Insolvency law

  1. Legal Framework

Several COVID-19 legislative packages have introduced far-reaching legal measures to counteract the economic impact of the Corona Pandemic and mitigate the negative consequences for companies and private individuals. In general, the purpose of these regulations is to maintain the solvency of companies and private individuals; a broad range of financial support instruments serves this purpose (“SME Promotion Act” (KMU-Fördergesetz), “Hardship Fund Act” (Härtefallfondsgesetz), “Corona Short-time Work” (Corona-Kurzarbeit), etc).

In many cases, the COVID-19 legislative packages are not sufficient to eliminate the imminent danger of insolvency or the occurrence of insolvency. Compared to the normal economic distress of companies and private individuals, which already existed before the corona crisis, the current situation has the added peculiarity that, it is impossible to estimate how long the corona crisis and its economic effects will last. Ultimately, many companies and private individuals will no longer be able to avoid insolvency.The insolvency legislator has taken this uncertain situation into account and created (temporary) provisions which provide greater scope for action when opening and managing insolvency proceedings and make it easier to reduce debt in the context of a restructuring or payment plan.

In addition to minor permanent changes to the “Austrian Insolvency Code” (Insolvenzordnung - IO) (§§ 69, 78 and 80 IO), the First and Second “COVID-19-Justice Accompany Act” (Justiz-Begleitgesetz – JuBG), contain temporary special provisions (BGBl 16/2020 and BGBl I 24/2020 as amended).

A completely new restructuring procedure has been introduced by the “the Restructuring and Insolvency Directive Implementation Act” (Restrukturierungs- und Insolvenz-Richtline-Umsetzungsgesetz- RIRUG) , as well as other modifications of the “Insolvency Code” (Insolvenzordnung -IO) (BGBl 147/2021).

  1. Ahead of insolvency proceedings

Section 69 para. 2a IO, which extends the period for the debtor to file an insolvency petition from a 60-day period to a 120-day period, applies not only in the event of a natural disaster, but since 22 March 2020 also in the event of an epidemic or pandemic. In principle, however, a debtor remains obliged to apply for the opening of insolvency proceedings without undue delay when insolvency occurs; only the maximum period for assessing, whether insolvency proceedings are to be filed and for preparing insolvency proceedings, is extended to 120 days.

A significant change concerns the temporary suspension, which is out of force since 30.06.2021, of the obligation to file for insolvency in the event of over-indebtedness. Insofar as a debtor is obliged to file for insolvency proceedings in the event of over-indebtedness, this obligation will be suspended for a debtor who is still solvent in the event of over-indebtedness occurring between March 1, 2020 and June 30, 2021.However, if over-indebtedness (still) exists on June 30, 2021, the debtor must apply for insolvency proceedings without delay. If there is no obligation to apply for insolvency, any liability of the debtor's organs for violation of Section 69 para. 2 IO is also excluded.

During the same period, insolvency proceedings may not be opened based on a creditor's petition if the debtor is over-indebted but remains solvent.

In order to push back insolvency applications by “social insurance institutions” (Sozialversicherungsträger) and the “tax office” (Finanzamt) tax payments and social insurance payments cannot not be contested (§ 323 e Abs 1 “federal tax code” (Bundesabgabenordnung-BAO) and § 733 Abs 11 “General Social Insurance Act” (Allgemeines Sozialversicherungsgesetz-ASVG), as long as they fall within the deferment or payment period of a COVID-19 related arrearage. Not only installment payments but also current payments made during a deferral or installment payment period as defined by Section 323 e (1) BAO or Section 733 ASVG are not contestable. As a result, the tax office and social insurance institutions will be reluctant to file for insolvency.

  1. Pending insolvency proceedings

If persons entitled to segregation and separation as defined by Section 11 para. 3 IO (Aussonderungs- und Absonderungsberechtigte) or contractual partners as defined by §§ 25, 26a IO are affected, the insolvency court may extend the deadline if there is a high chance of reorganization.

  1. Strengthening of liquidity

Bridge loans in the amount of the short-time work assistance applied for in accordance with Section 37b “Public Employment Service Act” (Arbeitsmarktservicegesetz 1994 – AMSG) are incontestable according to Section 31 IO if the loan was not secured, if the lender was not aware of the borrower's insolvency and if the loan was granted during a period in which an obligation to file for insolvency is suspended in the event of over-indebtedness.

A further improvement in liquidity will be achieved by relaxing the “Equity Replacement Act” (Eigenkapitalersatz-Gesetz – EKEG). A loan according to Section 1 EKEG does not exist if an unsecured money loan is granted and added in the period from 5 April 2020 to 31 January 2021.

  1. Fulfillment of reorganization and payment plans

The payment period for a reorganization plan is three years instead of two years, if the debtor is a legal entity or a individual operating a business (section 141(1) sentence 1 IO) or for a reorganization plan with self-administration (section 169(1)(1)(a) IO), provided that the application for the conclusion of a reorganization plan is submitted by 31 December 2021.

  1. The Federal Act on the Restructuring of Companies and debt relief of individuals

On July 17,2021 the “Restructuring and Insolvency Directive Implementation Act” (Restrukturierungs- und Insolvenz-Richtlinie-Umsetzungsgesetz -RIRUG ) entered into force (BGBl 147/2021).

The Federal Act on the “Restructuring of Companies” (ReO) provides companies in financial difficulties with the preventive option of averting an impending insolvency with a short-term restructuring court procedure which includes a temporary enforcement freeze. Furthermore, the continuation of the existing company should be ensured through a restructuring plan.

Voting on the restructuring plan shall take place in creditor classes with a head majority and a majority of 75% of the claims, in a court restructuring plan meeting. The restructuring plan meeting has to be ordered by the court within 30 to 60 days after submission of the plan. Even if not all creditor classes agree to the restructuring plan, the plan can be enforced due to a court validated, class-covering Carm- Down. The implementation of the restructuring plan is performed in self-administration. A restructuring officer is to be ordered intending to support the debtor and the creditor.

Due to the modification of the insolvency code, it is possible for consumers as well as entrepreneurs to free themselves of debts within a deadline of three years.

If the “absorption procedure” (Abschöpfungverfahren) is based on an “amortization schedule” (Tilgungsplan) it now lasts three years, otherwise, as before five years if an “absorption plan” (Abschöpfungsplan) is submitted. The shorter three-year amortization schedule is only permitted if a higher standard of integrity is met.


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Important note

The information provided here is only general information and assistance. The information provided is not to be understood as legal advice from Kunz Wallentin Rechtsanwälte GmbH and cannot replace individual legal advice.

Furthermore, Kunz Wallentin Rechtsanwälte GmbH assumes no liability whatsoever for the content and accuracy of this information.