Restructuring and insolvency law in Austria

1. What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?

The primary pieces of legislation are the Austrian Insolvency Act (Insolvenzordnung) and the European Regulation on Insolvency Proceedings.

2. How are insolvency proceedings or restructuring proceedings initiated?

The commencement of any proceedings under the Austrian Insolvency Act – either restructuring proceedings or bankruptcy proceedings – is dependent on the existence of certain factual predicates. In the case of corporate entities, these are:

  • illiquidity (cash flow insolvency or zahlungsunfähig; Sec 66, para 1 of the Austrian Insolvency Act)
  • over-indebtedness (balance sheet insolvency or überschuldet; Sec 67, para 1 of the Austrian Insolvency Act). 

If either of these conditions is present, an insolvency petition must be filed by the managing directors of a company (or in some cases the shareholders). 

Creditors of a debtor may also file an insolvency petition if either of these insolvency reasons exist. In this application they must certify:

  • the existence of a claim against the debtor
  • the debtor’s material insolvency (i.e. illiquidity or over-indebtedness). 

If the creditor does not provide such evidence, the application will be dismissed by the competent insolvency court without hearing the debtor.

Illiquidity/Cash Flow Insolvency

An entity is considered illiquid if it is unable to pay its debts as they fall due. Only monetary debts are relevant. Other obligations, in particular material, service or work performance obligations etc., are irrelevant. 1 Of course, the breach of such obligations may in turn give rise to monetary obligations (e.g. to pay damages or to compensate for unjust enrichment), which must then indeed be taken into account.  A temporary delay of payments, which will be resolved within a “reasonable period of time” (in case law 3 months is widely used as a reference), does, however, not constitute a state of illiquidity (some courts allow grace periods of up to 6 months under certain circumstances). Also, the mere threat of illiquidity does not amount to illiquidity until the entity is actually unable to pay its debts as they fall due.

Illiquidity is caused by a lack of readily available liquid assets. “Readily available” means of payment are primarily cash, bank money, open credit lines and items which, such as certain securities (e.g. cheques issued by third parties or bills of exchange accepted or otherwise signed by third parties), are normally accepted by creditors on account of payment. In addition, however, easily realisable assets (e.g. due and recoverable receivables, savings deposits, capital market securities, precious metals etc.), are also considered liquid assets because they could be turned into money at any time; so that non-payment of debts despite the existence of such assets does not constitute insolvency, rather unwillingness to pay.

Over-indebtedness/Balance Sheet Insolvency

The determination of whether an entity is over-indebted involves a two-stage test. Firstly, an entity has to assess whether it is in a state of calculatory over-indebtedness, i.e. whether the liquidation value of its assets is exceeded by its liabilities resulting in a negative equity. The negative equity (negatives Eigenkapital) reflected in the financial statements of a company only shows that such company is over-indebted on the basis of the book value of its assets (bilanzielle Überschuldung). In case of hidden reserves, over-indebtedness on the basis of a company’s book value does not necessarily mean that the company is calculatory over-indebted, as liquidation values are to be used for this calculation.

The second prerequisite is that the entity does not have a positive going concern prognosis (positive Fortbestehensprognose). This is the case if the going concern prognosis shows that the entity will not (with an increased probability of over 50%) return to (and retain) a state of solvency and will not be able to achieve a sustainable turn-around in the long term. Typically, a positive forecast has to be made for a period ranging from 6 months up to 3 years (according to the prevailing opinion, at least for a period exceeding 18 months) following the date of the prognosis, and has to be accompanied by a finance- and liquidity-plan. The forecast has to be constantly reviewed and updated by the entity’s management to ensure that it is still positive.
Over-indebtedness only constitutes a statutory reason for insolvency in the case of registered partnerships, in which no partner with unlimited liability is a natural person, companies and estates.

4. Which different types of restructuring / insolvency proceedings exist and what are their characteristics?

There are the following different types of restructuring/insolvency proceedings in Austria:

Restructuring proceedings under the Insolvency Act (Sanierungsverfahren)

Restructuring proceedings can take two different forms: with and without self-administration. While in the latter an insolvency administrator handles the proceedings and is, for the duration of the restructuring proceeding, the respective entity’s representative, in a proceeding with self-administration, representation powers generally remain with the managing directors (under the supervision of an administrator, however).

Key to the initiation of a restructuring proceeding is that the insolvent entity files for insolvency itself and (already in this filing) offers the debtors a qualifying restructuring plan. If the proceedings shall be initiated with self-administration, the entity’s filings for insolvency must meet certain qualified standards.

Restructuring proceedings without self-administration (Sanierungsverfahren ohne Eigenverwaltung)

The initiation of restructuring proceedings requires the managing director to file for insolvency and present a restructuring plan (Sanierungsplan). These proceedings may already be opened if the inability to pay debts as they fall due is only imminent and has not yet been reached (drohende Zahlungsunfähigkeit).

With the opening of restructuring proceedings without self-administration the debtor will lose its right to run the company. Instead, an insolvency administrator will be appointed who will administer and represent the insolvency estate. Legal actions undertaken by the debtor after the opening of insolvency proceedings will in principle be invalid and payments made to the debtor instead of the insolvency administrator will not relieve the debtor of its debt.

Creditors have to register their outstanding receivables in the insolvency proceedings and credibly show that those receivables are legally valid. The insolvency administrator will review the claims, create a record, and decide which claims to contest. They will also decide whether the company will continue to operate or be closed.

In the restructuring plan the debtor has to offer to pay at least 20% of all receivables of the creditors within 2 years. The insolvency administrator must review the restructuring plan and the creditors have to agree to the plan (with a double majority of at least 50% by both headcount and value of claims). If they do so and the court confirms the restructuring plan, the insolvency proceedings will be lifted and the debtor will be allowed to run its company again.

If the debtor manages to fulfil the restructuring plan, it will not have to pay the outstanding balance (i.e. the amount exceeding the quota) of the receivables to the creditors. It will be free of its debts. If the debtor fails to fulfil the plan, the creditors or court do not approve it, or the debtor decides to rescind it, bankruptcy proceedings will be initiated and the company will be liquidated, with the proceeds distributed by the insolvency administrator according to the insolvency quota of the creditors.
After the distribution of the quota, the insolvency proceedings will be lifted by a decision of the court. In general, after the end of the insolvency proceedings the company will be fully wound up and can be deleted from the companies register.

Restructuring proceedings with self-administration (Sanierungsverfahren mit Eigenverwaltung)

Restructuring proceedings with self-administration allow the debtor to remain in control of its company. The insolvency mass will therefore not be administered by an insolvency administrator but by the debtor. However, an administrator (with less powers to act) will be appointed by the competent court also in restructuring proceedings with self-administration. Hence, in such proceedings the administrative and managerial powers of the managing directors of the insolvent entity are limited and encompass only typical transactions in the ordinary course of business. Any dealings falling out of this scope, or which are specifically listed as limitations under Section 172 of the Austrian Insolvency Act, require the consent of the appointed administrator. In particular, the following acts are carried out by the administrator:

  • potential challenge of acts carried out by the debtor prior to the commencement of the proceeding
  • examination and acceptance of claims registered by creditors
  • conclusion of transactions such as the sale or lease of the debtor’s whole business, of all movable fixed and current assets or a part thereof necessary for their operation, or of immovable property
  • the court may prohibit the debtor from carrying out other legal acts at all or without the consent of the administrator if this is necessary to avoid disadvantages for the creditors.

Moreover, the administrator retains a veto right with respect to any transactions envisaged by the insolvent entity.
In the restructuring plan the debtor has to offer to pay at least 30% of all the receivables of the creditors within 2 years. 

The court may revoke the self-administration if for example:

  • circumstances arise that lead the court to believe that a continuation of the self-administration will be disadvantageous to creditors (e.g. if the debtor violates obligations to cooperate or provide information, violates restrictions of the self-administration or violates the interests of the creditors at all, the financial plan cannot be adhered to, or the debtor does not fulfil the administrative claims punctually), or
  • the reorganisation plan was not accepted by the creditors within 90 days of the commencement of the proceedings.

Bankruptcy proceedings under the Insolvency Act (Konkursverfahren)

Bankruptcy proceedings are similar to restructuring proceedings without self-administration in a way that the opening of such proceedings will have the same effect on the power of the debtor to run its company and undertake legal actions.

So, without the debtor presenting a restructuring plan, the insolvency administrator will review the claims registered by the creditors, create a record and decide which claims to contest. They will also decide whether the company will continue to operate or be closed. The administrator will liquidate the assets of the company and distribute the insolvency mass to the creditors according to their insolvency share. After the insolvency mass has been distributed, the insolvency proceedings will be lifted by a decision of the court. In general, after the end of the insolvency proceedings, the company will be fully wound up and can be deleted from the companies register.

5. Are there several types of creditors and what is the effect of a difference?

Insolvency creditors (Insolvenzgläubiger) are creditors who, at the time of the opening of the insolvency proceedings, have a legal claim (insolvency claim) against the insolvency debtor. These creditors can participate in the insolvency proceedings by filing their claims with the insolvency court and will receive proportional satisfaction if the insolvency administrator recognises the filed claim. 

Creditors of claims arising after the date on which the insolvency proceedings were opened (Massegläubiger) are generally to be satisfied in full from the insolvency estate when their claims become due and payable. If such claims cannot be satisfied in full (Masseinsuffizienz), Sec 47 of the Austrian Insolvency Act provides for an order of priority for their satisfaction.

Preferred creditors

Secured creditors exist:

  • in respect of items that are part of the insolvency estate but are now owned by the debtor (e.g. reservation of title or Aussonderungsrechte)
  • in relation to rights to preferential satisfaction from specific assets of the estate (e.g. liens or security interests or Absonderungsrechte). 

Pursuant to Sec 11, para. 2 of the Insolvency Act, the fulfilment of claims of such preferred creditors, which could endanger the restructuring of the company, can generally not be demanded prior to the expiry of 6 months after the opening of the insolvency proceedings.

Subordinated creditors

Subordinated creditors only receive an insolvency dividend if the claims of all other (non-subordinated) creditors have been fully satisfied. 

6. Is there any obligation to initiate restructuring / insolvency proceedings? For whom does this obligation exist and under what conditions? What are the consequences if this obligation is violated?

Insolvency Act

If a legal reason for insolvency (illiquidity or over-indebtedness) exists, the respective corporate entity is deemed insolvent and is under obligation to file for the commencement of insolvency proceedings without culpable delay, but no later than 60 days after having detected that the entity is insolvent. If the managing directors (or certain other legal representatives) of the entity fail to do so in time, they face exposure to claims by creditors and the insolvent entity.

Company Reorganisation Act

Managing directors are liable vis-à-vis the company for liabilities not covered by the eventual insolvency estate if, within the last 2 years before the insolvency filing, they: 

  • have received a report from the company’s auditor stating that the equity ratio (Eigenmittelquote) is less than 8% and the notional debt repayment period (fiktive Schuldentilgungsdauer) exceeds 15 years, and they have not immediately filed for reorganisation proceedings or have not properly continued them, or
  • have not prepared annual financial statements, or have not done so in a timely manner, or have not immediately commissioned the auditor to audit the annual financial statements.  

Shareholders may also be liable if the managing directors have suggested to file for reorganisation proceedings, but the shareholders denied their consent to do so or have actively instructed the managing directors not to do so.

7. What are the main duties of the representative bodies in connection with restructuring / insolvency proceedings?

Should a company be either illiquid or over-indebted, it is deemed insolvent and its managing directors are under obligation to file for the commencement of insolvency proceedings (either as restructuring or as bankruptcy proceedings) without culpable delay, but no later than 60 days after having detected that the entity is insolvent. If the managing directors of the entity fail to do so in time, they face exposure to claims by creditors and the insolvent entity. So, in order to avoid such directors’ liability, the managing directors of a company must also constantly supervise the financials of a company and determine whether a reason for insolvency is present.

Managing directors may face civil and criminal liability if they fraudulently or gross negligently enter into obligations on behalf of the company which they know (or should have known) the company cannot fulfil (e.g. due to being materially insolvent).
Cost-covering assets are a prerequisite for the opening of insolvency proceedings. If not sufficiently available, the representative bodies are obliged to make an advance payment of costs up to EUR 4,000 to the competent insolvency court to cover the (commencement) costs of the insolvency proceeding. This liability extends to all persons who were corporate representatives in the last 3 months prior to the filing of the insolvency petition.

For the duties of representative bodies under the Company Reorganisation Act see above under point 6.

In general, the insolvency administrator is the central figure in the insolvency proceedings since they administer and represent the assets of the insolvency estate. The insolvency court is responsible for the selection, appointment and supervision of the insolvency administrator. Representative bodies of the debtor are obliged to support and assist the administrator (if asked to do so by the administrator) in the fulfilment of their statutory duties in restructuring/insolvency proceedings. In particular, the representatives must provide all requested information to the administrator and must present a signed list of assets and liabilities of the company. If no self-administration has been granted by the insolvency court, the representatives may not act on behalf of the debtor during the insolvency proceedings.

However, in restructuring proceedings with self-administration, the debtor generally remains in control of its company. Even though the insolvency estate is not administered by an insolvency administrator in this case, an administrator is appointed nonetheless and exercises mainly supervision functions. Moreover, the administrative and managerial powers of the managing directors of the debtor are still limited and encompass only typical transactions in the ordinary course of business. The administrator retains a veto right even for these transactions. Any dealings falling out of this scope require the express consent of the appointed administrator. Additionally, some acts and transactions may only be carried out by the appointed administrator even if self-administration is granted by the court (see above under point 4).

Insolvency claims filed by creditors are to be examined in the insolvency claim examination hearing (Prüfungstagsatzung), which the insolvency administrator and the debtor (i.e. its representatives) must attend. In principle, the insolvency administrator has to either approve or contest each insolvency claim. The debtor may also contest registered claims, which has secondary effect only, as the creation of an enforcement title would be prevented by such a debtor contestation. The debtor’s representative(s) must generally attend the hearings scheduled by the insolvency court

9. What are the main duties of shareholders in connection with restructuring / insolvency proceedings?

Generally, shareholders are not obliged to file for insolvency if their company is either illiquid or over-indebted. However, under certain circumstances shareholders do have such a filing obligation. This is the case for general partners (unbeschränkt haftende Gesellschafter), if a shareholder acts as “shadow manager” of a company or if a company does not have an appointed managing director (for whatever reason).

10. Are the shareholders of a company involved in restructuring / insolvency proceedings?

Provided shareholders of a company (GmbH/limited liability or AG/public liability) have paid to the company the capital contribution for which they have subscribed, they are generally not liable for the company’s liabilities (Separation Principle or Trennungsprinzip). This also applies in the case of insolvency. However, there are a few exceptions to this principle: 

  • under the Equity Replacement Act (Eigenkapitalersatz-Gesetz), loans granted by certain qualified shareholders in a crisis are to be treated as equity replacing and are subordinated
  • the Austrian Supreme Court has accepted certain situations which lead to a piercing of the corporate veil (e.g. material under-capitalisation, shadow directors, fraudulent trading, depriving the company of vital assets necessary for its survival)
  • direct agreements between shareholders and creditors, agreements between shareholders with the company (e.g. contribution agreements), or securities issues by shareholders (e.g. guarantees), may also be enforced against the respective shareholder. 

If the legal form does not provide a liability privilege (e.g. in the case of general partners in partnerships), shareholders will be directly liable. Special terms apply to limited partners (Kommanditisten) of limited partnerships (Kommanditgesellschaften), who are liable up to an amount specified in the commercial register.

11. Is a solvent liquidation of the company an alternative to regular insolvency proceedings?

In the case that a company is insolvent (illiquid or over-indebted), the management of the company has a statutory obligation to file for insolvency with the competent court (no voluntary liquidation is possible in this situation). If no insolvency situation is existent, the shareholders of a company may decide to voluntarily liquidate a company.

The Company Reorganisation Act (Unternehmensreorganisationsgesetz) foresees a preventive restructuring proceeding outside of ordinary insolvency proceedings. In order to prevent insolvencies and the related legal implications, the Company Reorganisation Act stipulates even an obligation of managing directors to file for a company’s reorganisation with the competent court. However, such reorganisation proceedings have rarely been initiated in the Austrian market as management liability does not arise if, immediately after the receipt of an auditor’s report indicating a crisis situation, the managing directors obtain an expert opinion from an auditor which states that there is in fact no need for reorganisation.

13. What is the average success rate after completed restructuring / insolvency proceedings?

In 2019 the average insolvency quota in all company insolvency proceedings (restructuring and bankruptcy) amounted to around 11%. 

Due to the statutory minimum quota of 20%, the quotas are usually higher in restructuring proceedings.

Picture of Johannes Trenkwalder
Johannes Trenkwalder
David Kohl