The legal framework for insolvencies of business entities (as well as individuals) in Austria is codified in the Austrian Insolvency Act. Besides that, since July 2021, the new Restructuring Act (Restrukturierungsordnung) has been providing a regime for restructuring (for details, see 1.2 Types of Insolvency).

Specific Statutory Restructuring and Insolvency Regimes

In principle, legal entities as well as individuals can be subject to insolvency proceedings under the Austrian Insolvency Act (reorganisation proceedings or bankruptcy proceedings). However, neither reorganisation proceedings with – nor reorganisation proceedings without – debtor-in-possession apply to credit institutions, insurance companies and pension funds, as there are specific provisions for these entities (under the Banking Act, the Insurance Company Supervision Act, and the Pension Fund Act).

With regard to credit institutions, the Bank Recovery and Resolution Directive (BRRD) was implemented in Austria through the Austrian Recovery Bank and Resolution Act (Sanierungs- und Abwicklungsgesetz, or BaSAG), which came into force in January 2015. The resolution process of former Hypo Alpe-Adria-Bank was the first to take place in Austria under this regime.

Apart from the options provided by the Restructuring Act, entities that are not insolvent but are having financial difficulties can apply for statutory restructuring of their business under the Business Reorganisation Act (Unternehmensreorganisationsgesetz). However, the Business Reorganisation Act is effectively “dead law”, as entities do not make use of this.

The Insolvency Act provides for three different types of proceedings:

• reorganisation proceedings with debtor-in-possession (the debtor retains, basically and subject to certain restrictions, control over the estate’s assets);
• reorganisation proceedings without debtor-in-possession (a court-appointed insolvency administrator takes control); and
• liquidation (bankruptcy) proceedings (a court-appointed insolvency administrator takes control of the task of selling the estate’s assets at a maximum value, with the proceeds being paid out to the creditors).

In addition to the foregoing, since July 2021, the new Restructuring Act has provided Austria with a pre-insolvency restructuring regime in line with the Directive (EU) 2019/1023 on Restructuring and Insolvency (“the Directive”).

Types of Statutory Officers

Where insolvency proceedings under the Insolvency Act are initiated by the debtor and are conducted as reorganisation proceedings with debtor-in-possession, the management remains in place and the debtor retains control over the estate’s assets within the scope of ordinary business. Nonetheless, a court-appointed insolvency administrator (or, in the case of reorganisation proceedings with debtor-in-possession, a “reorganisation administrator”) monitors the management of the debtor and the business situation, while at the same time preventing the discrimination of creditors. Also, specific actions – such as the review of claims and the contesting of transactions (avoidance) – are reserved for the reorganisation administrator supervised by court.

Statutory Roles, Rights and Responsibilities of Officers

In the event of liquidation and reorganisation proceedings without debtor-in-possession, the estate is administered by a court-appointed insolvency administrator. Specific actions are reserved for the insolvency administrator. By way of example, with regard to contracts with a mutual obligation to perform, where not all the parties have fully performed at the time of the commencement of insolvency proceedings, the insolvency administrator may elect to assume or withdraw from such contract.

Furthermore, if the debtor is a tenant, the insolvency administrator can decide to terminate the lease contract as long as they respect the statutory notice period or a shorter contractual notice period. If the debtor is a landlord, the insolvency administrator steps into the contract without requiring additional special termination rights.

Also, the insolvency administrator may terminate employment contracts upon partial or total shutdown of the business. In the event of such shutdown, the insolvency administrator only has to observe the statutory notice periods and ‒ if applicable ‒ the collective bargaining agreement. A contractually agreed longer notice period to terminate employment contracts is not applicable.

Moreover, the Insolvency Act provides for a six-month moratorium in case a contracting partner wants to terminate a contract with the debtor that is essential for business continuation. These contracts may only be terminated for good cause, and the deterioration of the economic situation of the debtor or default of payment of claims that were due before the commencement of the insolvency proceedings are not considered to constitute such good cause.

Appointment of Insolvency Administrators

In general, insolvency administrators are selected by the court from the official list of insolvency administrators. Under the Insolvency Act, an administrator must be a respectable and reliable person experienced in business with proficiency in insolvency matters, including commercial law and business management where business entities are involved. Furthermore, the insolvency administrator must be independent of the debtor and the creditors.

In all three types of proceedings provided for in the Insolvency Act (reorganisation proceedings with debtor-in-possession, reorganisation proceedings without debtor-in-possession, and liquidation proceedings), claims are classified and ranked in the following order of priority.

Secured Creditors

Secured creditors either have claims of separation to receive assets (Aussonderungsanspruch) and/or claims of separation to receive the proceeds of enforcement after sale (Absonderungsanspruch). Neither of these claims is affected by the commencement of insolvency proceedings – apart from possible voidance claims (Anfechtung). The secured creditor merely has to inform the administrator and, lacking acknowledgement of the claim, potentially file a lawsuit against the insolvency administrator in order to enforce the senior security.

However, secured creditors are subject to the restraint that no secured claim can be paid within six months from the commencement of insolvency proceedings in case such claims might jeopardise the business continuity of the debtor. Only if the enforcement is vital to prevent severe economic disadvantage to the secured creditor may this provision be disregarded.

Estate Claims

The next rank is taken by estate claims (Masseforderungen), which ‒ according to the statutory provisions – are to be satisfied prior to other insolvency claims. Estate claims encompass, inter alia:

• the costs of the insolvency proceedings;
• the expenses of management and administration of the estate;
• claims for labour, services and goods furnished to the estate post-filing; and
• the costs of the insolvency administrator.

Preferential creditors of estate claims share in such claims on a pro rata basis.

Insolvency Claims

Ranked behind estate claims are insolvency claims (Insolvenzforderungen), which are claims of unsecured creditors and may be filed with the competent court within a time period after the commencement of insolvency proceedings as fixed by the court. Those insolvency creditors who filed a claim that was not contested by the insolvency administrator also share in such claims on a pro rata basis.

Subordinated Claims

Subordinate claims may result from contractual provisions or from statutory provisions. Subordinate creditors do not participate in the insolvency proceedings in general – rather, only if a surplus for distribution is generated. However, in practice, a high degree of diligence is required in drafting subordination agreements to determine the extent of full or part subordination and scenarios in which it takes effect.

In comparison, the new Restructuring Act provides that debtors ‒ with the exception of SMEs ‒ are obliged to divide their creditors into specific classes and all creditors of the same class must be treated equally (if permissible and no classes are formed, all creditors must be treated equally). The categories of classes are mandatory and are as follows:

• secured creditors (ie, creditors with claims for which a pledge or a comparable security has been granted from the debtor’s assets) ‒ claims of secured creditors are to be included in this class with the amount covered by the security (any unsecured part of the claim falls into the class of creditors with unsecured claims, which means that, as a general principle, one and the same creditor may fall into more than one class depending on their type of claim);
• unsecured creditors;
• vulnerable creditors – this class includes, in particular, creditors whose claim does not exceed EUR10,000 and it is the intention of the law to cover in this class the claims of creditors who do not have, as a matter of fact or as a consequence of the nature of their business, the possibility to spread their risk (eg, suppliers of a debtor);
• bondholders – provided that in such class not only bondholders but, more generally, holders of securitised titles will be covered; and
• creditors of subordinate claims.

In insolvency proceedings, claims are classified and ranked in the order of priority as described in 2.1 Types of Creditors.

Liens/Security

In accordance with statutory provisions, Austrian law recognises the following as security instruments over assets: pledges (Pfande), transfers of securities (Sicherungsübereignungen), assignments of securities (Sicherungszessionen), and reservations of title (Eigentumsvorbehalte).

Rights and Remedies

Whereas pledges are intended to secure the individual claim of a creditor and the ownership of an asset remains with the debtor, a transfer of security aims to transfer the ownership of the asset to the creditor, who will only transfer the asset back to the debtor once the debt is fully paid. These two types of securities require registration with the land register where the asset concerned is real property. Priority is granted according to chronological entry in the land register.

With an assignment of securities, the debtor assigns claims against a third party to the creditor. This type of security requires strict acts of publication (eg, notification of third-party debtors or annotation in the books). Priority depends on the date on which the publicity requirement is met.

In the case of a reservation of title, ownership (in particular, ownership of goods) is not transferred from the creditor to the debtor until the purchase price has been paid in full. If the goods are further processed, then joint ownership arises.

Unsecured creditors can assert their claims against the debtor outside restructuring or insolvency proceedings ‒ in particular, by means of a lawsuit and enforcement proceedings. As long as the debtor is not materially insolvent, the “first come, first served” principle applies. The principle of equal treatment of creditors only applies once material insolvency has occurred. Once insolvency proceedings have been opened, it is no longer possible to satisfy individual insolvency creditors. The insolvency creditors only receive a quota on their claim, which is the same for all creditors with an insolvency claim.

In practice, out-of-court restructurings may be attempted by way of voluntary debt relief (including subordination), economic reorganisation of the business, or equity injections ‒ all according to the provisions of private law. Creditors might decide to grant debt relief in order to avoid formal insolvency proceedings and the negative effect this might have on the entity’s public image. A prerequisite for such “quiet relief” is that all the creditors affected must be prepared to grant relief. However, each creditor can independently decide whether to initiate enforcement proceedings (Exekutionsverfahren) or insolvency proceedings. Therefore, creditors often bind their consent to the consent of the rest of the creditors as a pre-condition for their support.

However, Austrian law did not provide a legal framework for out-of-court restructuring proceedings ‒ nor for preliminary mandatory and consensual restructuring negotiations ‒ until the implementation of the Restructuring Act.

The following are some of the cornerstones of the Restructuring Act.

• A company may use the procedures provided by the Restructuring Act (at the request of the debtor only) to enable the debtor to avert insolvency and ensure the viability of its company in the event of “probable insolvency”, which is the case if the existence of the debtor’s company would be at risk without restructuring. This is particularly the case if insolvency is imminent or if the equity ratio falls below 8% and the national debt repayment period exceeds 15 years. The procedure is not available to companies that are illiquid within the meaning of the Insolvency Act.
• The core of the restructuring procedure, which is in principle a self-administration procedure, is a restructuring plan (Sanierungsplan) that defines classes of “affected creditors”. In order for the restructuring plan to come into effect, the majority of the creditors in each class is required in the first instance – ie, the sum of the claims of the creditors agreeing to the restructuring plan must amount to at least 75% of the total sum of the claims of the creditors included in the restructuring plan – and a cram-down is also possible. In addition, the court has to decide on the confirmation of the restructuring plan.
• Court approval of a restructuring plan also depends on whether the “creditor interest criteria” is met, if so requested by non-consenting creditors. The “creditor interest criteria” basically provides that a non-consenting creditor must not be treated worse than in a (regular) insolvency proceeding.
• At the debtor’s request, the court may order a stay of execution proceedings for a period of up to three months (extendable to a maximum of six months) to support negotiations on a restructuring plan.
• The Restructuring Act also provides for a “simplified procedure” tailored to include financial creditors only.

All in all, Austrian restructuring practice already provided – to a large extent – an out-of-court restructuring approach, which inherited some of the cornerstones of the new Restructuring Act. Owing to the fact that the new Restructuring Act has only been effective since July 2021, there is no relevant evidence of the extent to which this new law will be used (either entirely or in a complementary manner), for example, with regard to the simplified procedure limited to financial creditors.

In an out-of-court restructuring based on the provisions of private law, a potential disadvantage of out-of-court restructurings ‒ besides the necessity to gain the consent of all the creditors ‒ is the risk of voidance of agreements that were concluded at a time when the debtor was already insolvent, which can diminish the estate. An advantage of out-of-court restructuring is that these proceedings are not registered in the insolvency database. Furthermore, out-of-court restructuring is potentially much faster, provided that all the parties participate.

In restructuring proceedings, however, the restructuring plan is confirmed by the court if it is approved by the required majorities. It is therefore binding for all creditors, including those who voted against the restructuring plan.

In principle, legal entities as well as individuals can be subject to insolvency proceedings under the Insolvency Act. However, neither reorganisation proceedings with ‒ nor reorganisation proceedings without ‒ debtor-in-possession apply to credit institutions, insurance companies and pension funds, as there are specific provisions for these entities (under the Banking Act, the Insurance Company Supervision Act, and the Pension Fund Act).

The Insolvency Act provides for two kinds of reorganisation proceedings, either with or without debtor-in-possession (see 1. Overview of Legal and Regulatory System for Insolvency/Restructuring/Liquidation). The main focus of these proceedings is the continuation of the debtor’s business or parts thereof. In order for the provisions of reorganisation proceedings to be applicable, the debtor must be the one who files for the opening of these proceedings and the debtor must provide a restructuring plan to the court. For proceedings with debtor-in-possession, the management remains in place and the debtor retains control over the estate’s assets within the scope of ordinary business. Nonetheless, a court-appointed insolvency administrator monitors the debtor and the business situation. Also, specific actions such as the review of claims and the contesting of transactions (avoidance) are reserved for the administrator.

Unlike an out-of-court restructuring, in reorganisation proceedings the debtor is protected from the commencement of enforcement proceedings and may be granted partial debt relief via a majority decision.

However, as with liquidation proceedings, the debtor has the option to use the conclusion of a restructuring plan as an opportunity to rehabilitate its business. Where such restructuring plan is agreed upon in the course of liquidation proceedings, the debtor pays the quota agreed, which then leads to a residual debt discharge (Restschuldbefreiung). This possibility to rehabilitate plays an important role in practice.

The legal representatives of an entity must file for insolvency in a scenario where the entity is “insolvent” according to the meaning in the Insolvency Act. This criterion is met if the debtor is:

• illiquid (zahlungsunfähig); or
• over-indebted (überschuldet).

Although the Insolvency Act does not provide a legal definition for illiquidity and over-indebtedness, legal literature and case law have broadly defined “illiquidity” as a situation where the debtor lacks sufficient cash (including existing credit lines) to meet its current needs and obligations. The Supreme Court of Austria has ruled that illiquidity is to be assumed when the debtor is unable to pay more than 5% of its debt obligations that are due and payable. On the other hand, “over-indebtedness” is when liabilities on the debtor’s balance sheet exceed the debtor’s assets (at liquidation value). However, a company’s substantive over-indebtedness (materielle Überschuldung) per se is not sufficient to trigger the obligation to file for the commencement of insolvency proceedings; moreover, it is necessary that the entity does not have a positive “going concern” prognosis (see 7.1 Duties of Directors).

A debtor is obliged to file for insolvency with the competent court, without undue delay, once its financial situation meets the statutory criteria for insolvency. This must be no later than 60 days after entering into the status of insolvency.

If insolvency is only imminent, either restructuring proceedings under the Insolvency Act or reorganisation proceedings under the new Restructuring Act may be initiated at the debtor’s request. In such a scenario, there is a “parallel world” in respect of possible regimes that may be selected by a debtor.

Apart from a company’s legal representatives, any creditor is entitled to file for insolvency in the form of liquidation (bankruptcy) proceedings, provided such creditor has a claim (irrespective of its maturity date) against the debtor. Proceedings in the form of reorganisation proceedings, however, can only be initiated at the debtor’s initiative.

As outlined in 1.2 Types of Insolvency, the Restructuring Act provides a new pre-insolvency restructuring regime for Austria.

Application

The prerequisite for the commencement of restructuring proceedings under the Restructuring Act is application by the debtor as well as the “probable insolvency” of the debtor, which must be stated in the application. The application for the initiation of restructuring proceedings must be accompanied by a restructuring plan or, at least, a restructuring concept.

Insolvency proceedings are to be opened by the insolvency court at the request of the debtor or a creditor, if the debtor is illiquid or over-indebted. Reorganisation proceedings (pursuant to the Insolvency Act) can already be initiated if there is a danger of illiquidity (for the definition of “illiquidity” and “over-indebtedness”, see 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation.

Requirements in Application of Insolvency Act

For restructuring proceedings, a restructuring plan by the debtor must be submitted to the court with financial records for the past three years, which show the debtor’s ability to pay 20% of its debt to unsecured creditors within a period of two years. If the debtor can prove that a payment of 30% within a period of two years is feasible, the debtor may additionally apply for debtor-in-possession. The restructuring plan must further provide for full payment of all estate claims (Masseforderungen) and evidence of the debtor’s ability to fund the estate claims for a period of 90 days after filing for the commencement of restructuring proceedings. The debtor must provide such restructuring plan within 90 days of the opening of insolvency proceedings.

In general, the approval of a suggested restructuring plan is subject to a “double majority requirement” of the creditors in the restructuring plan hearing, which is set by the court and made public by way of a formal edict of the court. Not only is it necessary to achieve a majority of those insolvency creditors who are present and entitled to vote (no specific quorum applies), but a majority of approving creditors also has to be reached on the admitted and present aggregate insolvency claims. Fully secured creditors are not entitled to vote.

Confirmation

If the creditors approve a restructuring plan, the insolvency court – as a second step – also has to confirm the restructuring plan. A possible reason for the court to deny confirmation would be an infringement of the principle of equal treatment of the creditors by granting preferential treatment to a specific creditor.

Requirements in Application of Restructuring Act

The restructuring plan must describe the debtor’s economic situation ‒ in particular, their assets, their liabilities, and the company itself. In addition, the restructuring plan must contain the proposed restructuring measures and their duration, the reduction and deferral of claims, as well as the effects on jobs and any new financial support. Besides that, a financial plan for the duration of the restructuring measure must be prepared. The affected creditors (including classification into creditor classes) as well as the unaffected creditors must be listed in the restructuring plan, together with a factual justification for their inclusion/non-inclusion in the restructuring plan. The plan must also include a (conditional) forecast of the company’s continued existence and a description of the necessary pre-conditions for the success of the plan.

Commencement

The commencement of restructuring proceedings under the Restructuring Act does not prevent the opening of insolvency proceedings. Only the granting of a stay of execution (Vollstreckungssperre) prevents the opening of insolvency proceedings. In this regard, it does not matter whether the stay was granted against one or more creditors. It must, however, be effective – meaning that it must have been served on at least one creditor.

Approval

First, the court will examine the completeness of the information contained in the restructuring plan as well as the appropriateness of the formation of the classes of creditors and the selection of the creditors concerned. After that, the creditors vote on the restructuring plan. In principle, the restructuring plan must be approved by the majority of the creditors included in each class, whereby the sum of the claims of the creditors agreeing to the restructuring plan must amount to at least 75% of the total sum of the claims of the creditors included in the restructuring plan.

Once the restructuring plan is approved, confirmed and legally binding, the debtor is relieved of the obligation to pay the creditors the amount exceeding the quota as outlined in the reorganisation plan, which also includes a limitation on the creditors to set off their claims against this quota where general requirements are met. The effects of the legally binding restructuring plan also apply to those creditors that did not vote for the restructuring plan or did not participate at all. The insolvency proceedings are thus concluded.

However, any rights of secured creditors who either have claims of separation to receive assets and/or claims of separation to receive the proceeds of enforcement after sale must not be affected by the restructuring plan. Also, the restructuring plan may provide for the appointment of a trustee to either supervise the execution of the restructuring plan (überwachter Sanierungsplan) or to manage the estate with a mandate to fulfil the restructuring plan (Treuhändersanierungsplan mit Vermögensübergabe).

If a debtor defaults on the payment of a quota as provided for in the restructuring plan, the respective creditor’s claim comes into effect again, but only in proportion to the unpaid quota.

Where the statutory criteria for insolvency (over-indebtedness or illiquidity) are not yet met, a debtor may also file for the opening of reorganisation proceedings under the Business Reorganisation Act. However, these proceedings are not relevant in practice as the consent of all creditors is required.

Austrian law does not contain specific provisions on pre-packaged sales or debt-for-equity swaps.

Confirmation in Application of Restructuring Act

The court then has to decide whether to confirm the restructuring plan. Confirmation requirements include:

• that the legal provisions on voting, voting rights and acceptance have been complied with;
• that new financing provided for in the restructuring plan is required for the implementation of the plan; and
• that the implementation of the plan does not unreasonably prejudice the interests of creditors.

If the consent of all classes of creditors is not obtained, the confirmation by court – called a cross-class cram-down – requires that, in addition to the general requirements, the majority of the classes of creditors agree to the restructuring plan.

End of Restructuring Period in Both Cases

However, as with liquidation proceedings, the debtor has the option to use the conclusion of a restructuring plan as an opportunity to rehabilitate its business. Where such restructuring plan is agreed upon in the course of liquidation proceedings, the debtor pays the quota agreed, which then leads to a residual debt discharge (Restschuldbefreiung). This option to rehabilitate plays an important role in practice.

If a debtor defaults on the payment of a quota as provided for in the restructuring plan, the respective creditor’s claim comes into effect again, but only proportional to the unpaid quota.

As stated in 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure, under the Insolvency Act there are two types of reorganisation proceedings ‒ namely, reorganisation proceedings with debtor-in-possession and reorganisation proceedings without debtor-in-possession. In both types of proceedings, the main focus lies in the continuation of the debtor’s business or parts thereof. Whereas in reorganisation proceedings with debtor-in-possession the debtor retains ‒ basically and subject to certain restrictions ‒ control over the estate’s assets and is only monitored by the insolvency administrator, the insolvency administrator takes control in reorganisation proceedings without debtor-in-possession.

In restructuring proceedings under the Restructuring Act, the debtor also retains control over the estate’s assets. However, in certain cases, a restructuring officer must be appointed. In addition to assisting the debtor or the creditors in the negotiation of a restructuring plan, the tasks of the restructuring officer are to monitor the debtor’s activities during negotiations and to report to the court.

See 4.4 The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation.

The commencement of formal in-court insolvency proceedings under the Insolvency Act automatically leads to a stay against all actions of unsecured creditors. Secured creditors, however, are generally not affected by the opening of insolvency proceedings.

Under the Insolvency Act, insolvency creditors can commence legal proceedings against a court-appointed insolvency administrator if the insolvency administrator contests the creditor’s claim. Estate claims are to be paid by the insolvency administrator without any filing procedure. If estate claims are not paid by the insolvency administrator, estate creditors may apply to the insolvency court for remedy (Abhilfeantrag) or assert their claims by bringing an action against the insolvency administrator.

Roles of Creditors

In reorganisation proceedings, claims are classified and ranked in order of priority as described in 2.1 Types of Creditors. The Insolvency Act provides for a court-appointed creditors’ committee, which is explained in detail in 5.4 The Position of Shareholders and Creditors in Liquidation.

Claims of Dissenting Creditors

If the restructuring plan suggested by the debtor is approved by the required majority of creditors and also confirmed by the court, the debtor must pay only the agreed quota to the dissenting creditors.

Trading of Claims Against a Company

According to the Austrian Supreme Court, the trade of an insolvency claim against a company during insolvency proceedings is to be recognised. In the event of the acquisition of a claim after the opening of insolvency proceedings, the acquirer generally enters into the insolvency participation claim (Konkursteilnahmeanspruch) of the former creditor.

Rights of Set-Off

If the creditor does not make use of the right to set off during the restructuring proceedings, the creditor may basically only set off against the restructuring plan quota of their claim after final confirmation of the restructuring plan and cancellation of the restructuring proceedings.

As opposed to restructuring proceedings with or without debtor-in-possession under the Insolvency Act, liquidation proceedings aim to realise the assets of the estate and distribute the proceeds among the creditors. Restructuring proceedings that fail are transformed into liquidation proceedings.

The commencement of insolvency proceedings leads to an ex lege discontinuance of any legal procedure to which the debtor is party and with regard to any enforcement actions being taken against the debtor.

In liquidation proceedings, the court appoints an insolvency administrator to assume control. The management of the debtor can no longer engage in any legal acts on behalf of the debtor from the time of the opening of insolvency proceedings. The court issues an official edict to be disclosed on the electronic noticeboard of the courts (Ediktsdatei), in which the examination hearing is determined. Until this date, creditors may file their claims with the court. The court-appointed insolvency administrator decides in the examination hearing whether a creditor’s claim is contested or not; if it is contested, the respective creditor must commence legal proceedings in order to obtain an insolvency claim. The main focus of the insolvency administrator lies with the realisation of assets and the distribution of the proceeds among creditors according to the quota. When realising assets by way of sale of the debtor’s company, the insolvency administrator must first establish if continuance is not possible – in which case, the creditors’ committee has to agree and the confirmation of the insolvency court is required.

The sale or lease of the debtor’s company or parts thereof, the sale or lease of all or the main movable fixed assets and current assets, and the sale or lease of real property requires the approval of the insolvency court as well as the creditors’ committee. As long as reorganisation proceedings are pending, the debtor’s business basically may not be sold.

Organisation of Creditors or Committees

In general, the creditors’ committee has to be consulted for each significant action of the insolvency administrator. Furthermore, certain actions have to be communicated to the insolvency court (such as settlement agreements or the fulfilment or termination of bilateral agreements where one party has not fulfilled its contractual obligations at the time of commencing insolvency proceedings) and others have to be confirmed by the insolvency court (such as the sale of the entire business of the debtor).

In addition to the insolvency administrator, the Insolvency Act provides for a court-appointed creditors’ committee, which is explained in detail in 5.4 The Position of Shareholders and Creditors in Liquidation.

It is the insolvency administrator’s responsibility to realise the debtor’s assets. The Insolvency Act does not provide specific deadlines or timelines to be observed by the insolvency administrator in the course of liquidation proceedings when realising the assets. When all the proceeds have been distributed among the creditors, the insolvency proceedings are concluded.

In general, the creditors’ committee has to be consulted for each significant action of the insolvency administrator. Furthermore, certain actions have to be communicated to the insolvency court (such as settlement agreements or the fulfilment or termination of bilateral agreements where one party has not fulfilled its contractual obligations at the time of commencing insolvency proceedings) and others have to be confirmed by the insolvency court (such as the sale of the entire business of the debtor).

In addition to the insolvency administrator, the Insolvency Act provides for a court-appointed creditors’ committee. The Insolvency Act provides for a further statutory body, a court-appointed creditors’ committee consisting of three to seven members, which supervises and supports the insolvency administrator. In general, it is at the court’s sole discretion whether to install a creditors’ committee – although also upon the request of the creditors – if the characteristics or the particular scope of the debtor’s business make it imperative. However, the court is obliged to appoint such a committee if the debtor’s business is to be sold.

The members of the creditors’ committee are also chosen by the court at its sole discretion, but the creditors, representatives of the works council and other special interest groups have a right to propose certain members. The members of the creditors’ committee are to be disclosed on the electronic noticeboard of the courts.

Rights of Set-Off

The Insolvency Act provides for the option to set off claims if such claims have already been subject to compensation according to general civil law at the time of commencement of the restructuring proceedings, irrespective of the fact that such claims might not have been due or might have been subject to a condition at the time of commencement of the proceedings. Furthermore, creditors have to consider that a set-off is not possible for claims that arose within the six months prior to the commencement of insolvency proceedings if the creditor knew (or negligently did not know) about the insolvency. Claims subject to set-off do not need to be formally filed in insolvency proceedings.

As stated in 6.2 Jurisdiction, with regard to insolvency proceedings in a non-EU member state, the Austrian Insolvency Act determines which jurisdiction’s decisions, rulings or laws govern or are paramount. In relation to EU member states, the EU Insolvency Regulation applies.

The Insolvency Act provides for recognition of the effects of insolvency proceedings opened in a non-EU member state (irrespective of an international treaty or the reciprocity principle), as well as decisions rendered in such proceedings, where the centre of main interests (COMI) of the debtor is located in the respective foreign country and the insolvency proceedings are comparable to such proceedings in Austria – in particular, if Austrian creditors are treated in the same manner as creditors from the state of the opening of proceedings. However, recognition is denied if insolvency or composition proceedings have already been opened in Austria, or interim measures have been ordered, or recognition leads to a result that clearly conflicts with public policy.

With regard to EU member states, the EU Insolvency Regulation stipulates that any judgment opening insolvency proceedings handed down by a court of an EU member state that has jurisdiction shall be recognised in all other EU member states from the moment that it becomes effective in the EU member state where the proceedings were opened. The courts of the EU member state, within the territory of the debtor’s COMI, have jurisdiction to open insolvency proceedings.

The COMI is the place in which the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. The debtor’s COMI is determined at the time of filing for insolvency. Therefore, debtors can influence the international jurisdiction – and thus the applicable insolvency law – by the timely shifting of the COMI to another EU member state in order to achieve easier debt relief.

Please see 6.1 Sources of International Insolvency Law and  6.2 Jurisdiction.

The cross-border enforcement of court decisions between EU member states is controlled by various regulations – in particular, Regulation 1215/2012, which regulates the recognition and enforcement of judgments in civil and commercial matters. Within its scope of application, judicial decisions are enforceable in another EU member state without any further proceedings. Only in a few exceptional cases may this be refused – for example, if such recognition is manifestly contrary to public policy (ordre public) in the member state addressed, or if the defendant was not able to arrange their defence in the proceedings in which the judgment was rendered.

Judgments of non-EU member states may be declared enforceable in Austria if, inter alia, reciprocity is granted by international treaties and the judgments are enforceable in the state of origin. The EC adopted a proposal for EU accession to the Hague Recognition and Enforcement Convention, an international treaty to facilitate the recognition and enforcement of judgments in civil and commercial matters that are passed in non-EU member states.

In cross-border cases, Austrian insolvency courts – as well as insolvency administrators – co-operate with foreign administrators by way of disclosure of information relevant to the foreign insolvency proceedings and by granting the foreign administrator the opportunity to participate in the decision of the realisation of assets located in Austria or the realisation of reorganisation plans.

Foreign creditors are not dealt with in a different way during insolvency proceedings in Austria.

In general, a managing director must act in a diligent manner. Any failure to act diligently exposes the managing director to liability vis-à-vis the company. The corresponding claims of the company, which may not be settled in a case where payments by the managing directors are required for the satisfaction of the creditors, are subject to a five-year limitation period.

In line with this obligation, managing directors must take action and measures to resolve the crisis at the first sign of a crisis and at the first occurrence of crisis indicators.

In a case where the insolvency of a debtor has ocurred (ie, over-indebtedness or illiquidity under the Insolvency Act), the legal representatives must file for insolvency with the competent court within a time period of 60 days at the latest. Any attempts at out-of-court restructurings have to observe this deadline as well, which means that such restructuring without the involvement of the court must take place (and be legally settled and enforceable) prior to insolvency or within the 60-day time limit.

A managing director must not make any payments after the company has become insolvent or over-indebted. This does not apply to payments that are compatible with the diligence of a prudent and conscientious manager even after this point in time.

If a debtor meets one of the criteria for insolvency under the Insolvency Act (see 7.1 Duties of Directors) and the legal representatives have not filed for insolvency accordingly (without undue delay and no later than 60 days after determining that the debtor is insolvent), the legal representatives expose themselves to possible civil and criminal charges (including fraud or undue preference for a creditor) for impairment of the creditors’ interests. Disregarding the 60-day time limit is one of the few cases where a legal representative of a limited liability company may be held personally liable for damage inflicted on the company’s creditors (a possible reduction of the insolvency quota). Furthermore, the legal representatives may be liable to the entity for any payments executed while already in a state of insolvency.

As stated in 7.1 Duties of Directors, managing directors are also personally liable for making payments that are not in a diligent manner after the company becomes insolvent or over-indebited.

Supervisory board members are not obliged to file for insolvency. However, supervisory board members are obliged to encourage the management board to submit an application after the company becomes insolvent or over-indebited. Supervisory board members are liable if they fail to fullfil this duty.

See 7.2. Personal Liability of Directors.

The Company Law Digitalisation Act 2023 (Gesellschaftsrechtliches Digitalisierungsgesetz 2023, or “GesDigG 2023”) introduced a new exclusion regime for managing directors, which has been in force since 1 January 2024, for criminal offences committed after this date (Rückwirkungsverbot). A managing director may not be a person who has been sentenced by a court to more than six months’ imprisonment, provided that the conviction was based on selected criminal offences related to the management of the company (eg, fraud, fraudulent crida, and money laundering) ‒ regardless of whether the sentence was conditionally discharged or unconditional. This legal consequence also applies to such a conviction by a foreign court for a comparable criminal offence.

The legal consequence of disqualification can be conditionally discharged and is also applicable to contributors. The disqualification ends three years after the conviction becomes legally enforceable.

Historical Transactions

The provisions of the Insolvency Act dealing with voidance rights aim at safeguarding the insolvent estate to the satisfaction of creditors. Legal acts and transactions that have taken place within certain time periods prior to the commencement of insolvency proceedings over the assets of the debtor, and which relate to the assets of the insolvent (illiquid or over-indebted) debtor, can be contested by the insolvency administrator. Therefore, the satisfaction of a pledgee can never be detrimental to the debtor’s assets, as the creditor only obtains the equivalent of what would be the outcome of a sale in the course of insolvency proceedings.

The general prerequisites for avoidance under Austrian insolvency law are the following:

• the avoidance results in an increase of the insolvency estate (Befriedigungstauglichkeit); and
• the challenged legal act or transaction caused the direct or indirect discrimination of creditors (Gläubigerbenachteiligung).

The discrimination of creditors will only be affirmed if the settlement fund (Befriedigungsfonds) available to creditors in the insolvency proceedings has been reduced in comparison with the amount available at the time of the contested legal act.

Look-Back Period

A transaction can be contested for intent to discriminate (Benachteiligungsabsicht), squandering of assets (Vermögensverschleuderung), free-of-charge disposal (unentgeltliche Verfügung), preferential treatment of creditors (Begünstigung), and knowledge of illiquidity (Kenntnis der Zahlungsunfähigkeit). The look-back period varies from provision to provision, ranging from a maximum of ten years for intent to discriminate to 60 days prior to the commencement of insolvency proceedings for preferential treatment of creditors. Certain periods are shortened where the third party knew or should have known (ie, negligently did not know) the respective facts.

Voidance claims can be asserted by the insolvency administrator on behalf of the estate only (independent of the type of insolvency proceedings) within a time period of one year from the opening of insolvency proceedings. Furthermore, the administrator may raise the plea of voidance without any time limit.