A look at corporate, personal and, where relevant, partnership insolvency proceedings in Austria, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.
Proceedings for a levy on income (insolvency proceedings)
- Available to all natural persons but can only be used by non-entrepreneurs after the individual has tried to reach an out-of-court settlement with creditors via a debt settlement proposal (unless the individual has no attachable income or it is only slightly above the subsistence level).
- Considered to be the last resort for debtors. Any attachable income of the debtor exceeding the subsistence level will be used to satisfy the claims of creditors for a five-year period.
- Approval of an income levy plan automatically terminates insolvency proceedings and a statutory moratorium arises.
- The debtor will be granted an automatic debt discharge after five years.
- Preferential claims (predominantly employee claims) will usually be paid first.
- No longer available. Composition proceedings have been replaced by reorganisation proceedings.
Das Konkursverfahren (Insolvenzverfahren)
Bankruptcy proceedings (insolvency proceedings)
- A court-led procedure for companies, partnerships and natural persons.
- Instigated by a petition filed by the debtor or any insolvency creditor (a creditor whose claim is unsecured and arose prior to the opening of insolvency proceedings) or any creditor who has contractually agreed to be subordinated where there is either impending or actual inability to pay debts or over-indebtedness.
- Bankruptcy results in the court appointing an insolvency administrator who realises the debtor’s assets and distributes the proceeds to its creditors. The debtor loses the right to dispose of its assets and, in the case of a company or partnership, the insolvency administrator takes over the management of the business from the entity’s directors/members.
- A statutory moratorium arises after the application for insolvency. After this point, any claims by creditors against the debtor’s assets cannot be commenced and claims that are ongoing are suspended.
- All claims in respect of the debtor’s assets must be filed with the insolvency court.
Reorganisationsverfahren nach dem Unternehmensreorganisationsgesetz
Reorganisation proceedings under the Business Reorganisation Act
- A procedure enabling solvent companies, partnerships and individuals to reorganise their business to avoid insolvency.
- Reorganisation proceedings do not affect creditors' rights.
Das Sanierungverfahren mit Eigenverwaltung (Insolvenzverfahren)
Reorganisation proceedings with self-administration (insolvency proceedings)
- Debtor initiated reorganisation proceedings that can apply to natural persons carrying on a business, partnerships, legal persons (eg companies) and estates.
- The directors, members or entrepreneur continue to manage the business (subject to some restrictions, for example an express prohibition from selling real estate) and an insolvency administrator is appointed by the court to supervise the proceedings. The insolvency administrator must carry out any transactions that are not in the ordinary course of business.
- The debtor makes an application to court to initiate proceedings and must deliver a reorganisation plan that provides for the satisfaction of all secured and preferential debts and the repayment of at least 30% by value of unsecured debts within two years.
- A majority (in number present at the approval meeting and by value of all claims) of unsecured creditors as well as secured creditors to the extent that they are under-secured must approve the reorganisation plan. If the requisite majority does not approve the plan either prior to the commencement of restructuring proceedings or at the latest 90 days after the opening of proceedings, the proceedings will be converted into bankruptcy proceedings.
- If approved and adhered to, the reorganisation plan will terminate the insolvency proceedings automatically and satisfy creditors with preferential and subordinate claims as well as compromising the claims of all unsecured creditors.
- A statutory moratorium, affecting enforcement by all creditors, arises after the initiation of proceedings by the debtor.
Das Sanierungverfahren ohne Eigenverwaltung (Insolvenzverfahren)
Reorganisation proceedings without self-administration (insolvency proceedings)
- Debtor-initiated reorganisation proceedings that can apply to natural persons carrying on a business, partnerships, legal persons (eg companies) and estates.
- The debtor makes an application to court to initiate proceedings and must deliver a reorganisation plan that provides for the satisfaction of all secured and preferential debts as well as claims against the estate (costs of insolvency proceedings, claims from employees, termination claims, claims for the performance of bilateral contracts the insolvency administrator adopts, claims arising from transactions entered into by the insolvency administrator) and the repayment of at least 20% by value of unsecured debts within two years.
- A majority (in number present at the approval meeting and by value of all claims) of unsecured creditors as well as secured creditors to the extent that their claim is under-secured must approve the reorganisation plan.
- If the requisite majority does not approve the plan either prior to the commencement of reorganisation proceedings or at the latest 90 days after the opening of proceedings, the proceedings will be automatically converted into bankruptcy proceedings.
- The debtor must satisfy creditors with secured and preferential claims as well as claims against the estate and compromise the claims of all unsecured and subordinate creditors in accordance with the plan.
- If approved, the restructuring plan will terminate the insolvency proceedings automatically.
- A statutory moratorium affecting all creditors arises after the filing of the petition until the insolvency proceedings are terminated through approval of the reorganisation plan.
- An insolvency administrator administrates the insolvency estate.
Debt settlement proceedings (insolvency proceedings)
- A compulsory form of proceedings for insolvent natural persons who are not carrying on a business.
- The debtor must offer their creditors a settlement plan, payable over a period of seven years. A majority (in number present at the approval meeting and by value of all claims) of unsecured creditors as well as creditors with preferential and subordinate claims – insofar as they suffer a loss – must approve the reorganisation plan. If approved, the individual will continue to manage their own assets.
- A statutory moratorium arises after the initiation of proceedings by the debtor. If the creditors decline the proposed settlement plan, the debtor may ask for abschöpfungsverfahren (proceedings for an income levy) to be initiated.
EU Directive implementation
The EU Directive on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.
Notable features required to be included in Member States’ national laws include:
- An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
- A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
- An ability to cram down dissenting classes of creditors.
- Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
- Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.
Implementation in Austria
A draft Restructuring Regulation was published in Austria on 22 February 2021 ("Restructuring Regulation"). The new restructuring procedure is intended to enable debtors to obtain a reduction and deferral of liabilities, even against the will of individual creditors and sets out to help debtors tackle necessary restructuring measures in a timely manner. The procedure will be applicable to all debtors operating a business with the exception of financial services and insurance companies both of which are excluded.
The Restructuring Regulation states that the debtor must commence restructuring proceedings by way of an application to the regional court in whose district the debtor’s business operates. The debtor must submit a detailed restructuring plan with its application to court or within a period to be determined by the court of no more than 60 days of the application having been filed at court. The plan , must then be voted on in a court hearing by the affected creditors and approved by the court. There is no requirement to offer creditors a minimum quota in relation to their respective claims. The introduction of different creditor classes, which diverge both in terms of the order in which they are satisfied and in terms of the respective voting ratios regarding the restructuring plan, is so far alien to Austrian insolvency law. Due to its clear legal framework, the Restructuring Regulation is likely to be welcomed.
The Restructuring Regulation and accompanying amendments to other laws (eg Insolvency Code) are to enter into force on 17 July 2021.
Recognition of foreign insolvency processes
EU Regulation on Insolvency Proceedings
The EU Regulation on Insolvency Proceedings2 applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State. The opening of main insolvency proceedings in an EU Member State precludes the opening of further main proceedings due to the principle of priority. Further insolvency proceedings can therefore – with the exception of Denmark – only be initiated as secondary proceedings within the meaning of the EU Insolvency Regulation.
Recognition of third country insolvency processes
Foreign insolvency proceedings may be recognised pursuant to the EU Regulation on Insolvency Proceedings. Further, section 240 of the Insolvency Code governs the recognition of foreign insolvency proceedings outside the scope of the application of the EU Regulation on Insolvency Proceedings (ie from third countries or where the application of the EU Regulation on Insolvency Proceedings is not possible).
The effect of recognition occurs ipso iure ( ie automatically, without the need for a formative or a declaratory court decision). However, in the event that an application is made with regards to the opening of main proceedings in Austria and it transpires that main proceedings have already been opened in another EU Member State, an applicant can request that the proceedings be reinterpreted and secondary proceedings opened instead. As a result, an Austrian court must only determine the effectiveness of the opening of the main proceedings in another EU Member State or their eligibility for recognition as secondary proceedings.
Insolvency changes in response to COVID-19
For more information on changes to insolvency law in Austria as a result of the COVID-19 pandemic please see our Guide to changes in insolvency law in response to COVID-19.
Contact: Oskar Winkler
1 Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.
2 Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).