What insurance agents and brokers should look out for in terms of self-protection
Service commissions and follow-up commissions may be forfeited upon separation of the agent from the pool or distributor if the distributor is sold or liquidates its holdings, including the insolvency of a broker pool. Insurance agents and brokers are therefore readily led to believe that there is a “guarantee of ownership of the portfolios”.
No ownership by auditor information
If a tax advisor (StB) or auditor (WP) wants to protect the “stocks of the intermediaries”, in particular the payment of follow-up commissions, the forwarding of stock data will hardly be sufficient, especially if these data originate from the distribution or pool. An external data backup at the StB/WP can be useful – nevertheless, no ownership of stocks is acquired or secured with it. At most, this may later touch on the question of prospectus liability in favour of the intermediaries, because often it is a question of stocks held by the distributor or pool and any other impression may later turn out to be pure suggestion from a legal point of view.
No ownership over guarantees through pool or distribution
Pools and distributors provide services such as the pooling of portfolios as their own, as well as settlement with intermediaries, including lapse liability. For this outsourcing, the product provider remunerates the sales department or pool with an overhead – which, on closer inspection, is usually a business model subject to value-added tax. If a pool or distribution becomes insolvent, for example, any contract with a StB/WP is automatically terminated by law at the same time, §§ 115 et seq. Insolvency Code (InsO).
The hope for later information thus usually runs into the void. For a guarantee promise of the pool alone, the agent can buy nothing, just as little as if the rent nomad not only promises the rent payments, but also still guarantees in a warranty deed including wax seal and signed in blood. If the pool or distributor fails to make payments, the broker can only register any claims arising from the guarantee promise as a claim in the insolvency table and will therefore in no way receive more than without such a guarantee.
No ownership by agreement of the product provider with stock transfer
The mere agreement of the product provider vis-à-vis the pool or distributor to a future transfer of the portfolio – from the pool to the intermediary in accordance with their joint distribution agreement – for example in the event of the insolvency of the distributor or pool, but also in the event of the termination of the cooperation – is not yet sufficient for insolvency resistance. This is because, for the avoidance periods in the event of insolvency, it depends on when the acquisition of the stocks or claims to subsequent commission takes place in terms of time, § 140 InsO.
If the portfolios are only “managed internally as the intermediary’s portfolio” by the pool or sales department, it should be clear to everyone that they cannot (yet) be the intermediary’s portfolios, but that they initially belong to the (future) insolvency estate of the pool and sales department. This will please the insolvency administrator, because it increases the mass and his remuneration. If the broker separates from the pool or distributor and the latter becomes insolvent within three months, a transfer of portfolio associated with the separation can already be contested by the insolvency administrator without further ado, §§ 130 f. InsO. InsO.
No insolvency resistance due to late agreement of the product provider
If a pool or distributor now already assigns its claims to brokerage fees today, but under the “condition precedent that the respective product provider agrees to the assignment”, this assignment is pending until then and precisely not effective.
A communication of the perhaps only fundamental agreement on the part of the product provider vis-à-vis the pool or distribution will be ineffective, i.e. it will not even be able to end the state of suspense, because this communication is not (expressly also) addressed to the respective intermediary. The intermediary can also see this from the fact that he regularly did not provide the distributor or pool with a separate power of attorney to receive the consent to the assignment (also) for him as intermediary and specifically for his assignment from the product provider.
If the intermediary believes that the consent of the product provider to the future assignment to him already exists, he should request a copy of this from the product provider or pool.
If the intermediary asks himself whether he would still be able to obtain the consent of the product provider in the event of the insolvency of the pool or distribution, the clear answer is “No, absolutely not!”, because it is forbidden to give preferential treatment to individual intermediaries or creditors, §§ 283 ff. German Criminal Code (StGB).
No brokerage collateral without notice of assignment
The assignment of future claims to the intermediary, for example after termination of a distribution agreement, does not at all protect the intermediary from being left empty-handed in cases other than insolvency. This is because the intermediary would first have to notify all product providers of the assignment from the distributor/pool to him, § 407 of the German Civil Code (BGB). As long as this has not been done, each product provider can continue to make payments to the distributor or pool (or their insolvency administrator) – and thus not to the intermediary again.
Recovery of brokerage fees and commissions for up to ten years in the event of late payment
It is not uncommon for distributors or pools to experience delays in the settlement or payment of commissions and brokerage fees. Already from the knowledge of the intermediary or broker about the unpunctual payment of individual, substantial and due claims, the Federal Court of Justice concludes that the intermediary is aware of the (perhaps only impending) insolvency of the distributor or pool. This means that any such payment can be contested by the (future) insolvency administrator for up to ten years and demanded reimbursement from the agent or broker, § 133 I InsO.
According to case law (BGH, judgement of 30.06.2011, IX ZR 134/10), for example, even slow payments or instalment payment agreements concluded are sufficient. If it comes to that, you should separate immediately as an agent or broker to limit your own damage.
Recovery of brokerage fees and commissions for up to ten years through insolvency protection
More than 100 years of jurisprudence show that the courts have consistently rejected efforts to improve the position of creditors in the event of insolvency. Old and new creditors should be treated equally. Even in the case of distribution agreements, it would be an unsuitable attempt if an indirect disadvantage which is merely possible and which has been accepted approvingly were the intention (BGH, judgement of 06.02.1961, file no. VIII ZR 37/60; OLG Brandenburg, judgement of 13.02.2002, file no. 7 U 152/01).
Evidence of such legally immoral and therefore void arrangements can be provided through forms, training and distribution documents, including promotional letters from experts on the alleged insolvency resistance of specific distribution arrangements. Such ideas, and their fruitlessness, are already familiar to some brokers from the fact that insolvency administrators also collect “bankruptcy-protected” life insurance policies.
Bankruptcy protection only through full ownership of the stock at all times
The simplest legal solution would be for insurance agents and brokers to have their own holdings with the product provider from the beginning, rather than just “internally keyed” with the pool or distributor. It would also be possible to assign future brokerage claims from the outset after the separation from the pool, without any ifs and buts, as in the case of the condition precedent that the product provider must first agree. For he would not have to agree to such an assignment at all, but would only have to take note of it.
Why does one nevertheless choose such complex assignment models?
It would be obvious to question whether the brokerage claims of one’s own pool or distribution have not already been assigned to credit institutions or to product providers due to their own cancellation liability in order to improve their own creditworthiness. Distributors and pools have nowhere stated that their assignments to insurance agents and brokers are “free of encumbrances” or “free of third party rights.” The information of a StB/WP on this detail should be more exciting than any creditworthiness query at a credit agency.
Some entrepreneurs obtain money from various banks by assigning their machinery as collateral to each of them – however, legally only the first collateral is valid. If portfolios of pools or distributors – or future brokerage claims – have already been (partially) mortgaged or assigned, would the second assignment in a distribution agreement (in this respect) come too late, be worthless (or more), at best a deceptive manoeuvre or a nice marketing gag?
This could be the – hidden – reason why pools want to make the assignment (which is only the second) dependent on the consent of the product provider, which is not actually required, and which may therefore in reality be presented as consent to the release of collateral. This raises the question of whether the product provider really wants to release this collateral in the event of a pool insolvency, as long as it still has its own claims, for example due to cancellation liability.
These securities are worth far more to the product provider of the pool than if each broker alone were liable for cancellation. Whether the broker then ever sees something of the future brokerage claims that have been promised as assigned would then depend on when these were later sufficient to fulfil the cancellation liability by realisation of collateral.
It is precisely this delay for an indefinite period of time that may cause many brokers to prefer to reschedule the contracts – which should then lead to the pool’s remaining future brokerage claims being used as collateral for the cancellation liability for the time being. The question of why complicated and insecure when it could also be simple and secure is therefore more than obvious. What exactly are the affected pools and distributors trying to conceal from their affiliated intermediaries? Brokers are advised to ask the right questions so as not to be subject to avoidable error.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (published 02/2015)
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About the author
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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