ABA 2012 Annual Meeting – International Commercial Law Subcommittee

1. ABA 2012 Annual Meeting – International Commercial Law Subcommittee Cross-border Securities and Deposit Account Collateral – Germany August 4, 2012 382628_2

2. Cross-border Securities and Deposit Account Collateral – Germany (1/4) • Types of Securities (Wertpapiere) “An instrument that embodies certain rights in a manner such that only the holder of the instrument is entitled to exercise such rights.” • Bearer securities (Inhaberpapiere) • Securities made out to order (Orderpapiere) • Registered securities (Rektapapiere) • Holding Patterns • “Directly-held” securities • “Indirectly-held” securities • Other Types of Assets Credited to Securities Accounts • “Credits for securities held abroad” (Gutschrift in Wertpapierrechnung) • Securities entitlement

3. Cross-border Securities and Deposit Account Collateral – Germany (2/4) • What Law Would a German Court Apply to the Creation and Perfection of a Security Interest in Securities Collateral? • Are the securities “securities”? • How are the securities held? • What types of securities are concerned? • Lex rei sitae/cartae principle, lex libri principle, Section 17a of the German Safe Custody Act (Depotgesetz) Section 17a of the German Safe Custody Act (in relevant part): “Dispositions of securities or holdings in collective safe custody which have been [...] booked to an account with legal effect shall be subject to the law of the jurisdiction [...] in which the head office or branch of the custodian is located that maintains the account and that has credited the account with legal effect for the beneficiary.”

4. Cross-border Securities and Deposit Account Collateral – Germany (3/4) • What Law Would a German Court Apply to the Creation and Perfection of a Security Interest in Deposit Account Collateral? • Deposit account collateral as rights vis-à-vis the account bank • Regulation (EC) 593/2008 on the law applicable to contractual obligations (Rome I) • Security grantor and secured creditor can choose, generally, the law applicable to the security interest • But the law governing the account (i.e., the pledged receivables) determines the receivables’ assignability, the relationship between the secured creditor and the account bank, and the enforceability of the assignment vis-à-vis the account bank Article 14(1) and (2) of Rome I: (1) The relationship between assignor and assignee under a voluntary assignment or contractual subrogation of a claim against another person (the debtor) shall be governed by the law that applies to the contract between the assignor and assignee under this Regulation. (2) The law governing the assigned or subrogated claim shall determine its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment or subrogation can be invoked against the debtor and whether the debtor’s obligations have been discharged.

5. Cross-border Securities and Deposit Account Collateral – Germany (4/4) • Some Specific Questions • Can I choose the law to govern my security agreement? • Do I need an additional security agreement? • Are collateral proceeds automatically attached? • Does German substantive law know the concept of creating and perfecting security? • What law would a court apply when enforcing a security interest? • Conclusions • Relatively safe legal environment for determining the law applicable to securities and deposit account collateral • But open questions remain with respect to Section 17a of the German Safe Custody Act • Additional security agreement advisable