Company pension scheme (bAV) and working time account models (ZWK) – New BGH ruling on reversal in the case of capital investment in closed participations

*by Dr. Johannes Fiala, Lawyer (Munich), Mediator (Univ.), MBA Financial Services (Univ.Wales), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Lecturer in Civil and Insurance Law (Univ. of Cooperative Education), Banker (
You can’t solve a problem with the same mindset that created it. (Albert Einstein)
Also renowned offerers of closed participation trained their selling coworkers to instruct the entrepreneur to invest its money and that of the coworkers, for private or operational age precaution as well as time value accounts in kg portions. The examples range from wind power plants to private equity, from real estate to ship investments. But such participations are not suitable for old age provision according to decisions of different higher regional courts (OLG) for many years. The Federal Court of Justice (BGH) has now confirmed this in its current decision of 18.01.2007 (Ref. III ZR 44/06).
Example real estate limited partnership fund:
If the private investor needs his money back at short notice, he has hardly any chance of recovering his invested capital due to the lack of a secondary market. Investors then need liquidity, for example, due to unemployment, short-time work, illness, reduced earning capacity – or a change in investment objectives. The company pension scheme or the working time account invests the money of the entrepreneur for himself and his employees: As a rule, a “pension case” can occur here at any time. Even then, liquidity is needed. Tutor boss Pedersen, instructor in things bAV enterprise consultation describes the situation jokingly with the words ?the entrepreneur can saw then with the chain saw a piece wall out of the KG real estate, and try it with eBay as piece of the citizens of Berlin wall to auction ?
Benchmark for the consultation obligations
Many intermediaries have the good intention to dutifully advise the client in a “timely, accurate, thorough, understandable and complete manner”. Information about the characteristics of investment objects and risks is indispensable. The OLG Duesseldorf had decided by its judgement of 30.03.2006 (Az. I-6 U 84/05) that the small possibility of a negotiability for “used kg portions” on a functioning market (lacking Fungibilität called) is unasked to clear up, if the plant is to serve for the age precaution. In the case of the BGH, an investment advisor had been sued: The court wrote that the conditions under which an investor can access the money invested in the long term are typically an essential element for the investment decision. Therefore, there is an unsolicited duty of disclosure, even in the case of capital investments intended to provide for old age. It is usual for years and in the folder examination standard “S4” prescribed that folders in the representation of the risks of such closed participation, straight also this risk to point must.
Hardly a way out of the intermediary’s liability for advice
The instruction by the advisor can be omitted, if “the resale for the investor is recognizably without concern”; in other words: The private investor must be all around secured, and “dead sure” this money demonstrably not prematurely need. This practically means a scenario technique with complex financial planning, including fateful developments such as lost lawsuits, insurance claims without coverage, or separation or divorce. In practice, hardly any intermediary will be able to do this, let alone document it. Another way out would be that the instruction is understandable in the prospectus. But only if the customer has read and understood it, the BGH states. And here lies the gateway for easy reversal of the customer – in case of doubt he has not understood anything later or the proof for it is missing. It is this later objection that is one of the greatest dangers for any financial services provider, especially if there is no clean documentation. If the capital investor received the folder in the first date with the mediator, and at the same time the subscription form had signed, remains to the investor no time the often over 100 sides folder to read – also thereby the adhesion is as good as safe for the mediator. The case is similar where the customer is only shown advertising material up to the point of signature, but the brochure is not delivered until later.
Recourse of the intermediary to the initiator
An age of the investor of less than 40 years does not indicate that a long-term capital investment is suitable; on the contrary: in the present case it was to be assumed that the ‘professional and financial future’ of the investor was uncertain. It is difficult to avoid this obstacle – it places the highest demands on documentation and consulting. After the principles for sound advice in KG share brokering have been known for decades, some training proves to be incomplete from the retrospective point of view of the broker sued. This can then lead to accusations against the initiator and the training manager for “intentional immoral damage” – including their personal liability. However, in this respect the prospects of success depend precisely on whether the intermediary still has sufficient evidence, such as training documents and a specialist press archive, in the event of liability.
Indispensable: credit check
From the point of view of both the investor and a financial services provider, the question of the creditworthiness of their contractual partners is crucial. Finally, as of 22.05.2007, there is a legal obligation to take out liability insurance for financial losses due to negligent false advice only in the area of insurance brokerage.
( on 07.03.2007)

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Dr. Johannes Fiala Dr. Johannes Fiala

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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