The wave of insolvencies is coming. The examined financial and investment advisor and banker Dr. Johannes Fiala and the insurance-mathematics expert Peter A. Schramm explain what must be considered, and how self-employed persons and GmbH managing directors may also lose their old-age pension.
In the so-called Corona crisis, the state provides assistance – for example through tax relief, such as a reduction of advance payments and the deferral of payments upon application. This applies to income tax, corporate income tax and value-added tax, but not to wage tax or capital gains tax. Social-security contributions could likewise be deferred. Payments for rent, electricity, gas, water, telephone and internet could be temporarily suspended under conditions that must be capable of proof, at least at a later date. All of this means an increase in debt, both now and in the future.
Banks are reluctant to grant aid loans
Most effective were state grants carrying no repayment obligation, together with the option for solvent employers to grant employees an additional bonus of up to € 1,500, free of tax and social-security contributions (BMF (Federal Ministry of Finance) circular of 09.04.2020 – IV C 5 – S 2342 20 10009 001). The courts have held that Corona aid is exempt from seizure (LG Köln (Cologne Regional Court), ruling of 23.05.2020, file no. 39 T 57/20; FG Münster (Münster Fiscal Court), ruling of 13.05.2020, file no. 1 V 1286 AO) – so that old debts likewise remain unsettled.
The wave of insolvencies will probably arrive in 2021
From 01.03. to 30.09.2020 the obligation to file for insolvency was suspended, with an option for the Minister to extend it until 31.03.2021. A turbo effect is likely to result from the deferred liabilities that subsequently fall due, including loan repayment obligations owed to the banks and to the state. A further hurdle is that the relevant criminal-law provisions have not been suspended.
Insiders currently estimate that more than 60% of innkeepers will give up in any event – through liquidation or insolvency. The UN World Food Programme (WFP) anticipates a hunger pandemic which, as early as April, already put 265 million people at risk of starvation. At that time, the International Labour Organisation (ILO) estimated that almost every second job worldwide would be lost, leaving the affected persons without any basis for their livelihood.
Total loss of private and occupational pension provision
The fact that the tax-deferral model applies to Riester savings and the basic pension, and that private pledging by the policyholder is prohibited, by no means guarantees complete protection against sovereign attachment and/or realisation through collection by the insolvency administrator. However, this can be examined and often rendered legally secure – even for ordinary life insurance policies.
It is particularly bitter for employees if they fail to verify and secure the insolvency protection of their own occupational pension scheme, only to be referred by the insolvency administrator to the Pensionssicherungsverein (Pension Protection Fund) at a later date – with every prospect of a de facto reduction of their own entitlements.
The Federal Court of Justice (BGH, German Federal Court of Justice, ruling of 18.07.2013, file no. IX ZR 219/11) has opened up further opportunities for the insolvency administrator to access the assets used by a medium-sized GmbH to reinsure its occupational pension scheme (bAV, occupational pension) – in particular where pension commitments have been made to managing shareholders.
Contestability of the pledge
The Federal Court of Justice (BGH) has ruled that, in order to contest the provision of securities for the managing director (for example a pledge or assignment) by insolvency administrators or creditors pursuant to Section 135 of the InsO (German Insolvency Code), it is sufficient that the managing director holds 50% of the company’s share capital and is also the managing director with sole power of representation.
Under the statutory provisions in force since 01.11.2008, such securities (for example the pledge of a life insurance policy) granted by the company within the last 10 years are contestable – even where, at the time, there was no intention to disadvantage creditors. This applies not only to collateral securing loans from the shareholder, but also to legal relationships that are economically equivalent to a loan to the company. In order to fund the later pension, the managing director provided management services but, in some cases, did not have his salary paid out, instead leaving this money with his company as a loan until he reached retirement age: this strongly supports the assumption of a loan-like transaction. Where no security exists – for instance no pledge – only legal acts performed within the last year before the opening of insolvency proceedings would be contestable, for example the repayment of unsecured shareholder loans.
Even unreasonably high pension commitments are contestable
Where the pension commitment is unreasonably high, the insolvency administrator will assume a (mixed or partial) gift pursuant to § 134 InsO and contest it (LG Bochum (Bochum Regional Court), ruling of 10.05.2011, file no. 9 S 251/10). This option is likewise available to any ordinary creditor who has otherwise been unable to enforce its claims successfully.
Trustee models rarely provide effective protection
A trust agreement that consistently disadvantages the creditors of a medium-sized GmbH is deemed to have been concluded at the point in time when the trust property is created (BGH, ruling of 24.05.2007, file no. IX ZR 105/05). Where reinsurance is built up through regular payments (for example in a life insurance policy or via a securities account), or where assets are transferred in rem to a trustee, only the last partial act in time is decisive in the case of multi-stage legal transactions.
If the trustee were entitled to effective defences against the insolvency administrator’s claim for payment that the medium-sized GmbH itself could not raise, the payment to the trustee would already disadvantage the creditors and would therefore be contestable.
Rescission following advertising with insolvency protection
The mere aim of pursuing asset protection by pledging the reinsurance of a pension commitment, even in economically sound times of the medium-sized GmbH, has hitherto already enabled the insolvency administrator to contest the arrangement pursuant to § 133 InsO (OLG Brandenburg (Brandenburg Higher Regional Court), judgment of 13.02.2002, file no. 7 U 152/01) on the ground of conditionally intentional disadvantage to creditors. What is new is that the objective of disadvantaging creditors is no longer relevant where the underlying transaction is regarded as loan-like.
The fairy tale of the security of pledged reinsurance
Depending on how the pension commitment with reinsurance is structured – including any trust model – the insolvency administrator, like any ordinary creditor, may readily gain retroactive access for up to more than 10 years to the reinsurance funds accumulated by the managing shareholder, provided that the managing shareholder holds at least 50% of the company and is entitled to sole management.
Solutions frequently lie outside the domestic legal sphere
First of all, insolvency law and the law of civil procedure, including enforcement law, apply only within Germany. Only through an effective choice of law can asset protection be achieved abroad in individual cases. The background to this is the legal-policy decision between the interest of creditors on the one hand and the interest of the state, as well as of employees and managers in securing retirement provision, on the other. However, insurance brokers cannot arrange such a structure, because as a rule the involvement of any intermediary, whether domestic or foreign, will render the choice of foreign law void.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
courtesy of
published in Giesserei-Praxis magazine 1-2 2021, pages 46-48
and
www.network.karriere.com (published in Network-Karriere 04/2021, page 30)
