No registration of a land charge in favour of a legal entity that has ceased to exist as a result of a merger

No registration of a land charge in favour of a legal entity which has ceased to exist as a result of a merger – OLG Düsseldorf I-3 Wx 125/20

In a recent decision(OLG Düsseldorf, decision v. 12.08.2020, ref.: 3 Wx 125/20), the OLG Düsseldorf had to deal with the question whether a land charge in favour of a legal entity that no longer exists (due to the merger process) is registrable.
The judgment was based on the following facts:
On 27 May 2020, the contracting parties concluded a notarised real estate purchase contract, which also contained a financing power of attorney. Furthermore, the contracting parties created a land charge in favour of the financing bank on the same day. The beneficiaries thereupon apply for the registration of the land charge and, following in rank, a resolutive conditional priority notice of conveyance. However, the creditor of the land charge had already been merged with Deutsche Bank AG as the acquiring legal entity on 10 May 2020. This conversion was also entered in the commercial register. The land registry then registered the priority notice of conveyance, but rejected the application for registration of the land charge.
The court indisputably found that the company designated as creditor of the land charge had already ceased to exist pursuant to § 20 para. 1 no. 2 sentence 1 no. 1 UmwG as a result of the merger. However, it was unclear whether the application for registration could not be interpreted to the effect that the creditor of the land charge was now the acquiring legal entity, i.e. Deutsche Bank AG. For this, an interpretation of the land register declaration would have to lead to a doubtless and unambiguous result. However, the court denied this in the present case. The acquiring legal entity also has three other branches that can also conclude financing transactions. In this respect, it was unclear whether the contracting parties would have concluded the contract with the acquiring legal entity or one of the three branches if they had been aware of the legal situation.
According to the court, a reinterpretation according to §140 BGB was also not appropriate, since the legal transaction was not indefinite in content, but only the designation of the creditor of the security right over real property was incorrect. Finally, the court ruled out a derivation from a universal succession directly as well as indirectly.

If you have any further questions on this topic, we will be happy to advise you in detail.

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Banking law - Termination of business relationship on suspicion of money laundering by the customer

In a ruling of 29 September 2020 (Ref.: 5 U 165/19), the OLG Jena dealt with the question of whether and under which conditions an extraordinary termination option exists if the bank suspects misuse of the loan proceeds, in particular for money laundering.

According to the court, the extraordinary termination in such a case could be based on no. 26 para. 2 of the GTC-Savings Banks (= no. 19 para. 3 GTC-Banks), or § 314 BGB. The prerequisite is a suspicion of money laundering within the meaning of section 261 of the Criminal Code, which is based on a multitude of unusual circumstances at the time of the notice of termination and which objectively could have existed. According to the court, there is no doubt that a criminal offence under section 261 of the German Criminal Code (StGB) constitutes good cause for extraordinary termination under section 314 of the German Civil Code (BGB) – this applies irrespective of the standard examples listed for good cause in the savings banks’ GTC, which do not expressly include suspicion of money laundering. Moreover, recital 33 of the Consumer Credit Directive, which according to the literature also covers money laundering, also speaks in favour of the suspicion of money laundering as a sufficient reason for termination.

What is required is an initial suspicion, which results from concretely recognisable indications. These can be, for example, a conspicuous handling of financial transactions or a deviation from normal business conduct. The given indications are said to suggest that the origin of illegal assets is to be concealed or, for example, that access to illegal funds by the law enforcement authorities is to be avoided through transactions, so that a background corresponding to Section 261 of the Criminal Code cannot be ruled out. In this respect, there was a certain margin of appreciation when assuming the initial suspicion.

If there is a suspicious case that has to be reported according to the GWG, a sufficient reason for termination is to be indicated in any case. The bank could not reasonably be expected to continue the business in this situation. Neither the expiry of the prohibition period pursuant to § 11 para. 1 a GWG a.F. nor a discontinuation of the preliminary proceedings according to § 170 para. 2 of the Code of Criminal Procedure precludes the extraordinary dismissal. The latter does not change the fact that the bank actually had reasonable suspicion. For this purpose, the ex-ante view was decisive, i.e. not the view “in retrospect”, but the view at the time the suspicion was founded.

The ruling of the OLG Jena could lead to more legal certainty in the future when terminating corresponding legal transactions. We will of course continue to follow developments in the area of dismissal on suspicion of money laundering for you.

If you have any questions on this topic, we will be happy to advise you.

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BGH judgement on fictitious consent in the case of amendments to GTCs

In a judgement of 27.04.2021 (Az. XI ZR 26/20), the XI Civil Senate of the Federal Court of Justice ruled on the invalidity of general terms and conditions clauses that feign the bank client’s consent if the bank makes changes to the general terms and conditions.
The complaint filed by the Federal Association of Consumer Centres and Consumer Associations was directed against clauses in general terms and conditions stipulating that changes must in principle be offered to the customer two months before the date on which they are to take effect. However, the express consent of the customer shall not be required for these clauses to take effect. Insofar as he does not indicate any rejection within the period between the offer and the effective date, the consent shall be deemed to have been given. The bank will make special reference to this in the offer and the customer also has a termination option.
The plaintiff brought an action for an injunction against the use of such clauses. After unsuccessfully going through all instances, he turned to the BGH with his request to oblige the bank to refrain from using these clauses.
The court came to the conclusion that the clauses were invalid. They do not stand up to a review of general terms and conditions pursuant to § 305 et seq. BGB.
An interpretation of the disputed clause No. 1 (2) of the GTC shows that it concerns all amendments to the contracts concluded between the bank and the client. This may also include, for example, securities transactions and savings transactions. Without there being any restriction in this respect, every contractual amendment agreement is therefore affected by the effect of approval. The BGH sees this as a significant deviation from the basic idea of § 305 para. 2, § 311 para. 1, §§ 145 et seq. BGB, according to which silence in legal transactions is generally not to be regarded as a declaration of intent. Accordingly, the GTC offer cannot be effectively accepted without the customer actually giving his consent. This was to be seen as an unreasonable disadvantage to the customer pursuant to section 307 (1) sentence 1, (2) no. 1 of the German Civil Code (BGB), which is presumed in the case of a substantial deviation from the basic ideas of the law. In the case of fictitious consent, the bank has the power to redraft the contract on its own authority. Even the possible exercise control with regard to already agreed amendments did not change the existence of the unreasonable disadvantage. Rather, an amendment agreement was required for an amendment of the GTC, especially if such fundamental and far-reaching provisions for the contractual relationship of the parties were involved, as in the case decided in this case.
With regard to another clause, no. 12 (5) of the disputed GTC, the court also came to the conclusion that the clause was invalid. This regulates charges for main services. Because of the customer’s fictitious consent, the main performance obligations owed by the bank can be changed by means of GTCs – and without restrictions. This leads to the bank being able to influence the contractual provisions to its advantage in a significant way, which can lead to a devaluation of the client’s position. This was an unreasonable disadvantage contrary to the principles of good faith. In order to be effective, an amendment agreement meeting the legal requirements would also be required. The fiction of consent, on the other hand, was not sufficient.
This decision will have far-reaching consequences for practice. On the one hand, this makes it necessary to adapt comparable clauses in legal transactions. Furthermore, certain amendments to the GTC may also be retroactively invalid. With respect to consumers, amendments to general terms and conditions or special terms and conditions based on a mere fiction of consent by the customer may not have become effective. This would have the consequence that the originally agreed conditions would continue to apply, which may well lead to a need for legal action.
If you have any questions about changes to the GTC, we will of course be happy to advise you. We continue to follow developments on this issue and will keep you informed.

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The procedural documentation

If entrepreneurs do not want to run the risk of additional estimates during tax audits, they must be able to present procedural documentation – often immediately after the audit order.

I. What is procedural documentation and who must keep it?

Procedural documentation is intended to present the structure as well as the organisational processes in a company that are related to accounting in a stringent and comprehensible manner. In addition to general structures such as document storage and financial accounting, this also includes all documents relevant to the individual business processes. This can also include (electronic) correspondence as well as payroll and time recording processes. The procedural documentation extends the general requirements for accounting, which result from the original accounting obligation, from the German Commercial Code as well as the extended accounting obligation of the German Fiscal Code, the principles for the proper keeping and storage of books, records and documents in electronic form as well as for data access (GoBD), by a further issue. In this respect, there is an obligation for companies to prepare and maintain procedural documentation that generate profit income according to §§ 5, 4 para. 1 EStG. In this respect, there are no exceptions, so that even small businesses must maintain procedural documentation.

II Structure and content of procedural documentation

The procedural documentation must be comprehensible and complete for an expert third party, in particular for the auditors of the tax authorities. The documentation of all relevant processes should be done in such a clear way that the expert third party can get an overview within a short time. But how exactly should procedural documentation be structured in order to do justice to this? The concrete design depends, of course, on the respective company and its business processes. However, the Federal Ministry of Finance assumes a general structure described as follows:

1. general description

Within the framework of the general description, the organisation of the company shall be presented. In particular, staff responsibilities and the operational environment should be explained in more detail. Furthermore, the processes relevant under tax law are to be described. The business processes carried out should be clearly presented from start to finish, i.e. from order processing to accounting and the associated payment transactions to the archiving of documents.

2. user documentation

The user documentation describes the software used. For the sake of completeness, the operating instructions for the respective software should also be included.

3. technical system documentation

The entire IT use in the company should also be presented. In addition to hardware and application service providers, this also includes data backup and data protection.

4. operating documentation

Finally, proper procedural documentation also includes a description of the internal control system. This is to guarantee compliance with the procedural instructions and lead to complete operational documentation. Furthermore, the procedural documentation must always correspond to the current procedure used in practice. Changes must be historically traceable; in particular, it must be recognisable which programme version has been used for which period.

III. Consequences of incomplete procedural documentation

If only incomplete procedural documentation or, in the worst case, no procedural documentation at all is submitted to the tax authorities, there is a formal deficiency with material weight and there is a possibility that the auditor will reject the entire accounting. As a consequence, additional assessments of up to 10 percent of the annual turnover on the taxable profit can be threatened. Such costs are unnecessary and avoidable. In order to safeguard themselves in advance, companies should seek professional help if they have doubts about completeness. Our tax advisors will be happy to advise you in detail on the subject and provide you with customised solutions for your company.

If you are interested, please contact us by e-mail, via the form on our website or by telephone.

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