandered by the defendant in bad faith, the German courts will not issue a freezing order.

However, these strict standards do not apply in cases where the defendant is domiciled outside Europe, which is common in international fraud cases. There is a presumption that a freezing order is necessary if a judgment in the main lawsuit would have to be enforced in a country where neither Council Regulation 44/2001 nor the Lugano Convention applies. German courts are divided as to whether this presumption applies only when the (future) judgment to be enforced originates from a German court or also to judgments from other countries. The majority view seems to be that all judgments rendered by courts within the European Union trigger the presumption.

If a freezing order is granted, the claimant will file an application with the German court for service of the order on the defendant. For defendants domiciled abroad, the filing alone is sufficient to validate the order, even if the actual service takes years.

The claimant also needs to serve the freezing order on any third-party debtors where the assets of the defendant are located. Given proper service, the third-party debtor must not aid or assist the defendant to breach the order.

Individual defendants to international fraud cases often also violate German criminal law. Such violations are subject to prosecution by the German criminal law authorities. The authorities have the right to seize assets if there are reasonable grounds for assuming that the respective assets were received for, or resulted from, a criminal offence. A seizure order can be issued at any stage of the criminal investigations. The seizure extends, inter alia, to the proceeds of such assets (e.g. interest payments) and to other assets received in exchange (e.g. the purchase price in the case of a sale).

The underlying intention is that assets resulting from a crime shall be forfeited to the benefit of the German State. A second, and overriding, objective is to assist the party aggrieved in enforcing its civil law claims for restitution and for damages resulting from the offence. As far as such claim is proved, the assets seized by the criminal law authorities are not forfeited for the benefit of the State but are available to satisfy such claims. The criminal law authorities are under a legal obligation to co-operate with an aggrieved party to make the assets seized available to this end.

Combining freezing and seizure orders by an aggrieved party is a powerful tool for securing assets. A claimant aggrieved by a criminal offence under German law should co-operate closely with the criminal law authorities. Once a claimant files a notice outlining the possible criminal offence, the authorities will commence investigations. They have extensive rights when investigating a crime. Usually, they are in an excellent position to discover and to seize assets, in particular when the aggrieved party identifies assets it has knowledge of.

In parallel with assisting investigations, the claimant should apply for a freezing order in respect of the assets already seized by the criminal law authorities. Subsequently, the claimant must apply for a resolution by the competent criminal court. This resolution grants the freezing order priority over all other claims to the assets seized and this operates retrospectively, from the date of the seizure order. If, in the course of the criminal law investigations, additional assets are discovered and seized, further freezing orders and court resolutions may be obtained.

By co-operating with the criminal law authorities, by combining freezing and seizure orders, and by acting swiftly, assets located in Germany therefore can be effectively secured in fraud cases.

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