Attachment of shares in a British LLP in Germany

If a person resident in Germany is a shareholder in a foreign private company, the shares of this shareholder can be seized in Germany by way of enforcement under German law if there is sufficient connection of the foreign shares to Germany. This was recently decided by the Federal Court of Justice (BGH) for shares in a Limited Liability Partnership (LLP), which hat its head office in Great Britain, a branch in Frankfurt and whose shareholder was resident in Germany (BGH, judgment of April 3, 2019, VII ZB 24/17).

Enforcement under German law is only legally permissible if the assets to be enforced are (de facto) in Germany. Therefore, if shares in a foreign company shall be enforced under German law, these shares must have a sufficient connection to Germany. In this recent case decided by the BGH, this reference existed due to the shareholder's domicile in Germany and the branch establishment of the LLP in Frankfurt.

On this basis, the BGH considered the shares in the LLP to be de facto in Germany and, therefore, the enforcement to be permissible in accordance with German law. Although German law does not contain a provision on the attachment of a share in a foreign company; since the internal structure of the LLP was comparable to that of a German partnership, the BGH considered that the shares in the LLP could be seized in the same way as shares in a partnership.

Under German law, shares in a partnership – in contrast to shares in a corporation – are not freely alienable. Therefore, in the case of an attachment not the shares itself, but the rights as shareholder are seized. This means that – due to a seizure – the creditor can exercise the shareholder’s rights (in particular the right to the credit balance of a retiring partner’s capital account and the profit claim). Information and administrative rights, however, (e.g. rights of control, accounting and voting rights) are not covered by the attachment. The creditor shall only be able to settle his claims.

However, the creditor must be aware that even if the shares are seized under German law, the realization of the shares is governed by the foreign law (in this case by British law). Therefore, if a creditor wishes to enforce a foreign share, he should carefully check whether a realization of the seized assets is possible under foreign law and whether enforcement is worthwhile.

Based on this recent decision, it can be assumed that it is also legally permissible to enforce shares in a foreign corporation in Germany if the shares to be enforced have a sufficient connection to Germany and if the shares are, therefore, de facto in Germany. In contrast to partnerships, in corporations the share itself – and not only the rights from it – is seized. Here too, however, on the basis of the decision of the Federal Court of Justice (BGH), the realization will be governed by foreign law and creditors should therefore check their possibilities to realize the seized shares prior to enforcement.