by Johannes Fiala, Lawyer (Munich), M.B.A. (Univ.Wales), M.M. (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Banker (www.fiala.de )
6th implementation channel of the occupational pension scheme:
The time value account has been praised as the Egg of Columbus. Above all, the option of later conversion into an occupational pension scheme makes the working time account attractive. Of course, it is not a bAV in the narrow sense.
There are also two sales problems with time value accounts:
Firstly, the intermediary must provide information about the incomplete insolvency protection, and secondly, resourceful initiators would have the task of looking for insolvency-proof concepts.
Advisor and intermediary liability:
Hand on heart, who wants to advertise insolvency protection with their eyes open and be liable for half-truths? The financial advisor should secure himself in writing: By inquiring with the initiator after a ?folder appraisal after IDW standard? and/or a WP test certificate to the insolvency firmness. Gaps in the insolvency protection are to be cleared up. Who may not believe it, read in the 12-BGH-conditions for the investment adviser.
Pledge sales problem:
It is not only at lecture events and roadshows that speakers feel embarrassed when they are asked about the question of insolvency protection of the pledge. The unconvincing “advertising slogans” about the alleged insolvency protection of the pension commitment are then used like a prayer mill. Some initiator reports then in the break discussion that the concept had been ?terribly expensive? these market participants can be calmed down: A resignation from the contract with the conceptionary can flush the fee back into the cash, if an insolvency protection was assured ? after examination however not completely exists.
The ‘insolvency protection lie’:
In exactly the same way as a pension allowance can simply be lost in the event of insolvency for the GGF and also for the wife as de facto managing director (even without a share in the company), the problem arises with the time value account. There, too, the “reinsurance” is pledged. The clou is that also this offers regularly no protection against loss of the saved ?time? credit. One must come to this conclusion even if a time account model is chosen which provides for a trust construction via an abstract promise of debt within the meaning of § 780 BGB. If, in this model, the regulation of the due date is neglected or regulated in a way that is unfavourable for the GGF, the problems mentioned above will remain.
The insolvency administrator can set off ? a creditor can garnish: It’s that simple. In practical terms, the GGF can of course demand immediate payment in full: But after offsetting by the insolvency administrator, the GGF is then left with only the one-time garnishment-free amount (in the case of a single person, 940 euros). The GGF will have to dispute the rest with the insolvency administrator in court if necessary.
Insolvency scenario: If an insolvency administrator is appointed, he can give due and not yet due claims. The insolvency administrator will first want to check what claims he has against the GGF and other employees. For this purpose he will, if necessary, terminate the ‘safe’ trust agreement ? Above all, he will issue a payment ban and revoke trust powers. If the CTA trustee or time value account processor does not comply, judicial assistance will follow within hours as ‘interim legal protection’. No, no, your money is not gone – only someone else has it: the insolvency administrator!
Only he has become master of the process. Every insurer and every time value account service provider will have to comply with this first of all. Of course, the insolvency administrator must “secure” the money collected from a reinsurance, in particular invest it in a gilt-edged manner. The insolvency administrator receives 4% for this according to the law, § 170 f. InsO. Even a pledge cannot prevent this. If the insolvency administrator later adds up because he asserts claims against the GGF and other employees for the GmbH, the money falls into the insolvency estate. Other creditors of the GGF could also sue and then also apply for a (judicial) attachment.
Duty of the occupational pension intermediary and adviser to provide information:
Traditionally, most financial service providers focus on turnover. It is a pity that the BGH and the courts of instance require the financial intermediary to check the plausibility of the ?concepts? from a legal, tax and economic point of view. The financial service provider would do well to have a separate piece of paper signed on which there is an instruction along the lines of ‘neither your pension commitment nor your time value account is fully protected in the event of insolvency’. Quite apart from the fact that in practice company sellers (if the buyer offsets with deficiencies) and entrepreneur parents (with anticipated succession and the proverbial evil daughter-in-law) can also sing a song about this. If the pension or time value account money tap is turned off, first the customer has to sue ? and the outcome after years through the instances is mostly open.
Can even professors be wrong?
A prime example for ingenious mistakes could be the expert opinion of a professor, which an initiator likes to spread as advertising, in the form of a ?summary? In it, it is claimed that the insolvency administrator would not be able to access the ‘second value account reinsurance’ thanks to the pledge. Whether the expert opinion was sold expensively, and was provided by inexpensive assistants, is not safe. However surely appears that here unfortunately the temporally preceding judgement of the BGH of 07.04.2005 (Az. IX ZR 138/04) was not treated. What there for the ?allegedly insolvency-firm pledged? What was decided there by the BGH for the pension commitment ‘allegedly pledged as insolvency-proof’, namely that ‘the insolvency administrator can dissolve and collect the reinsurance’, also applies to the pledging of reinsurance/security by the employer for a time value account. A beautiful advertisement for the initiator around the confidence of its selling partners ? it is only a pity that it must consider now, what the contents are actually really worth ? Pikant is the circumstance that with a ?summary? one recruits ? the complete appraisal is just as unknown, as the answer to the following question: Which for a contract bundle in which version with which concrete clauses was examined at all? According to BGH case law, the financial service provider must carry out simple plausibility checks: If expert opinions are not available in full version or if it is unclear which contract bundle with which contents were the basis at all, the financial service provider has to follow up (BGH of 13.01.2000, NJW-RR 1993, 1114).
Trust and Insurance:
The practice of the ?insolvency-proof? Trust or CTA time value solution looks like this: The insolvency administrator will stop any flow of money. No German trustee can avoid this – unless, to put it bluntly, he is sitting in a Nigeria free of the law. Every conscientious insolvency administrator will check whether, for example, the GGF’s wife has done the bookkeeping and bank transfers correctly (after over-indebtedness?), and whether the GGF is liable: Until then, the money will be frozen as a precaution. If it is then claimed that the ‘separate satisfaction’ effects the insolvency protection, this is simply a half-truth: If the insolvency administrator has to receive money, he will, for example, ‘set it off retroactively’. This also works with the reinsurance of the pension commitment or a U-fund, in principle according to the same pattern.
It is irrelevant whether the insolvency administrator would have to sue the GGF beforehand.
The decisive point is: If the insurer gets into the firing line, i.e. between the GGF and the insolvency administrator, then the insurer usually files a claim with the local court. Then the GGF and the insolvency administrator can fight over the money if necessary. The flow of money ends then at the latest or, unfortunately, never began.
The root of the evil:
It must not be forgotten ? the cleaning lady of the GmbH usually gets her money, for her the insolvency protection regularly applies. This is particularly true if it did not de facto manage the business and is therefore not subject to managerial liability. Cleaning is safe, brokering financial products or running businesses is. There are claims from outside (the tax office takes the GGF into liability, the bank demands from guarantees, etc.) and claims from inside (managing director liability towards the company, also from vGA and too high withdrawals).
The customer view:
So that it is not so difficult for the financial service provider to understand what it is all about, this is for suggestion: There are advisors who have placed the wrong product with the wrong client ? about 30,000 intermediaries and their distributors are sued every year. Let’s take the case of a consultant ? she gets sued, her LLC gets sued. The entire pension plan in the GmbH, a pension commitment and a time value account ? all gone. I wonder if she’ll go to Social Services. A glance at the statistics of the Federal Office shows that there were a good 39,000 corporate insolvencies in both 2003 and 2004.
The customers who are not comfortable with this idea need solutions ? but perhaps not off the shelf until a viability for the insolvency protection promise is secured. The perspective for the financial services provider is the fact that often a lot and sometimes almost everything is reallocated to insolvency protection. Strategically, it is a matter of separating pension provision (e.g. reinsurance) from business risks ? i.e. to ensure that an insolvency administrator of the GmbH does not have a chance to gain access. This is also more financial movement for the adviser in one fell swoop than making a CLI non-contributory every year and then increasing the real asset values somewhat by taking out new policies. Above all, it can make customers happy ? instead of planting a liability case because of misadvice (e.g., concealed insolvency protection loophole). Once the client notices the gap in advice, they’re gone – sometimes it gets worse.
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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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