Insurance fraud in connection with partial retirement, working time accounts and pension commitments via double trust (CTA)

Total loss in the case of partial retirement, working time accounts and pension commitments

How directors, other officers, or self-employed agents completely lose their retirement benefits due to ineffective trust models.

 

The business model of renowned corporate consultants for occupational pension schemes (bAV) includes the provision of the reinsurance assets by means of a trust or double trust agreement.
(in the international context called Contractual Trust Arrangement or CTA for short) from the access of the insolvency administrator. This of medium-sized companies and even
For years, the pension model that DAX companies like to use has been suspected of deceiving industry and small and medium-sized businesses on a commercial basis, because the Federal Court of Justice (BGH) has judged the legal situation differently.

 

BGH 2002: Trust assets unprotected in the event of insolvency of the trustee

If the trustee becomes insolvent, the employer will generally not be able to demand that the trustee’s insolvency administrator segregate the existing collateral.
Instead, the employers as trustors must file their claims in the normal way in the insolvency table. The reason for this is that the trustee acts for the employer through
payment of insurance premiums or the purchase of investments. However, these acquired trust assets are not a so-called surrogate, i.e.
no longer the assets which the trustee had originally once received directly from the employer as settlor. The employer then only has a
normal claim under the law of obligations against the trustee (BGH judgement of 18.07.2002, ref. IX ZR 264/01).

If insolvency or bankruptcy protection were important, there would normally be no need for a trust model, but in rem security, for example by means of a pledge, irrevocable subscription right or
Assignment.

 

BGH 2010: Trust assets unprotected in the event of enforcement against the employer/trustee

Any creditor who has a title (e.g., a judgment) against an employer/trustee, even without a title of his own, may proceed against the trustee by garnishment and
Execute the transfer order. The claim of the trustor/employer against the trustee arising from the trust relationship is then seized by the court, for example
the (possibly future) statutory claims pursuant to §§ 667, 812 of the German Civil Code (BGB) for the surrender of what has been obtained or the retransfer of the trust assets (BGH, decision of 22 April 2010,
Az. VII ZB 15/09).

 

BGH 2012: Acceptance of money and forwarding of money are each contestable in their own right

By judgment of 26.04.2012 (file no. IX ZR 74/11), the BGH ruled: “A disinterested trustee is subject to a challenge of intent if he, after knowledge of the insolvency
of the debtor passes on sums of money left to him in accordance with the agreement to certain creditors of the debtor who are to be satisfied preferentially.” Insolvency administrators can thus
ten years to declare the challenge. Creditors also have this right of avoidance, for example if the opening of insolvency proceedings is refused for lack of assets.

In addition, the transfer of assets to “disinterested administrative trustees” (e.g. a CTA) is already disadvantageous for creditors and can regularly be challenged.
The BGH states: “Consequently, it must be adhered to that already the surrender of funds to a disinterested administrative trustee of the debtor for his creditors
disadvantageous.”

Fiduciary and double fiduciary models thus prove to be a clumsy deception about the fact that they do not protect assets in the event of insolvency, but actually the opposite.
effect – by making these pension assets “easy prey” for any insolvency administrator.

 

No asset protection, but planned asset destruction through trust models

Already if the transfer of assets to a trustee is subjective (from the point of view of an employer/trustee), possibly (dolus eventualis), inter alia, also
serves only indirectly to disadvantage the creditor and this is accepted as a mere presumed consequence, then it is subject to the following conditions in the event of the knowledge of the creditor
Trustee of the ten-year avoidance period, § 3 I AnfG, § 133 I InsO. This creditor disadvantage is, among other things, the declared purpose of the contract, both according to the CTA advertising
as well as according to the contents of usual CTA contracts.

It is not decisive that the trustee was already aware of impending insolvency at the time of transfer of the trust assets. Sufficient is already,
that the CTA trustee knew “in the event of a security case” or “in the event of a disturbance” that an insolvency case already existed at that time and that he therefore had to fulfil his “instructions in accordance with the instructions (previously contractually)”.
agreed cash payment to allegedly secured employees” disadvantaged the other creditors. The Insolvency Code protects both existing creditors and future new creditors, so that any trust model is doomed to failure from the outset.

Already the laying down of declarations of knowledge and motives regarding asset protection for employees, as usual in CTA models “in the event of insolvency as an open
motive of the “security trust”, leads to the fact that on the one hand the transfer of assets to trustees and/or double trustees is contestable for ten years in each case, and on the other hand
also any disbursement “in the case of security”, because then the trustee knows that other creditors “by his instruction disbursements to by CTA contractual
preferred employees” are disadvantaged. Such assignments to fiduciaries prove to be unconscionable from the outset.

 

Beneficiaries of the trust agreement and trustee are jointly and severally liable

In its second guiding principle, the BGH states: “A disinterested trustee who pays out the debtor’s money obtained in a contestable manner to the debtor’s creditor in accordance with instructions is obliged to pay compensation for the value, (recently) without being able to invoke a lapse of enrichment.” The pension beneficiary benefiting from the trust model is liable to the insolvency administrator as a joint and several debtor – since he was unlawfully given preferential satisfaction as a creditor – and the trustee. In the internal relationship, the pension beneficiary is liable to the trustee.

If a group CTA trustee has to “pay twice” after the funds are paid to the employee, the trust assets of the other employers/trustees are also put at risk of misappropriation or enforcement. The remaining employers/trustees will feel deceived in retrospect about the content of the purported security provided by CTA/trustee. This is because if the CTA trustee then becomes insolvent itself, even the solvent employers/trustees regularly expect only a “bankruptcy rate” when it comes to the return of their trust assets.

 

BGH 2012: Even a trustee acting in good faith is liable alongside beneficiaries from the commencement of proceedings

“With the opening of insolvency proceedings against the assets of the trustor [Arbeitgebers], the trust agreement expires in accordance with the provisions of the German Insolvency Act. §§ 115, 116 InsO and the trust assets fall economically
into the insolvency estate.” If the bona fide, unsuspecting trustee pays on the instructions of the settlor/employer after the opening of the insolvency proceedings, the claim of the insolvency administrator to the trust assets against the trustee is not extinguished, the trustee may have to pay twice, because the instruction of the settlor/employer is invalid,
§ 81 InsO, as stated by the BGH (ruling of 12.07.2012, ref. IX ZR 213/11).

If the insolvency administrator decides to approve this ineffective disposition of trust assets after the fact in order to spare the disinterested administrative trustee,
the insolvency administrator may also claim reimbursement from a bona fide recipient of trust assets. This is because the recipient of the payment is legally considered to be a non-entitled party, so that good faith is not even relevant, § 816 II BGB.

 

CTA termination without notice to avoid losses as the safest route

If a CTA trustee pays out funds to (ex-)employees, the insolvency administrator has several options:
By contesting coverage, the InsO administrator will ask the employee for the money back.
The insolvency administrator can also claim payment from the trustee or CTA trustee. The fact that the trustee acted “as directed” pursuant to an order does not help him escape liability.

As a rule, the parties involved (settlor, employer, trustee) will have to be assumed to have the intention to disadvantage the creditors. Even good faith on the part of the trustee and the beneficiary cannot prevent claims for reimbursement in the case of payments made after the opening of proceedings.

 

Supervisory boards have a duty

The Federal Court of Justice (BGH) repeated its case law on the liability of supervisory board members in the event of insolvency in its ruling of 16 March 2009 (Case No. II ZR 280/07):
“If the supervisory board determines that the company is ripe for insolvency, it must work to ensure that the management board files an insolvency petition in a timely manner and does not make any payments
The Supervisory Board is not responsible for any actions that are inconsistent with the due care and diligence of a prudent and conscientious business manager. If he culpably violates this, he may be liable to the company for damages.”

This makes it clear that supervisory boards are even obliged to examine the occupational pension conditions or to arrange for them to be examined by auditors, actuaries and legal advisors with regard to their content, including economic and legal security – also from the point of view of compliance and risk management. The Supervisory Board must also prevent CTA trustees who are presumably “legally meaningless and only costly” from collusively making any payment at the expense of other creditors. This is because such trust models are and were regularly “built on sand” from the outset in accordance with the law.

Thus, fiduciary models, double fiduciary or Contractual Trust Arrangements (CTA) are suspected of being used to promote contestable dispositions by fiduciaries.
is being made. Such deliberately planned preferential treatment of creditors – in this case the pension beneficiaries – could also be punishable under §§ 283 et seq. StGB (German Criminal Code).

 

Reversal of trust models for working time accounts and company pension schemes

In many cases, trustees and dual trustees violate the Legal Services Act because they are not licensed, so that trust agreements and given powers of attorney
are “null and void.” This could be triggered, for example, by advisory agreements on the CTA as well as a variety of contractual ambiguities and the trustee’s scope for decision-making.

Occasionally, the trustee does not have a licence for asset management (in regulatory terms: financial portfolio management) in accordance with the German Banking Act. § 32 of the German Banking Act (KWG) by the Federal
Financial Services Supervisory Authority (BaFin). Financial portfolio management is any management of individual assets invested in financial instruments on behalf of others with
scope for decision-making (section 1 (1a) no. 3 KWG). The violation of such prohibition laws always means liability in tort, § 823 II BGB.

In addition it comes that it is in view of the legal situation since 01.01.1999 in the InsO with such trust models in all rule around an intentional immoral damage of the
employer as principal and the thus unprotected pension beneficiaries will act. Finally, it is foreseeable that domestic trust models in the unsuitable
Attempts to transfer constructs that may work in other legal systems to the completely different German legal sphere may have the exact opposite effect of what was intended:
The reinsurance cover, for example for company pension schemes, will certainly fall into the insolvency estate in many cases.

From company practice, it can be seen that employees who have been granted a pension are not aware of these circumstances and are often precisely with the
insolvency security is advertised. In this context, employees usually have direct claims against the acting actors personally from the point of view of the contract with
Protective effect in favour of third parties. This increases the chance of old-age poverty for corporate bodies and investment sales.

 

loan fraud

Trust models were developed under different legal conditions abroad in order to be able to balance the assets “outsourced” with the pension provisions.
and thus to show lower borrowings as liabilities in the balance sheet. This improves the rating and more favourable credit terms can be obtained from banks.
become more attractive for the shareholder, too, the investment in shares of the company seems to become more attractive. If, however, because of the specific German legal situation, the trustee model is not at all
can function or is even ineffective and the conditions for the “accounting trick” are thus not met, banks and shareholders could feel cheated
– It would be difficult to avoid the consequences in terms of damages and criminal law.

 

Dominant illegal organisation of the distribution of occupational pensions

Training and further education in the area of occupational pensions is offered primarily to market participants whose “unqualified advice” is protected by the Legal Services Act (RDG).
and the constant jurisdiction of the BGH wants to protect the customers:

The BGH judges legal advice contracts with persons without a licence as null and void. In particular, these are seminars or, for example, a short course of study at a university of applied sciences to become a “bAV company consultant” for tax consultants and insurance intermediaries. Not infrequently, semi-skilled insurance intermediaries are used to advise customers, encouraged by prefabricated forms, with case-by-case sales support from the internal insurance service, and incentivised by high brokerage promises. In this context, the Federal Constitutional Court (BVerfG) has already ruled that the creation of new occupational profiles (“financial planner”, “succession planner”, “bAV company consultant”, “social security auditor for status determination and contribution reimbursement vis-à-vis the German pension insurance”) cannot avoid the need for legal advice. The appearance is maintained by the respective distributors and, by circumventing the UWG, the distributors are even encouraged to do so,
actively promote this area.

In the same way, it is illegal for financial institutions (banks, structural distributors or insurance companies) to employ lawyers or tax advisors who work for them.
(chamber professional as so-called Syndikus) their customers legally and/or fiscally to let advise. This was already decided by the BGH years ago (default judgment of 29.07.2009,
Az. I ZR 166/06): “An agency of another’s legal affairs, which is provided without corresponding permission, is not justified because the acting party uses the help of a lawyer.”

This also applies if the chamber professional had previously worked on the occupational pension concept for the financial institution, for example as a cooperation partner, or had acted as a subcontractor of the financial institution.
or financial distribution. This is where reversal or liability for damages comes into question – a frequent topic after tax audits. Here too, from the point of view of
of compliance and risk management, above all by auditors, to examine whether the formal requirements were complied with when setting up occupational pension schemes, in order to exempt possible liabilities that only become apparent in the event of a claim from the liability of the executive bodies or to rectify possible deficiencies.

In the case of management – but also, for example, in the case of pension commitments for self-employed agents – the (partial) protection by the PSVaG does not apply at all, nor in the case of
Time value accounts. According to the new BGH ruling, the trustee must usually hand over these assets to the insolvency administrator without any ifs or buts. It is thus clear that fiduciary
and double trust models do exactly the opposite of what the financial sales force has come up with in this area by apparently inferior qualified personnel.

For true connoisseurs of the subject would have known that it has been considered immoral, frowned upon, ineffective, null and void for nearly a hundred years of high court legal history,
when attempts are made to reduce the insolvency estate literally at the last second – with and without a trustee. The failure of the CTA initiators lies in the fact that at home and abroad
not to look for alternatives that can be implemented on the basis of already established law and case law.

 

Falsification of balance sheets as the main purpose of the CTA models with significant liability of the auditors

The fact that employees’ pensions were not really protected under the CTA model in insolvency is usually less significant to employers than the CTA balance sheet.
Fair value adjustments are made in accordance with the International Accounting Standard (valuation rules for balance sheets), specifically “IAS 19.7”.

However, this standard is not complied with, because in the absence of insolvency security the assets are not exclusively available to the employees on a fully secured basis.
as IAS 19.7 would require – and in the event of the trustee’s insolvency (which is more likely with such flawed models) the employer can even segregate it,
which may not be permissible under IAS 19.7.

However, in the absence of compliance with IAS 19.7, this means that the accounting is incorrect. Of particular relevance to employers and auditors is the fact that in many cases the requirements of IAS 19.7 for a CTA are not met, and that for years the CTA should not have been reported in this way.

Bottom line:

As sensible as precautions may seem, it is difficult in today’s world for companies to foresee or estimate a period of more than 20 years. The
The economic situation can change drastically during such a period, so that although the pension beneficiaries can be partially secured by means of security measures, on the other hand the companies reach the limits of their carrying capacity as a result of heavy burdens due to pay-as-you-go systems, such as the PSV.
If one affirms a mature society and the set of rules of the valid laws, the old age provision becomes more and more in the area of responsibility of the individual citizen.
posed. According to the political will-building process, the farewell to the intergenerational contract is probably irreversible. In hindsight, this will be seen as one of the most successful
Appreciate lobbying work for the insurance industry. It remains to be seen whether the Rürup and Riester pension instruments will share this fate, or whether they will be seen as a “scrapping premium for statutory pension insurance”.

The authors can only urge companies and their auditors to put the entire company pension scheme under the microscope, not in terms of a lawsuit,
but to get certainty as another dimension.

 

Heads up:

Managing directors, board members and supervisory board members are liable with their private assets
For representatives of corporations without sufficient expertise of their own, e.g. in the field of occupational pensions, there is an obligation to delegate to experts,
without encouraging prohibited legal advice. Due to the personal liability of board members and managing directors in the event of organizational negligence, the work results must be
external experts must be subjected to a careful plausibility check, as stated by the BGH (ruling of 20.09.2011, Ref. II ZR 234/09).

In its ruling of 19 June 2012 (Case No. II ZR 243/11), the BGH goes one step further by assessing it as organisational culpability with a shift in the burden of proof if the executive bodies
of an AG or GmbH do not continuously monitor the economic situation and include and evaluate the provisions not included in business management evaluations.
Coverage gaps in the occupational pension system, but also dubious “trust models in the occupational pension system”, can objectively turn the economic situation upside down. Organizational culpability leads
even with the best of intentions to personal board liability, whereby the manager’s liability insurance is then usually free of performance.

 

Exclusively for experten Report (www.experten.de (published in ExpertenReport Spezial 08/2012, page 1.4):

Dr. Johannes Fiala, Dipl.-Math. Peter A. Schramm and Dieter Olejar

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About the author

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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