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A judgment of the Higher Regional Court (Oberlandesgericht) Frankfurt/Main of May 25 2004 has caused unrest in the German market regarding securitization or sales of non-performing loans.

Judgment of the Higher Regional Court

The Higher Regional Court Frankfurt/Main has ruled that the obligation to preserve banking secrecy creates a prohibition of assignment of loan receivables that has absolute effect in relation to non-entrepreneurs and invalidates the assignment.

In Germany, there seems to be disagreement as to whether this judgment entails a general prohibition to assign non-performing loans. The prevailing view seems to be that an assignment is still possible if the data relating to the assigned claim are delivered to a data trustee and that assignments of undisputed claims remain possible.

Legal situation in Austria

The Austrian Supreme Court (Oberster Gerichtshof - OGH) (OGH 19.1.1989 ÖJZ 1989/73 [EvBl]) has ruled that it is not the purpose of banking secrecy pursuant to §38 of the Austrian Banking Act (Bankwesengesetz - BWG) to restrain the disposal of loan receivables due to banks.

Objections against the assignment of receivables that were based on banking secrecy have been dismissed in this decision. The Supreme Court held that a bank cannot be deprived of the right to assign claims against customers, which necessarily presupposes that the assignee obtains knowledge about the claim. In addition, the assignee needs to be provided with the means to enforce the claim (including the debtors' data).

However, the Austrian Supreme Court (OGH 19.9.2000 RdW 2001/14) has also ruled that attorneys at law may not assign their claims for fees because this assignment would violate the attorney's obligation of secrecy pursuant to §9 subpara 2 of the Austrian Act for Attorneys at Law (Rechtsanwaltsordnung). The obligation of secrecy thus prevails vis-à-vis the marketability of claims for fees. In its decision of October 10 2002 the Austrian Supreme Court (OGH 10.10.2002 RZ 2003/11) has expanded this principle to members of other liberal professions (freie Berufe) that are subject to a professional duty of secrecy (for example, accountants and auditors) - their claims for fees were held not to be assignable as well.

Supported by the decision of the Supreme Court of January 1 1989, it is safe to assume that loan receivables due to banks may still be assigned. This argument is even stronger in cases in which the underlying agreements and/or the general terms and conditions of the respective bank provide for the possibility to assign receivables. Still, a certain risk remains that the Austrian Supreme Court could put the obligation of secrecy of liberal professions on a par with the banking secrecy pursuant to §38 BWG.

Assignment not restrained

It follows that particular attention should be paid to mechanisms aiming at avoiding the infringement of banking secrecy in securitization transactions and when assigning claims out of non-performing loans. Facility agreements should contain provisions providing for an exemption to observe the banking secrecy in case of assignments and securitizations.

Martin Ebner and Johannes Türk

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