Insolvency risks – Authority to provide legal services – Insurance cover
Occupational pensions are an important component of retirement provision. They obtain their complex position in the German legal system through the interdisciplinary interaction of the most diverse fields of law, which can easily become a liability trap for legal and tax advisors; the numerous judgements on this subject speak a clear language in this respect. Due to the complexity of the subject, this article can only highlight some of the existing risks by way of example.
Risk of insolvency
Through its commitments to a company pension scheme, the employer regularly first of all undertakes to provide benefits to its employees. If there are financial losses or losses in investments or reinsurance for pension commitments, this can lead to over-indebtedness. The insolvency or illiquidity of a financial institution (bank, insurance company, investment fund company, etc.) or a financial product then affects the employer. For the advisor, there is a risk of not recognizing an insolvency situation that has already occurred or is imminent. The more comprehensively just the tax adviser cares for the client, the more strongly he gets into the role of a guarantor i.S.d. StGB.
However, a (total) risk of loss regularly exists not only at the level of the employer. It is often the case that the financial adviser or investment intermediary becomes insolvent, so that it is advisable to check the solvency of the financial adviser or investment intermediary and to take out appropriate pecuniary loss liability insurance as part of the legal advice.
A classic case of faulty advice is the infringement of the Bond ruling (BGH, 6.7.1993 – XI ZR 12/93), i.e. the provision of investor- and object-oriented advice when brokering financial products. However, this obligation also applies to insurance brokers (BGH, 14.6.2007 – III ZR 269/06).
The risk of losses at the level of the product provider, i.e. the provider or sponsor of the occupational pension scheme, should not be underestimated either. The employer then has to rely on the rescue company Protektor Lebensversicherungs-AG in Berlin as the protection scheme for German life insurers, not also for pension funds.
If the RA/StB does not limit his mandate, he easily gets into the role of a secondary liability debtor next to the financial advisor/broker, because the chamber professional also has to check the (tax-)legal suitability of the financial products and their providers (LG Mannheim, 19.9.1991, VersR 1992, 1084; OLG Düsseldorf, 8.10.1992 – 4 U 27/02).
Faulty insolvency protection
Managing partners are gladly served by insurance sales companies with the statement that company and private pension schemes are protected against seizure and insolvency. However, “off-the-shelf solutions” cannot prevent the vast majority of insolvency administrators from confiscating assets, leaving those affected to seek Hartz IV or social assistance. If the legal departments of the product providers or the sponsors of occupational and private pensions plausibly embellish the legal situation, this can be a trap for legal and tax advisors if they negligently adopt their half-truths in their own client advice.
In addition, according to the BGH decision of 1.11.2011 – IX ZR 79/11 -, BB 2012, 343 with BB-Komm.Wilhelm (in this issue), even a contractually agreed prohibition of realisation no longer protects claims under endowment life insurance policies without restriction from the access of creditors and the insolvency administrator can terminate the insurance policy if it is attachable and falls within the insolvency estate. In future, an insolvency administrator will therefore have to check very carefully whether there is protection against seizure and thus whether the surrender value of insurance contracts is excluded from the insolvency estate. In the event of insufficient attachment protection, he is entitled to terminate the insurance policies.
Employers must also be made aware of the difference or default liability if they choose relief funds for deferred compensation, as these are generally unsuitable for these cases due to the de facto “double” administrative costs. There is an amount of over 100 billion euros in potential employer liability through deferred compensation. For example. the LAG Hessen (LAG Hessen, decision of 3.3.2010 – 8 Sa 187/09) confirmed employer liability if a pension fund (PK) reduces its own benefits in accordance with its articles of association in the event of shortfalls.
Liability risks due to economic advice, forecasts and capital cover procedures
Neither economic nor financial advice is included in the professional profile of a lawyer; neither activity is insured. If there is a need for advice g, the issues at hand should be delegated to a tax advisor or an expert. This is because hardly any advisor will be able to directly deduce the extent of the employer’s liability and thus the economic over-indebtedness under the InsO from a tax balance sheet. Investment forecasts that may have been plausible in the past later turn out to be unrealistic. Due to the usual observation periods of several decades and potential changes in uncertain parameters (e.g. interest rate development, investment risks, life expectancy, issuer risk), it cannot be ruled out that no pension provider will become a restructuring case.
It is important for the adviser to provide the employer with comprehensive information on the extent of its (default) liability, which depends on the type of commitment agreed with the employees in accordance with Section 1 of the German Occupational Pensions Act (defined benefit plan, defined contribution plan or defined contribution plan with minimum benefit). He shall also provide information on the timely filing of an insolvency petition. In case of doubt, the insolvency administrator will make a claim against the ex-managing director with reference to manager liability because the GmbH has been overindebted for years due to occupational pension commitments and loss-making reinsurance, which has led to so-called prohibited payments and thus to a delay in insolvency.
Authority to provide legal services
Insurance brokers and insurance agents do not have the necessary authority to provide legal services in the context of occupational pensions. In § 34d Gewerbeordnung (GewO), the legislator did not grant insurance brokers a comprehensive legal authority, but only a product-accessory advisory authority. When advising an insurance broker, the insurance contract must therefore always be in the foreground. Moreover, according to Prof. Henssler of the University of Cologne, the insurance intermediary is not in a position to provide independent legal advice, as there is a conflict of interest due to his commission interest. The lawyer involved must also point this out in no uncertain terms.
The legal advice provided by tax and financial advisors in connection with occupational pension schemes is often regarded as an ancillary service permitted under the RDG, which has regularly proved to be a legal error (cf. BGH, 20.3.2008 – IX ZR 238/06). The tax consultant then usually loses his claim to remuneration (BGH, 17.2.2000 – IX ZR 50/98), but is regularly liable for errors despite a void mandate agreement (BGH, 30.9.1999 – IX ZR 139/98).
Lack of insurance cover for financial losses
In the case of lawyers, involvement in the brokering of financial products belongs to the area of incompatible activities, which usually result in the withdrawal of the licence to practise.
However, hundreds of tax advisors nationwide have probably taken up “implementation support for asset and financial planning” (i.e. commercial selection/brokerage of financial instruments in accordance with § 34c GewO or asset management in accordance with § 32 KWG) or the activity as “trustee and asset manager” (i.e. non-insurable activity as managing trustee). The alleged special coverage for the “tax consultant as financial planner” – negotiated by a small association of tax consultants – encourages such legal errors, because a violation of §§ 34c and 34d GewO or § 32 KWG in turn makes the coverage null and void, which prohibits any product recommendation or “implementation support” in the area of financial instruments according to the KWG or of insurance for the chamber professional. The payment of a VSH premium can in no way be taken as an indication of the legality of one’s own activities. Conversely, every chamber professional is free to have the VSH coverage expressly confirmed by the insurer, even in the event that the respective activity should later turn out to be incompatible with the profession, because as a rule only the typical profession is insured, which limits the VSH coverage from the outset.
This acutely affects in particular those tax advisors and lawyers who act as so-called (double) trustees to secure company pension schemes, or who, for example, act as in-house counsel for a company pension scheme provider – but who also advise clients illegally in view of §§ 45, 46 BRAO (Bayerischer AGH, 27.3.2003 – BayAGH II-1/03, BRAK-Mitt. 2003, 182 ff.). The fact that this is a sub-case of collision or party treason (cf. § 51 Para. 1 BRAO, § 67 Para. 1 StBG ) is all too readily ignored, but means the loss of VSH coverage in the individual case.
No assumption of mandate without sufficient insurance cover
Chamber professionals often agree with their clients in general terms and conditions only the statutory minimum compulsory insurance cover or about four times the amount as the upper limit of liability, although the responsibility assumed (Otten, Anwaltliches Berufsrecht, 2003, Institut für Juristische Weiterbildung, Kurs 83050 der FernUni Hagen) will be much higher, especially in the field of occupational pension provision. Liability agreements must cover the entire risk typical of the contract in terms of amount. This is because any (individual, if applicable) limitation of liability clause may only limit liability to the foreseeable damage typical of the contract (Graf von WestphalenDB 2000, 861 f.). This applies all the more as managers are exposed to the risk of § 266 StGB (breach of trust to the detriment of the represented company) in the case of insufficient insurance of identifiable risks. Which chamber professional likes to participate in this in the sense of the StGB? Therefore, especially the so-called late loss risk (interest, consequential damages and inflation) has to be taken into account in the VSH coverage. Under no circumstances should it be overlooked that agreements on limitations of liability are ultimately no substitute for adequate VSH cover (Zimmermann, Christian, NJW 2005, 177 et seq.).
This is clearly illustrated by the example of the lawsuit filed by a 40-year-old former board member who wants to sue for lifelong occupational disability benefits (p.a. around 250 TEUR) from German and Swiss insurers due to a “burn-out”. His life expectancy and thus the benefits sought are in the region of 40 annual benefits – the amount in dispute, however, according to the relevant regulations (ZPO, GKG, RVG) is only a comparatively small fraction of this. In this respect, it seems a burdensome duty for the tax advisor and lawyer to be aware of the responsibilities and risks, to insure his mandate appropriately, or in the alternative, to resign.
Liability trap due to remuneration agreement
Company pension schemes in Germany involve around 500 billion euros in reinsurance funds. At the same time, only a fraction of many pension commitments are fully funded. For this reason, it is also important for tax advisors and lawyers to settle the question of remuneration and expenses (e.g. for VSH costs) promptly when taking on a mandate, in accordance with the responsibility to be assumed.
A further point is the question of the contents of advice and structuring, because the involvement of experts for capital investments and/or insurance products is not covered as an activity in the standard VSH policy of the chamber professional according to their activities. In this respect, it is important not to commission experts (who, as experience has shown, are always necessary) in one’s own name, but to leave this to the client, and of course to limit one’s own commission to those things which one is proficient in and which are in keeping with one’s professional profile.
Golden times for the occupational pension tax advisor and the occupational pension lawyer?
It seems unbelievable that at one of the largest financial houses the “legal model forms off the shelf” are created by the marketing department and there by graduate business economists for financial sales. The need for reorganisation of advice in connection with occupational pensions is obviously enormous. Even if, at first glance, these seem to be almost golden times for legal and tax advisors in the field of occupational pension schemes, legal and tax advisors should always keep an eye on the liability traps outlined and have their clients confirm in writing for their files which advice has been taken on and which has not. In particular, the fact that clients were referred to external advisers and advised to obtain binding information should be confirmed by the advisers.
by Dr. Johannes Fiala
published in Betriebs-Berater 06.2012
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About the author
PhD, MBA, MM
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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