Restructuring & Insolvency Comparative Guide

Published date01 August 2022
Subject MatterCorporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Directors and Officers, Insolvency/Bankruptcy, Contracts and Commercial Law, Shareholders
Law FirmJank Weiler Operenyi Rechtsanwaelte GmbH | Deloitte Legal
AuthorDr. Bernhard K'ck and Clemens Jenny

1 Legal framework

1.1 What domestic legislation governs restructuring and insolvency matters in your jurisdiction?

In Austria, insolvency matters are mainly governed by the Insolvency Act. Except where the Insolvency Act provides for special procedural rules, the procedural rules of the Jurisdiction Act, the Code of Civil Procedure and their introductory laws will apply in a subsidiary manner.

The EU Restructuring Directive (2019/1023) was implemented into Austrian law by the Restructuring Act. The Restructuring Act offers corporate debtors whose business is in financial difficulties (ie, a likelihood of insolvency) access to flexible, preventive restructuring proceedings. The Restructuring Act provides for a non-public restructuring procedure with court involvement and self-administration.

1.2 What international / cross-border instruments relating to restructuring and insolvency have effect in your jurisdiction?

The EU Insolvency Regulation (2015/848) has effect in Austria.

1.3 Do any special regimes apply in specific sectors?

The provisions on reorganisation proceedings according to the Insolvency Act as well as the Restructuring Act do not apply to credit and financial institutions, or to insurance companies. For financial institutions, there are special provisions in the Financial Institution Recovery and Resolution Act.

1.4 Is the restructuring and insolvency regime in your jurisdiction perceived to be more creditor friendly or debtor friendly?

Since a major reform of the Insolvency Act in 2010, Austrian insolvency law has been rather debtor friendly. The Insolvency Act now primarily pursues the goal of restructuring and, where a company is capable of restructuring, protects it from hasty liquidation. Therefore, one of the main goals of the insolvency regime is to help the debtor to accomplish a restructuring or reorganisation solution. The concept of restructuring was also further strengthened by the Restructuring and Insolvency Directive Implementation Act and the introduction of the Restructuring Act.

In many cases, restructuring is more advantageous not only for the debtor, due to the continuation of the company, but also for the creditors. Furthermore, reorganisation of a company according to the Insolvency Act is permissible only if the creditors receive a higher quota than they would receive in case of liquidation.

1.5 How well established is the legal regime and infrastructure relevant to restructuring and insolvency in your jurisdiction (e.g. extent of recent legislative changes, availability of specialist judges / courts / advisers)?

Even before the implementation of the EU Restructuring Directive (2019/1023), the Austrian restructuring and insolvency regime and the relevant infrastructure were well established and efficient.

There are no specific insolvency courts in Austria. Restructuring and insolvency cases are heard by the commercial courts or, with respect to consumers, by district courts. In each (commercial as well as district) court, there is a special department for insolvency proceedings.

Insolvency administrators must be reliable and competent persons with knowledge of insolvency matters and sufficient expertise in business law or business administration. However, no specific training or exam is required. In most cases, attorneys are appointed as insolvency administrators, and sometimes also trustees or business consultants. There is a list of insolvency administrators at the Linz Higher Regional Court, where any person interested in insolvency and restructuring administration can register. Furthermore, in most cases, debtors and creditors in insolvency and restructuring proceedings are advised and represented by attorneys.

2 Security

2.1 What principal forms of security interest are taken over assets in your jurisdiction?

The principal forms of security interests over assets which are recognised under Austrian law are:

  • pledges;
  • mortgages;
  • transfer of ownership by way of security;
  • assignment by way of security; and
  • retention of title.

2.2 How can those security interests be enforced (and what factors could complicate or prevent this process)?

In insolvency proceedings, creditors holding security interests ('secured creditors') have a claim to preferential ('segregated') satisfaction from the assets to which their security interests relate.

If assets which are subject to a security interest are sold by the insolvency administrator, the proceeds will primarily be used to satisfy the secured creditor.

3 Restructuring

3.1 Are informal workouts available in your jurisdiction? If so, what forms do they typically take, and what are the benefits and drawbacks as compared to formal restructuring proceedings?

The Austrian legislature deliberately avoided introducing detailed legal regulations on informal workouts. However, informal workouts – such as a moratorium, a new money facility, a respite or an out-of-court settlement – can always be negotiated and concluded outside of formal judicial proceedings between a debtor and its creditors. From a legal point of view, agreements resulting from informal workouts are ordinary agreements (settlements) based on civil law.

The major drawback of these settlements is that no creditor is obliged to agree to such measures. Therefore, informal workouts always need the consent of the major creditors. Even a sole major creditor may prevent an informal solution; whereas restructuring or reorganisation proceedings can be concluded with the consent of the majority of the creditors.

On the other hand, the advantages of informal workouts are:

  • the preservation of discretion;
  • the speed of the restructuring process; and
  • above all, the flexibility – especially since there are no requirements with regard to statutory minimum quotas and payment deadlines. There are also no other requirements – such as the existence of (impending) illiquidity – for informal workouts and the principle of equal treatment of creditors in principle does not apply.

3.2 What formal restructuring proceedings are available in your jurisdiction, and what are the benefits and drawbacks of each?

Since the implementation of the EU Restructuring Directive (2019/1023), Austrian law provides for three categories of restructuring proceedings:

  • Based on the fundamental idea that corporate restructuring is preferable to bankruptcy, both in terms of satisfying creditors and from an economic perspective, the Austrian legislature enacted the Corporate Reorganisation Act back in 1997. The purpose of the Corporate Reorganisation Act is to make businesses at risk of insolvency aware of the need for action at an early stage so that the commencement of insolvency proceedings can be avoided as far as possible. If the business is not insolvent, but the economic situation is nevertheless so critical that there is a need for reorganisation, it should take measures to be able to continue to participate in economic life. However, this project failed to find acceptance in practice.
  • The new restructuring proceedings pursuant to the Restructuring Act offer corporate debtors in financial difficulties (ie, a likelihood of insolvency) access to flexible, preventive restructuring proceedings. The Restructuring Act provides for a non-public restructuring procedure with court involvement and self-administration. The essential difference from an out-of-court settlement is that the consent of all creditors affected by the restructuring measures is no longer mandatory. However, as this restructuring scheme is very new and Austrian law offers tried-and-tested proceedings for reorganisation (see below), it remains to be seen how it will be accepted in practice.
  • At the moment, the most successful form of restructuring in Austria is a so-called 'reorganisation plan' pursuant to the Insolvency Act. All debtors can apply for the completion of a reorganisation plan. If a debtor submits a reorganisation plan proposal together with an application for insolvency, the proceedings are conducted as reorganisation proceedings and not as bankruptcy proceedings. The minimum legal requirements for reorganisation plans include:
    • a minimum quota of 20% on the insolvency claims; and
    • payment of the quota within a timeframe of two years.
  • The reorganisation plan must be accepted by a majority of the insolvency creditors and confirmed by the court. Once the reorganisation plan has been confirmed by the court, it becomes legally effective and the debtor is released from its remaining debts. There is partial debt relief, combined with a moratorium. The advantage for the creditors is that they usually still receive a better deal when a reorganisation plan is concluded than if the company were liquidated. In the event of any default on the reorganisation plan, the moratorium is lifted.

3.3 How, by whom and on what grounds are formal restructuring proceedings initiated? What are the main preconditions for success?

Restructuring proceedings pursuant to the Restructuring Act and restructuring through a reorganisation plan according to the Insolvency Act are always (and only) initiated on application of the debtor. Third parties – including creditors, shareholders, employees, the public prosecutor and the court – are not entitled to file for the commencement of such proceedings.

Restructuring proceedings can be initiated by debtors that operate a business, regardless of their legal form. In addition to the debtor's application, restructuring proceedings may be initiated only if there is a likelihood of insolvency, which requires the company to be in danger of going out of business without restructuring. If the debtor is already illiquid, it can no longer make use of the restructuring proceedings. The debtor must also submit a proposal for a restructuring plan together with the application, but in any case within a maximum period of 60 days after the commencement of restructuring proceedings.

In contrast, all debtors can apply for the completion of a...

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