The Insolvency Code was recently amended in response to the introduction of the EU Insolvency Regulation, creating – for the first time – specific rules for the insolvency of corporate groups in Austria. From a practical standpoint, this approach is welcome, as it may lead to faster and more efficient insolvency proceedings. It remains to be seen how the new rules will affect insolvency practice and whether coordination proceedings according to the EU regulation will be applied in practice.
In some cases of insolvency, it may be necessary to take special measures which affect the debtor or third parties in order to prevent the insolvent assets from diminishing. These cases are governed by Section 78 of the Insolvency Code, which offers the possibility of ordering individual protective measures with regard to the debtor and third parties. In particular, recent case law has extended the scope of application of these protective measures.
One of the Bankruptcy Code's aims is to allow trustworthy debtors the right to be discharged from debts that remain unpaid after insolvency proceedings. However, in practice, low-income debtors cannot always avail of residual debt relief. As such, the government recently introduced an amendment to the personal bankruptcy process in its 2017/2018 Modern Insolvency Law Culture of Failure working programme.
Recent changes to the Insolvency Code have considerably expanded the obligations of shareholders in insolvency situations. For example, a new obligation has been introduced which requires majority shareholders in so-called 'companies without management' to file for insolvency. The language of these new provisions remains vague and provides significant flexibility in interpretation, which inevitably results in a number of legal uncertainties.
Recent case law from the Supreme Court demonstrates once again that lenders can be held liable by creditors of an insolvent borrower under certain conditions. In particular, a lender may be held liable where it has significant influence over the borrower's management. However, only a few cases have met the necessary level of influence. The case at hand shows that total disregard of this risk can have severe consequences for lenders.
Chartered accountants entrusted with drawing up financial statements must also examine the company's status of overindebtedness in terms of insolvency law if the company's accounts show that it is overloaded with debt. However, in practice, this task is often neglected, as the fact that chartered accountants run the risk of being held liable for damage incurred due to delaying insolvency proceedings is often ignored.
A rescue merger may be an effective instrument for the financial restructuring of an undertaking and for securing its survival. However, they involve numerous legal constraints and risks which could lead to a serious encroachment on the legal positions of shareholders, creditors and holders of special rights. It is imperative to observe these constraints and risks strictly in order to avoid any risk of inequality in the treatment of the parties to a rescue merger.
In case of a lessee's insolvency, a lessor's lien right is an excellent opportunity to secure and recover at least a portion of outstanding rental payments. However, lessors must act quickly in order to take full advantage of their liens in insolvency proceedings – in particular, rapidly securing a lien can be a considerable advantage for the lessor.
Insolvency lawyers frequently encounter problems in relation to goods that are purchased under a reservation of title and the assertion of resulting rights to separate these goods from the debtor's estate. In particular, the obligation to provide notice of withdrawal from the contract regularly raises issues. A recent Supreme Court case demonstrates that the absence of an express notice of withdrawal can also be problematic.
If an insolvency petition is filed too late and creditors incur damage because of it, the responsible managing director may be held liable. However, in practice, companies are often actually managed by a different person. In such cases the de facto managing director may be held liable.
In order to facilitate the formation of LLCs, the Tax Amendment Act 2014 introduced a formation privilege in the Limited Liability Companies Act, which reduces shareholders' risk capital from €35,000 to €10,000 while the privilege applies. This reduction of shareholders' economic risk also applies in insolvency cases. As a result, shareholders need not pay more where insolvency proceedings are opened within the 10-year period.
With the sale and delivery of a large quantity of branded goods subject to a larger retail chain's retention of title clause, confusion often arises over which goods were delivered by the seller at an earlier point and have been paid for and which are still unpaid goods. In insolvency cases, the question of the legal fate of the goods sold under a retention of title clause frequently arises.
A Constitutional Court decision has reintroduced the legal entity's rights to legal aid. Legal entities are again entitled to legal aid pursuant to Section 63 if neither the entity nor the beneficiaries are able to raise the funds necessary to conduct the proceedings and if the proposed enforcement or defence of the rights is not made in bad faith.
The 2010 insolvency law reform in Austria aimed to make the law more suitable for financial restructuring. In particular, tools were introduced for facilitating the continuation of companies. The Federal Procurement Act 2006 does not reflect that intention. Under the act, insolvent economic operators are disqualified on a mandatory basis. However, by including such provisions, the legislature may have exceeded its powers.
The Property Developers Contracts Act aims to secure the rights of individuals who intend to buy newly built apartments. The act further aims to protect both the down payments made by buyers and such buyers' rights in the event of a developer's insolvency. In a recent judgment the Supreme Court ruled that the developer's entitlements will transfer to the buyer exactly as they have already been held by the developer.
Following the 2012 introduction of a tax on capital gains realised from the sale of real estate by individuals, one issue remained unclear - the question of who must pay if the property owner is insolvent, the property is sold in connection with the insolvency proceedings and the sale proceeds are transferred to pledgees. A recent Supreme Court decision provides clarification in this regard.
For a successful rescue to take place, the business premises must remain available for the continued operation of the company. Consequently, Section 12c of the Insolvency Code protects the debtor from eviction in rescue proceedings. However, the Supreme Court recently confirmed that a landlord may proceed with eviction proceedings if the tenant fails to meet certain obligations.
A recent judgment of the Supreme Court made clear that future damage of an unknown amount arising from an event that occurred before the opening of insolvency proceedings may be asserted only as a bankruptcy claim in the insolvency proceedings. The estimated amount of damage must be disclosed when the claim is asserted against the bankrupt company.
A new real estate income tax was recently introduced in Austria. When land encumbered by liens is now sold in the course of insolvencies, the question arises as to whether this new tax qualifies as special estate costs. The Supreme Court is yet to clarify the matter; therefore, until this happens, creditors should note that reduced amounts will be attributed to them from the proceeds from the sale of collateral.
In 2009 the Austrian legislature abolished free legal aid for legal entities, and thus also for insolvency estates without assets, although free legal aid had previously been granted only under very restricted conditions. However, a recent ruling of the Constitutional Court held that the abolition of the entitlement to free legal aid for legal entities (ie, also for insolvency estates) was incompatible with constitutional law.