Johannes Fiala, Attorney at Law (Munich), M.B.A. (Univ.Wales), M.M. (Univ.), Certified Financial and Investment Advisor (A.F.A.), Banker (www.fiala.de)
At sales training courses it is often claimed that company pension schemes are protected against insolvency. Even an insolvency administrator cannot access this money of the managing partner (GGF) – in particular the reinsurance – if, for example, his own GmbH goes bankrupt. Unfortunately, however, this is simply wrong.
New BGH ruling: It is correct, as the Federal Court of Justice (BGH) recently ruled, that the insolvency administrator can collect and realise the reinsurance policy, despite vesting and pledging (!) to the GGF (Ref. IX ZR 138/04). This is the end of the increase in value of the insurance capital, as calculated by the broker many years ago with about 7%.
The Swiss insurer sued by the insolvency administrator did not want to pay out the insurance capital and had unsuccessfully invoked the pledge of the reinsurance policy up to the third instance: According to this, a lien on a claim can only take effect when the claim of the pledgee (i.e. the GGF in this case) is due. Only in the case of performance does the so-called pledge maturity occur; and only then does the right of collection pass to the pledgee. Until then, the insolvency administrator can terminate the reinsurance policy, which at the same time means the revocation of all subscription rights, cf. § 13 I 2 ALB 86: This is not changed by the fact that a lien on future and conditional claims can be created without any problems, § 1204 II BGB.
Württembergische Lebensversicherung AG comments aptly on the legal situation: “Under the Insolvency Code, the right of realisation prior to the maturity of the pledge also lies solely with the insolvency administrator, who must, however, retain the proceeds in the amount of the claim to be secured (cf. § 45 sentence 1 InsO) and deposit them as a priority until the claim to be insured from the pension entitlement falls due or the condition lapses (§ 191 par. 1, § 198 InsO)”.
Revocable subscription right: In practice, at most a revocable subscription right is granted in the pension commitment, even after vesting – in case of doubt, the subscription right of the reinsurance policy is in practice not irrevocable for the GGF. In the opinion of SchweizerLeben PensionsManagement (SLPM), this is part of the essence of reinsurance. Scientific studies show that security could be designed differently. “The customer must be properly informed. If the GmbH falls into bankruptcy, and the GGF is personally liable – for example through a guarantee – the creditors can often access the reinsurance” explains the business consultant Jürgen Abstreiter. And this is precisely where there is a barely noticed gap in the insolvency protection of the GGF, because in the vast majority of cases the banks lending to the GmbH also require a personal guarantee from the GGF as security. Therefore, almost every GGF can be affected by this scenario.
Significance of the subscription right: If it is seriously intended to secure the GGF even before the benefit falls due, i.e. before the pledge matures, an irrevocable subscription right (as a “genuine contract for the benefit of third parties”) must be granted. The insurance broker Herrmann Siebenhaar recommends the way via a salary conversion, because then the time period until vesting, which is otherwise usual with employer-financed occupational pension schemes, is no longer a problem. If there were an irrevocable subscription right, even an insolvency administrator at the GmbH level would no longer be able to realise the reinsurance policy; to date, this has been practically unusual in the case of pension commitments. However, even this would not be sufficient in itself if the GGF is personally liable in addition to his GmbH. In practice, little attention is paid to the fact that in insurance contracts in the form of direct insurance for employees, the irrevocability of the subscription right does not take effect or takes effect too late: It is important for understanding that the “vesting of the expectancy” under employment law must be strictly separated from the regulation in the insurance contract.
No insolvency protection for managing director liability: If a GmbH goes bankrupt, it is not uncommon for the managing director to be additionally held “manager” liable. The most frequent opponents are the insolvency administrator, the tax office and the health insurance companies. If, for example, the shareholder has an irrevocable subscription right to a direct insurance policy which the employer (the GmbH) has set up for him, any creditor of the managing director will be able to seize this claim immediately. In the case of a garnishment, however, payment is only made when the pension becomes due, i.e. when the insured event occurs. Protection for the GGF against executions is offered here at most arrangements with contact to the foreign country: over companies in Switzerland and in Luxembourg a far-reaching seizing protection can be reached also for the GGF personally, describes the insurance broker Herrmann Siebenhaar.
And in the case of pension commitments: Do pension commitments offer better protection in the event of insolvency? If the shareholder has a vested pension commitment, it is often said at some broker training courses that the insolvency administrator will pay out the pension – and that as long as this takes, he will not be able to close his file. In that case, the GGF would receive a pension that is at best only partially attachable. What is concealed in such “partial training” is that the insolvency administrator can have the pledgee (GGF) set a deadline by the insolvency court for the realisation of the reinsurance, § 173 InsO. This is also emphasised by the BGH in this most recent decision on pension commitments of 07.04.2005. According to the m/n-tel rule, the cover capital up to the opening of insolvency proceedings is affected here. This is the latest point at which the dream of the insolvency-protected or at least only partially attachable pension of the GGF comes to an end, because then the entire capital is paid out to the insured person (GGF) – and is immediately fully attachable.
Partial payment despite lien? Another frequent delicacy is that in practice insurers and insolvency administrators hardly check before a payout or partial payout of surrender values whether the GGF’s right of attachment (as explained in the above-mentioned BGH ruling) already applies: If no occupational disability insurance has been taken out with the insurer, a “100% benefit in the event of disability” may nevertheless have been promised in the pension commitment – in which case a benefit case and a due date already exist. The maturity of the lien thus incurred was intended to prevent disbursement.
In most cases, no attention is paid to this: Then – as in the cases of § 3 BetrAVG – the insurer may have to pay twice, because the insolvency administrator could possibly invoke “payment despite knowledge of the non-debt”, § 814 BGB.
Consulting risk: The design of the subscription right is only one pitfall. Numerous points come into play which can not only endanger the entire pension commitment (hidden profit distribution) but also manoeuvre the GmbH into enormous difficulties if there is a lack of control (target/actual comparison). According to insurance broker Hermann Siebenhaar, more than 70% of the pension commitments he reviewed were incomplete or at high risk in the event of an audit. The management consultant for bAV in Pöcking, Andreas Michael Bosl, a specialist for the reorganization of pension promises states that with a “current checkup” of the text modules of a pension promise for a controlling GGF of a GmbH, up to 95% of all examined pension promises will not stand the current employment and/or tax law regulations and conditions. In the last 10 years, there have been numerous administrative directives and court rulings on pension commitments of GGFs. In contrast, the formalities of most existing pension commitments remained unchanged and were not adapted to the new case law or legal situation. As a result, many pension commitments are no longer formulated in a legally secure manner or the insolvency protection no longer exists. This often leads to the immediate and total loss of the entire insurance values (assets) in the event of insolvency, irrespective of whether the reinsurance policy is pledged or not.
An example of this is the so-called revocation proviso in the pension commitments, which is justified under tax law in accordance with the income tax guidelines in the case of commitments for traditional employees, but in the case of controlling managing directors this clause usually leads automatically and irrevocably to the loss of the entire reinsurance policy in the event of insolvency. Any pledge thus comes to nothing.
Consequence: The GGF’s entire pension is lost, and there is also the threat of a high tax liability due to the reversal of the provisions. Only the insolvency administrator is delighted about this – after all, it increases the mass to be distributed in his hands. It doesn’t take much imagination to answer the question of which “advisors” will then be held liable.
Future market for experts: The restructuring of pension commitments is proving to be a growth market – without expertise in employment, tax and insolvency law, hardly anything can be done professionally here. Far too few insurers are systematically restructuring their own portfolios.
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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