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Conflict of law rules codified

Conflicts of law or private international law is that body of law which deals with cases where a party or the transaction or both are connected with a foreign country. For example, a bank in England may wish to take a security interest over shares held by the borrower in a subsidiary situated in Germany. Up until now, only a limited number of conflict of law rules have been codified in Germany, such as the choice of applicable law rules in contract. The German legislator has now codified further conflict of law rules, on the ground that the increase in international relations has resulted in the need for comprehensive statutory rules as to the applicable law. The new rules apply, inter alia, to unjust enrichment, tort and property and came into force on 1 June 1999. Of interest, in particular, to banks are the new conflict of law rules governing property. The new rules are as follows.

Rights in property are governed by the law of the state where the property is situated. If property over which rights are created is transferred to another state, then such rights cannot be exercised in contravention of the law of that state

This, therefore, means that the creation and perfection of security interests over land, movable property (eg inventory) and the priority of successive secured creditors, are governed by the lex situs. However, where property (here, this can only apply to movables) is transferred to another state the rights (security interest) continue to exist, but such rights/ security interest may have to be adapted to the legal concepts existing under thenew legal system.

Disclosure obligations of companies and certain partnerships to be tightened
Of importance to all firms which have subsidiaries in Germany, it is the Federal Ministry of Justice's new legislative proposal for sanctions for failure to comply with disclosure obligations to be more severe as companies were just not complying with their duty to file and publish their annual accounts. In particular, the new proposal imposes a fine of up to DM 50,000 for any company which does not file and publish its annual (or consolidated) accounts in time. In addition, the registrar will no longer be permitted to enter any particulars relating to such a company in the commercial register (except ex officio entries), until such accounts have been filed and published. The proposed legislation also makes limited partnerships, in which all general partners are legal entities, subject to the duty to file and publish accounts, which up to now has only applied to companies. At the same time, however, the relief afforded to small and medium-sized companies in relation to the duty to draw up, audit and publish full accounts has been extended and the threshold levels for qualifying as a small or medium-sized corporation for this purpose have been raised.

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