Restriction on Transfer
What is a restriction on transfer?
The term “restriction on transfer” generally refers to the requirement that the company or its shareholders approve the transfer of stocks or equity interests. Restrictions on the transfer can only be agreed upon with absolute effect in the articles of association or the bylaws. In the case of a public limited company (AG), only registered shares—but not bearer shares—are subject to such restrictions.
Generally, a restriction on transferability refers to a limitation on the transferability of a right. It is particularly significant in insurance law. To secure loans, insurance contracts are often subject to a restriction on assignment in favor of the financing bank. The restriction on assignment of insurance policies is not regulated by law but is governed by the terms agreed upon by the parties. According to prevailing legal opinion, a characteristic feature and essential minimum requirement of such a restriction is a payment block in favor of the restricted creditor, which has the effect that payments from an insurer to the policyholder are only possible with the consent of the restricted creditor. Standard assignment restriction agreements therefore typically contain only a payment restriction and no prohibitions on assignment or attachment. Such payment restrictions are not absolute but only relative and do not preclude a subsequent attachment of the claim arising from the insurance contract. The assignment restriction grants the assignee a right of separation in the policyholder’s insolvency proceedings only if the restriction is treated as a right of retention and, therefore, as a lien. Recently, however, the highest courts have ruled against this interpretation.
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