Due Private Foundation Distribution and Creditor Protection: What the Board Must Check Before Payment

Section 17(2) PSG requires each member of the foundation board to perform their duties economically and with the care of a conscientious business manager. For benefits to beneficiaries, the provision sets an additional limit: the payment may be made only if and to the extent that it does not diminish claims of creditors of the private foundation.

The wording requires two separate questions. First, the payment must be compatible with the foundation deed and the foundation purpose. Second, the amount and timing of the payment must remain compatible with the claims of the foundation's creditors. A general approval for every due distribution would omit this second review.

The board must therefore assess the position at the intended payment date. An earlier resolution or a history of regular distributions does not replace a review of current liabilities. The same concrete decision-making basis is relevant to the board's duties of care.

A valid distribution resolution may establish a claim of the beneficiary. It does not by itself answer whether the private foundation may satisfy that claim by payment at the intended date. Section 17(2) PSG also directs attention to the claims of the foundation's creditors.

Two legal relationships must therefore be kept apart. The beneficiary may have a claim against the private foundation. At the same time, the foundation may have due liabilities to its own creditors. The payment cannot disregard the second level.

This remains true where the beneficiary expected the payment or the foundation promised a similar distribution in an earlier financial year. The board should not treat that earlier promise as permission for the current payment date. The article on distribution resolutions and payment records should be read together with the current creditor review.

Section 17(2) PSG refers to the claims of creditors of the private foundation. In practice, a bank balance on the transfer date is therefore not enough. The board should record known liabilities, due dates, amounts and available security as part of the decision.

Depending on the case, the file may include unpaid invoices, loans, taxes, rent or financing obligations, claims already confirmed by a title and disputes with a material financial risk. This list identifies documents for the review. It does not decide whether a particular claim exists or in what amount.

The asset side must also be recorded realistically. Book values, assets that cannot be realised quickly, encumbrances and expected income cannot simply be treated as available cash. The relevant question is which funds will be available to meet the foundation's obligations on the payment date.

If the applicable foundation deed or supplementary deed is unclear, the correct version must be established first. The article on interpreting deed versions explains why an outdated draft cannot support a payment decision. Where asset management is outsourced, the selection and oversight of external managers also belong in the review. The limits of a private foundation advisory board do not change the statutory review under Section 17(2) PSG.

The words “only if and to the extent” require the amount of a possible benefit to be considered separately. A partial payment is not an automatic solution. A smaller amount can also diminish claims of foundation creditors if the remaining funds do not cover due obligations.

The board should therefore record the payment date, amount and funds that will remain after payment together. If the position changes because a new liability falls due or expected income does not arrive, a prepared payment needs a fresh review.

A different review applies when a creditor of the beneficiary seeks access to the beneficiary's claim. Attachment of a future distribution depends on whether the claim is sufficiently determinable and on service of the order on the foundation. The article on attachment of future distributions addresses that question.

The resolution should identify the version of the foundation deed, the beneficiary and the specific benefit. It should state the amount, payment date, connection with the foundation purpose and any conditions. A concise explanation should show why the benefit is compatible with the claims of foundation creditors under Section 17(2) PSG.

The calculation should show starting funds, relevant obligations and the funds remaining after payment. For real estate, participations or other assets that cannot be realised quickly, availability should be explained separately. A balance-sheet value does not always answer that question.

Minutes, attachments, approval and payment evidence should be kept together. If the amount changes or the payment date moves, the board must check whether the previous reasoning still applies. A supplementary deed may contain an additional rule relevant to the distribution.

Documentation is not a guarantee that a payment is lawful. It shows which facts the board considered and when a new decision is required. That record can also assist with later information or liability questions.

A strained financial position requires an up-to-date review. The closer the private foundation is to insolvency, the less sufficient it is to rely on earlier distributions or expected income. The board must reorder actual liabilities and available funds for the planned payment date.

Section 17(2) PSG remains the foundation-law limit for a benefit to a beneficiary. The provision does not replace a separate review of insolvency-law duties and is not a general guide to insolvency proceedings. The relevant due dates, liabilities and further legal steps require their own assessment.

If the documents show that payment could diminish claims of foundation creditors, the board cannot release it simply by referring to the due date. The position must be clarified and the payment resolution may need to be adjusted or suspended. The article on the beneficiary's distribution claim deals separately with a personal creditor's access to that claim.

The relevant point is the actual transfer. An earlier positive review loses its value if assets, liabilities, due dates or the basis of the distribution have changed.

A common mistake is to look only at the bank account. The balance shows neither every due liability nor the encumbrances affecting the foundation assets. The decision needs a complete overview of relevant obligations.

It is equally problematic to equate due date with priority. A beneficiary's claim may be due and still be subject to the limit in Section 17(2) PSG if payment would prejudice foundation creditors.

A third mistake is to limit the review to the board resolution. The foundation deed, financial position, liabilities and actual transfer date must fit together.

A partial payment also requires its own calculation. The remaining amount must be sufficient for the claims of foundation creditors that must be considered in the specific situation.

Finally, creditors of the private foundation are often confused with personal creditors of the beneficiary. The first issue concerns the foundation's ability to make the payment under Section 17(2) PSG. The second concerns possible attachment of the beneficiary's claim.