Property manager insolvent: what happens to the association’s money and what to do now

First breathe, then check

The news often arrives indirectly: a letter from the insolvency court, a direct debit that bounces, a tradesperson who hasn’t been paid. Every owner’s first question is the same: Is our money gone?

The good news first: in most cases, it isn’t. Whether and how quickly the owners’ association gets its money back, however, depends almost entirely on one question – whose name the account is in.

The key question: who owns the account?

Option 1: the account is held by the owners’ association. The account holder is the “Gemeinschaft der Wohnungseigentümer” of your building; the manager only has a power of attorney. This is known as an open third-party account or WEG own account. The money in it belongs to the association (§ 9a(3) WEG) and does not fall into the manager’s insolvency estate. Once the power of attorney ends, the manager is simply out.

Option 2: the account is held by the manager. With a trust account (Treuhandkonto), the manager is formally the account holder and only manages the money on the association’s behalf. In an insolvency, the association then has to have its money separated out by the insolvency administrator (§ 47 InsO). This usually succeeds if the account was openly run as a trust account and held only third-party funds.

Option 3: the money was mixed. If the manager also ran their own payments through the account, or pooled several associations’ money, things get difficult. In such a case, the Federal Court of Justice denied a right to separation (BGH, judgment of 24 June 2003, IX ZR 120/02). The association is then an ordinary creditor and must file its claim in the insolvency proceedings (§ 174 InsO) – with an uncertain payout.

To find out which option applies to you, look at a bank statement or ask the bank directly. If the manager’s name appears as account holder, it is a trust account.

The first steps

If the meeting has to be organised without the manager, our article on the extraordinary owners’ meeting helps. For the period until the new manager starts, our article WEG without a manager lists what must not be left lying.

What happens to the appointment and the contract

The insolvency doesn’t necessarily end either the appointment or the contract by itself. Don’t wait for it. The association can dismiss the manager at any time (§ 26(3) WEG), by simple majority. The insolvency will, as a rule, also be an important reason to terminate the contract without notice. How this works properly is explained in our article on dismissing your property manager.

In addition: anyone in disorderly financial circumstances cannot obtain a licence under § 34c GewO. An insolvent manager must therefore expect to lose its trade licence. At that point, it can’t continue working anyway.

Which insurance steps in

Every residential property manager must hold professional liability insurance of at least 500,000 euros per claim (§ 15 MaBV). It covers losses caused by management errors – a missed deadline, for example, or a wrongly commissioned job. Intentional embezzlement is usually excluded. That is what voluntary fidelity insurance is for. Ask the insolvency administrator which policies existed and report losses immediately.

How to protect your association in future

Insolvency can hit any company. What you can control is how well your association is prepared for it:

• An account in the association’s name – for both service charges and the reserve. If the manager’s name is still on it, the next meeting should resolve to switch.
• Separate accounts for each association. Pooled accounts for several buildings have no place with a reputable manager.
• A say on large amounts. The association can resolve that withdrawals from the reserve above a certain amount need the advisory board’s approval.
• Regular checks of the balances. An advisory board with read access, or a portal showing current balances, makes irregularities visible early.

Even after a takeover or sale of your property manager, it is worth keeping an eye on the account. Further criteria for a reliable manager are in our article How to spot a good property manager. And when the handover to the new manager is due: what it must include is covered in our article on deadlines and handover when changing managers.

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At Ravenica, every owners’ association’s money is kept in its own account, held by the association itself. If your manager has dropped out and you need a new one quickly: get in touch – we will tell you promptly whether and when we can take over.