In the immediate aftermath of the 19 May 2010 bans on naked short selling (see Legal update, BaFin prohibits naked short selling of debt of Euro Countries), on 21 May 2010, the German Ministry of Finance published a draft act to strengthen the stability of the financial markets which included certain prohibitions on naked short selling (Initial Draft). This Initial Draft was subject to debate which resulted in the publication of a revised draft on 31 May 2010, called the Act to Prevent Abusive Securities and Derivative Trades (Gesetz zur Vorbeugung gegen missbräuchliche Wertpapier- und Derivategeschäfte) (Draft).

This article is a short summary of the contents of the Draft, comparing them, where appropriate, to those of the Initial Draft.

The German Federal Council (Bundesrat) has issued a draft bill that aims at modernising the provisions on the limitations on seizure of a debtor's income by his creditors. Seizure of a person's income is an important factor in compulsory enforcement against natural persons in Germany. However, to avoid seizures causing debtors to be so short of funds that they are no longer able to support themselves (and, if applicable, any dependents), the section in the German Code of Civil Procedure (Zivilprozeßordnung) (ZPO) on compulsory enforcement includes provisions that are supposed to guarantee that debtors are always left with minimum living wages.

The German Federal Council has now found that these provisions (some of which have not been substantially altered for many years) are no longer appropriate for modern conditions. One important issue is that the provisions on seizure (sections 850 and following, ZPO) only protect income from work (including pensions, and so on) against seizure but do not consider other forms of regular income. To treat all forms of regular income equally, the draft bill discards the limitation to only working income and now protects minimum living wages from regular income against seizure regardless of their source.

As has been the case so far, the ZPO will continue to contain exemptions for income that exceeds the minimum threshold as an incentive for debtors to gain additional funds to both creditors' and debtor's advantage. In this context, the definition of income will also be extended to all forms of income.

However, the draft bill emphasises the fact that the ZPO uses a separate definition of minimum living wages which differs considerably from other legal definitions that supposedly refer to the same issue. In particular, while section 850c(1) of the ZPO considers an amount of at least EUR930 as adequate minimum living wages (subject to various additional exemptions), the relevant provisions of social welfare aid allow, depending on the allowances for housing and heating, for only between EUR667.70 and EUR797.75. The draft bill argues that this discrepancy unfairly favours debtors vis-à-vis welfare recipients, and that it does so to the detriment of the creditors that are hindered from executing their claims.

The draft bill suggests to adjust this discrepancy by no longer having separate provisions on minimum living wages in the ZPO and social welfare legislation. Instead, the ZPO will include a dynamic reference to the provisions on minimum living wages in social welfare legislation. Therefore, debtors facing seizure of their incomes will in the future be funded equally with welfare recipients, leaving their creditors with a somewhat higher hope for satisfaction of their claims.

One other consequence is that in the future differences in the costs of living that are being considered in social welfare legislation will by reference also be part of seizure thresholds. Also, by reference within the ZPO, the minimum living wages threshold is applicable to account seizures.

As part of the legislative process, the draft bill is subject to approval by the main chamber of the German parliament, the Bundestag.