The directors also have to apply the diligence of a prudent businessman in times of financial difficulties. But there are some duties that are specific to times of financial difficulties.
The directors must convene a general meeting of shareholders if the company’s well-being so requires. If half of the share capital is lost or if the equity ratio falls below 8% and the notional debt repayment period is longer than 15 years, this must be done immediately.
The directors must closely monitor the state of the company, because if the company is:
- insolvent (“zahlungsunfähig”), i.e. unable to pay its debts as and when they fall due, or
- over-indebted in terms of insolvency law (“insolvenzrechtlich überschuldet”), which is generally the case if the company’s liabilities exceed its assets at liquidation values under Austrian GAAP on a standalone basis and if there is a negative forecast regarding the company’s future survival (negative going-concern prognosis (“negative Fortbestehensprognose”)), provided that the insolvency estate’s value is sufficient to cover at least the costs of the insolvency proceedings,
the company is no longer permitted to make payments (cash payments, deliveries of goods or providing securities) to its creditors and the directors must file for insolvency with the competent court without undue delay and in any event no later than 60 days after the occurrence of insolvency.
In the event of insolvency caused by a natural disaster (flood, avalanche, snow pressure, landslide, rockslide, hurricane, earthquake, epidemic, pandemic or similar disaster of comparable magnitude), the directors must file for insolvency no later than 120 days (instead of 60 days) after the occurrence of insolvency.
In times of crisis (if the company is insolvent, over-indebted or the equity ratio is below 8% and the notional debt repayment period is longer than 15 years), directors need to be very careful when making payments to shareholders, especially if shareholder loans are to be repaid. Shareholder loans that are granted in a crisis may be subject to the repayment ban under the Austrian Equity Repayment Act (“EKEG”). According to the EKEG, shareholder loans may only be repaid after the company has been restructured and is no longer in a crisis. Repayments to a shareholder in spite of the repayment ban violate the prohibition on the repayment of capital contributions, for which directors are personally liable. Such repayments are also invalid.
A director might be directly liable to creditors in cases of insolvency of the company or failure to file for insolvency proceedings in a timely manner due to wilful misconduct or negligence (e.g. for damages resulting from payments having been made after the point in time at which the director should have filed for insolvency). Wilful or negligent violation of creditors’ interests or failure to file for insolvency proceedings on time may constitute a criminal offence.
When the company takes out a loan (interpreted broadly, i.e. if the contractual partner of the company is to make advance payments), a director of the company has a general duty to inform the business partners of the company of the poor economic situation of the company if the company is already in a state in which an application for insolvency would have to be filed or if it is to be expected that the company will be insolvent when payment falls due. If the directors do not do so, they may be personally liable for the resulting damages.
During insolvency proceedings, the company is no longer managed by the directors but, insofar as legal acts affecting the assets are involved, by the insolvency administrator. This also includes accounting and disclosure obligations, but not internal company measures such as the appointment and dismissal of directors.