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Occupational Pensions: No right of segregation under Section 47 of the German Insolvency Act for contributions to a captive pension insurance

By judgment of 21.03.2017 (3 AZR 718/15) the Federal Labor Court has ruled that a right of segregation under Section 47 of the German Insolvency Act generally does not exist in the event that an employer ceased contribution payments to a captive pension insurance and later became insolvent. Such a right only exists if the contributions were separated from the employer’s other assets.

The employee was granted a pension promise in the form of a captive pension insurance, obliging the employer to pay contributions to that external pension carrier. Some months prior to opening bankruptcy proceedings the employer ceased paying contributions. The suing employee claimed the payout of the retained contributions to himself or, alternatively, to the captive pension insurance.

The Federal Labor Court dismissed the employee’s claims, pointing out that the requirements of Section 47 of the German Insolvency Act are not fulfilled. According to Section 47 of the German Insolvency Act, a person who can assert on the basis of a right in rem or a personal right that an object does not belong to the insolvency estate is not an insolvency creditor. The right of segregation is determined by the laws which apply outside the insolvency proceedings. A claim that is not a claim in rem may also entitle to segregation, if the object the claim relates to is not a part of the insolvency estate. As a further requirement the segregating object must be a determined or determinable part of the insolvency estate. This requirement was not fulfilled in the present case since the contributions had not been kept in a separate bank account and therefore had not been separated from the employer’s other assets. Furthermore, the Federal Labor Court pointed out that European law does not lead to another conclusion. According to directive 2008/94 /EG the Member States are obliged to take the necessary measures to protect the interests of workers in respect of their acquired rights or entitlements to occupational pension payments. However, directive 2008/94 /EG cannot be interpreted in such way that a right of segregation exists in the event that an employer has ceased contribution payments to a captive pension insurance.

By its decision, the Federal Labor Court confirms its established jurisprudence on the interpretation of Section 47 of the German Insolvency Act and rejects the attempt to remove these principles of German insolvency law through European law.