1.1 Amicable Phase
1.1.1 General
Collection Agency Service Germany employs a professional collections staff that seeks to maintain all operations and procedures in-house. Our goal is to facilitate great communication between the creditor and the debtor, allowing an amicable solution to be reached. Our staff pursues debtors orally and via writing and adheres to all local laws and regulations.
1.1.2 Local agent
Currently, Collection Agency Service Germany does not offer any kind of field visitation service when getting in contact with debtors. This may change in the future, at which time clients will be notified. In the interim, debtors are more than welcome to meet us at our offices.
1.1.3 Interests
Interest is changed based on the rate set by German banks, plus 8 percent, on a daily basis. We are empowered to charge a higher rate only when a creditor’s bank is charging them a higher interest rate. That rate will be verified before it is enforced.
1.1.4 Debt collection costs
The costs of debt collection and recovery in Germany can be charged to the debtor, including costs for late payment damage as set forth in the German Civil Code. These charges may be void, however, if an existing contract between the creditor and debtor states that such costs will not be charged. Furthermore, these costs are often used as a negotiation tool between the creditor and the debtor to encourage the timely repayment of the debt.
1.1.5 Prescription
The Statute of Limitations in Germany extends three years from the end of the year during which the claim became due to the creditor. Transport claims are restricted to a one-year window. This period of limitation is suspended and recommenced if negotiations are in progress, if legal action is pending, or if the debtor has acknowledged the debt via a payment to the creditor.
1.1.6 Accepted and most common payment methods
Debts are satisfied through bank transfers and cheque payments.
1.1.7 Types of companies
Einzelunternehmen (sole trader/sole proprietorship):
Unlimited liability. The debtor’s full first and last name must be known prior to pursuing a claim against them.
GbR (Civil law partnership):
No minimum capital required; partners are subject to unlimited liability.
OHG (General partnership):
Partners’ liability is unlimited, and no minimum capital is required. This designation typically applies to larger partnerships than those covered by the GbR.
KG (Limited partnership):
No minimum capital required. At least one partner has unlimited liability, while limited partners are only liable up to the amount of capital the company has.
PartG (Professional [service] partnership):
Partners must be natural persons, like lawyers or doctors, to organize. There is no minimum capital required.
UG (Entrepreneurial company with limited liability)
A full 25 percent of yearly earnings must be accumulated as capital until 25,000 EUR are reached. Beyond that requirement, no minimum capital.
GmbH (company with limited liability):
Minimum capital of at least 25,000.00 EUR, which cam be held as money, assets, or equipment. Partners are only liable within the amount of capital the company holds.
AG (company on shares)
Liability is limited to the company’s capital, which must be at least 50,000.00 EUR divided into shares.
1.1.8 Sources of information
Collection Agency Service Germany maintains contracts with experienced German reporting agencies that allow us to obtain debtor financial information, typically consisting of real estate or other assets. Our phone contacts allow us to receive additional information that can determine the best steps to take toward collection. Public registers are another source of information used by Collection Agency Service Germany, though this information comes with a variable fee between different German towns.
Limited liability companies are required to register with the trade register through a local German court, the records of which can be accessed electronically. This information is used by our company when pursuing greater information about a debtor with limited liability.
Debtors whose whereabouts are unknown can be found via the Registration of Address Office, as registration is required when relocating within Germany. Collection Agency Service Germany recommends hiring a private investigator to locate those debtors who have not registered.
1.2 Retention of Title
Retention of Title regulations in Germany are heavily tilted in favor of suppliers and creditors. For these benefits to apply, however, the company must be sure to negotiate and agree to Return of Title stipulations before the customer has received the first invoice for goods or services. For this reason, most suppliers do include Return of Title language in their trading conditions and service contracts.
Without an explicit agreement of terms, and proof of the same, it is extremely difficult to ensure that goods can be returned after nonpayment. Cases without proof will be relegated to last priority, and are often decided against the supplier’s favor.
Retention of Title in Germany is split into three basic types:
1. Basic ROT
The goods remain the property of the supplier until paid in full. The supplier can, and often is required to, get the goods back if payment is not made.
2.Increased ROT
This applies to open accounts between suppliers and customers. During good business relations, the goods remain the property of the supplier until any outstanding amounts from the account have been paid in full.
3. Extended ROT:
This type of ROT is assigned to the supplier in advance.
1.3 Safeguarding measures
If a debtor is unable to quickly provide payment of a debt, it is within our rights to request that the debtor secure their debt in the favor of the client we are representing. This is typically done amicable, with both sides providing an acknowledgement of the debt. The acknowledgement is notarized and becomes immediately enforceable. Costs associated with the notarization are charged to the debtor, though it is most often advanced by Collection Agency Service Germany to expedite the process.
Securitization of debt can also be done by attaching the debt to things like mortgages or other debt assignments. All methods must be notarized.
1.4 Legal Procedures
1.4.1 General
In Germany, public law regulates interactions between citizens and the states, while civil law applies to cases between two people or companies. It is possible to enter into a lawsuit against the debtor without having notified them prior to the beginning of the process, though most courts prefer to begin the process with mediation and will therefore require some form of notification be sent to the debtor.
During pre-court proceedings and even the mediation process, it is advisable for creditors to show proof to the court that all possible methods of contact and resolution were pursued. Proof of these things can greatly advance the creditor’s interests through the legal system.
1.4.2 Legal System
Germany’s court system divides its jurisdiction based on the case type and the claim amount. Local courts handle claims up to 5,000.00 EUR, while higher courts handle larger amounts. Legal representation is optional in local courts, but mandatory in higher courts.
1.4.3 Required documents
Collection Agency Service Germany must comply with the local legal dunning procedure, and thus requires the following documents before pursuing legal action:
– Copies of the contract
– Copies of the invoices
– Copies of account statements indicating payments and credits toward the debt
– Order confirmations, delivery notices, and invoices
– Correspondence between the debtor and creditor, if relevant
– Proof of oral negotiations, if relevant
1.4.4 Legal dunning procedure
The legal dunning procedure only applies to financial obligations and applies only when the debtor can be traced. Non-German clients are handled through the court in Berlin-Wedding. Local debtors are assigned to the various local courts throughout the country. For a judgment to be enforced via the legal dunning procedure, the court order and enforcement order must be applied in sequence and served to the debtor within the mandated period of time according to German civil process. The debtor has the right to appeal both documents and this would convert legal dunning into a lawsuit.
1.4.5 Lawsuit
A lawsuit is pursued immediately following the failure of the amicable process to produce results, or when a debtor has lodged a dispute about the debt. The creditor and debtor exchange opinions with the court via postal mail and independent proofs until the judge is satisfied with the information pertaining to the case. At that time, a hearing is called and both the debtor and client are required to attend. After the hearing, the judge determines a date when the ruling will be published. Both parties are informed via a mailed letter to their physical addresses.
1.4.6 Appeal
Appeals of judgments are permitted, causing the case to go to the court of second instance, if the judgment amount is greater than 600.00 EUR. If the case proceeds to the court of third instance, the review will be restricted. Courts at this point will only consider whether existing statutes were properly enforced during the ruling.
1.4.7 Costs
Provisions in German’s RVG code determine the costs of any civil law procedure. That code sets the rate for legal procedures and lawyer fees. The GKG code is also used to determine costs as they relate to court fees. The costs determined depend on the outstanding balance of the debt being pursued through the court. Additional costs for experts and witness may arise in some of the more complex cases brought before the court.
We provide estimations of the potential costs on a case-by-case basis. It should be noted that the legal dunning procedure itself represents only between 20 and 40 percent of the total cost of legal action.
1.4.8 Expected timeframe
The legal dunning process takes between eight and twelve weeks. Court proceedings can last as long as 12 months, with complex cases lasting longer.
1.4.9 Interests and costs in the legal phase
Costs incurred by the creditor when pursuing the debt outside of court can be claimed as part of the outstanding balance of the debt, but the court must agree to let the creditor attach those fees. Such an approval is granted in roughly 60 percent of cases. In the event of a settlement, the involved parties will split the costs incurred based on their proportion of the settled debt.
1.5 Enforcement
1.5.1 Enforcement in debt
Creditors have the right to block the debtor’s bank account or block their claims against financial instruments like taxes, life insurance products, employer benefits, shares in a company, or other financial claims. This typically is one of the most effective ways to grab the debtor’s attention and ensure their full cooperation with a quick and full repayment of the debt.
Enforcement can also be split up to save costs, with the creditor paying only to enforce the parts they wish to pay for. Before enforcing the judgment this way, creditors should obtain information about the debtor’s financial situation to ensure that such an expense is worth their time and effort.
1.5.2 Enforcement in movable goods
A bailiff will visit the residence of the debtor and attempt to confiscate movable goods that could be sold and liquidated to cover the amount of the debt’s outstanding balance. Items essential to the debtor’s daily life and business are not confiscated during this procedure.
In the absence of such goods, the bailiff will require a statutory declaration from the debtor. If this declaration cannot be obtained, a warrant for the debtor’s arrest is issued. A statutory declaration can only be obtained once every three years.
1.5.3 Enforcement in immovable goods
It is possible to receive a recording of a debtor’s real estate and attach the balance of an outstanding debt to their property. This process is very costly, however, and is likely to be the least affordable cost of action for most creditors.
1.5.4 Expected timeframe
Enforcement procedures are generally quick, and last between four and eight weeks. Movable goods enforcement can take a bit longer, lasting between six and nine months for most regions of the country. Some parts of the country may draw out this enforcement for up to a year.
1.6 Insolvency Proceedings
1.6.1 General
Insolvency in Germany is implemented as a collective enforcement of all outstanding debts to creditors of just one debtor. This collective enforcement remains in effect until insolvency proceedings have concluded or been suspended. At that time, individual creditors can once again pursue debts.
1.6.2 Proceedings
After a creditor files for a debtor’s insolvency, a liquidator will be appointed to examine the debtor’s assets and determine whether or not those assets are sufficient to cover the outstanding balance of the company’s debts. If these assets are enough to begin the proceedings, the insolvency process begins immediately. If not, the claim will be rejected due to insufficient assets.
At this point, creditors can file a claim and revoke their goods based on Retention of Title. For goods readily available, the liquidator may offer to pay either the price of the goods to a creditor or have the inventory returned. After a decision has been made, the insolvency petitioner liquidates the goods and pays out creditors with the resulting funds. The petitioner retains a small amount based on 9 percent of the revenue and the VAT rate.
Any claims filed against the debtor are verified before the first hearing, and this typically takes about three months. Claims filed after the hearing will receive lesser priority and will generally be significantly delayed. A 15 EUR penalty is also charged for late claims.
The appointed liquidator will determine whether to accept or dispute a claim. Disputed claims may be re-filed only once. Accepted claims will receive a dividend of the liquidated funds when the proceeding has concluded. This averages between 5 percent and 8 percent of the original claim amount as filed.
1.6.3 Required documents
To lodge a claim, the following documents are required:
– Original Power of Attorney
– Copies of contracts or orders, deliveries, and confirmations
– Copies of invoices
– Copies of conditions of sales, if relevant
– Copies of correspondence that will help the claim be accepted
1.6.4 Expected timeframe and outcome
Claims must be filed within one to three months, based on the complexity of the case. Verification of the claim will take another three months, in some cases. The entire duration of the procedure is typically between four and seven years.
1.6.5 Limited companies
Limited companies are typically forced to file for insolvency for one of three reasons:
1. An inability to pay the debt, even if the company’s assets will cover the amount of the debt.
2. An inability to pay that is the direct result of the company’s pending insolvency within a given timeframe.
3. An accounting insolvency where assets cannot cover the balance of the outstanding debts.
1.6.6 Unlimited companies/individuals
There is no requirement for unlimited companies or individuals to declare bankruptcy. However, bankruptcy can be pursued if there is an inability to pay debts or an expected inability to pay those debts in the near future.
The debtor’s assets will cover the cost of an insolvency proceeding. Creditors can file a motion requesting that all enforceable incomes are, for six years, garnished for the complete repayment of outstanding debts at the time of filing.
1.6.7 Pool of creditors
For bigger companies, a secondary bankruptcy proceeding can be mandated. This secondary proceeding would create a pool of creditors, typically led by insurance companies and banks. The job of the pool is to aggregate all claims that delivered goods under Retention of Title. Proof of an ROT agreement must be furnished. The rights of individual creditors are then transferred to the pool as a whole, and refunds can be issued to the pool’s creditors based on the sale of all secured goods.
1.6.8 Rescission
The appointed liquidator can dispute payments made by the debtor that were made within the three months prior to bankruptcy. Upon dispute, a creditor must refund these payments and claim the debt instead.
1.7 Arbitration and Mediation
Mediation and arbitration are available to those creditors and debtors who agree that an amicable solution would be in their best interests. This tends to be quicker than a lawsuit, as there is possibility for appeal and a much shorter wait for mediators or arbitrators than for judges. It is also highly confidential.
Mediation and arbitration are done by professional mediators for cases not involving major corporations. Bigger companies will proceed through mediation or arbitration under the oversight of a chamber of commerce, a professional arbitrator, or the courts, as ruled by the UNCITRAL Model Law on International Commercial Arbitration.