How employees protect themselves from creditor access and when insurers must pay twice

Insolvency-protected company pension scheme (bAV) for employees with direct insurance


Federal Court of Justice (BGH) protects employer-financed direct insurance policies

In its decision of 5 December 2013 (Case IX ZR 165/13), the BGH ruled in favour of an employee, according to which the surrender value of a purely employer-financed vested direct insurance policy cannot be drawn on by the employee’s insolvency administrator as part of the assets.

The insolvency administrator cannot distribute this money to the creditors. The termination of the insolvency administrator thus has at most the consequence that the insurance is converted into a premium-free insurance.


Prohibition of seizure follows from prohibition of disposal – but only up to the due date

Pursuant to section 851 I of the German Code of Civil Procedure (Zivilprozessordnung – ZPO), prohibitions on disposal lead to unseizability, which must also be observed by the insolvency administrator. The prohibition of disposal is found in Section 2 II of the German Company Pensions Act (BetrAVG), according to which the assignment or mortgaging of insurance claims is prohibited by law in the case of employer-financed direct insurance policies. As long as the insurance benefit is not due, the insolvency administrator cannot access it. However, this does not even protect insolvent shareholder-managing directors, as the BetrAVG does not apply to them.


Access for creditors and insolvency administrator in the case of direct insurance only from maturity date

However, if the insurance benefit becomes due during the insolvency proceedings in the form of a capital benefit or pension payment, access is certainly possible. Creditors could also seize the future benefits from the direct insurance already today (BGH of 11.11.2010, file no. VII ZB 87/09). However, this does not imply premature termination. If the employee were to specify only the account of a third party, such as a spouse, for payment, such a payment instruction would be ineffective, and could not prevent access at all when due. Creditors or insolvency administrators could change the payment order at any time.


Protective measures for direct insurance financed by the employer

The first thing to think about is to designate the payout as an annuity in the event of a right of election vis-à-vis the insurer, and to agree with the employer on the repayment as an annuity – and to obtain confirmation from the insurer for this as well. Mere agreements with the employer would have no effect. In addition, it is often advisable to file for (private) insolvency as early as possible so that future pension claims, for example from the occupational pension scheme, cannot be seized if the insolvency proceedings have been concluded by then.


Direct insurance as loan collateral for private debts?

In a case decided by the Higher Regional Court of Koblenz (OLG Koblenz, judgment of 12.10.2012, Case No. 10 U 1151/11), a credit institution had had a direct insurance policy provided as collateral for a loan. This had violated the prohibition of assignment or hypothecation, so that this immediate granting of a loan security was null and void, § 134 BGB.

Nevertheless, the insurance company paid out the surrender value and later had to pay again when the direct insurance became contractually due, because the assets are supposed to remain untouched until retirement age according to the legal requirements of the BetrAVG.


Other possible dispositions by the employee?

According to the provisions of Section 3 of the German Occupational Pensions Act (BetrAVG), occupational pension schemes can be terminated and settled together with the employer – even after termination of the employment relationship. This can often lead to savings in charges (taxes and social security). For example, in the event of economic hardship, the employee may require the employer to agree to the termination, cancellation or reversal of the occupational pension scheme for reasons of welfare and consideration.

Even in the case of deferred compensation, there may be a duty of care and consideration on the part of the employer (§ 241 BGB) to agree to a reversal of the occupational pension scheme – in the event of economic hardship on the part of the employee – by giving notice as policyholder/AG. Thus, the employer could revoke the subscription right together with the employee, pay out the surrender value or the higher true value of the contract determined by actuarial expertise himself, and continue the paid direct insurance contract himself until further notice.

If employer and employee agree, for example, that the deferred compensation and pension commitment are null and void from the outset due to error or deception, there is no longer any company pension law preventing the elimination of the contract and the subsequent payment of wages and similar arrangements in order to save social security contributions and taxes.


by Dr. Johannes Fiala and Dipl.-Mathe. Peter A. Schramm


by courtesy of (Submission Gazette 04.04.2014, No. 67)


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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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