COVID-19 – Update on Insolvency Law / Restructuring
The Coronavirus and the measures taken to contain it continue to have a firm grip on Austria’s economy. On 24 December 2020, further changes in the area of insolvency law came into effect with Federal Law Gazette I No. 157/2020, which are intended to facilitate restructuring:
- The obligation to file for insolvency, and directors’ and officers’ liability in the event of over-indebtedness, will remain suspended until 31 March 2021; and
- The payment period for a restructuring plan has been extended to three years.
The obligation to file for insolvency in cases of over-indebtedness has been suspended:
A debtor is not required to file an insolvency petition for over-indebtedness (within the meaning of the Austrian Insolvency Act) occurring between 1 March 2020 and 31 March 2021. As long as the debtor is solely over-indebted, but not also illiquid, insolvency proceedings are not to be opened during this period, even at the request of a creditor. Given the current uncertainties in the valuation of company assets, and the impossibility of making a well-founded going concern forecast in the current market situation, companies that are essentially viable as a going concern should be protected from being crushed in insolvency.
If the debtor is over-indebted after 31 March 2021, they must petition for insolvency without undue delay, at the latest within (i) 60 days after 31 March 2021, or (ii) 120 days from when the over-indebtedness started, whichever period ends later.
Between 1 March 2020 and 31 March 2021, the management liability for payments made after the occurrence of over-indebtedness (under the Austrian Joint-Stock Corporation Act) will not apply. Because the obligation to file for insolvency caused by over-indebtedness has already been suspended during this period, there is also no management liability for payments made after the occurrence of over-indebtedness under the Austrian Limited Liability Company Act.
The statutory materials clarify that management liability due to a violation of the filing obligation under the Insolvency Act as a protective law does not apply if debtors become over-indebted and management does not petition for insolvency during this period.
Since the liability provisions of management board members apply mutatis mutandis to the liability of supervisory board members, we believe there are good arguments that the above COVID-19 liability relief measures also apply to supervisory board members.
Important: these forms of relief only apply when the reason for insolvency is over-indebtedness; if the debtor becomes illiquid, the insolvency petition must still be filed without culpable delay, at the latest within 60/120 days (for insolvency due to the pandemic, the 120-day period applies), and there is no relief from any liability for the management!
Extension of the payment period for a restructuring plan (§ 11a of the 2nd COVID-19 Judicial Accompanying Act):
In order to mitigate the economic effects of the COVID 19 pandemic, it will be easier to reach a restructuring plan within the scope of insolvency proceedings. The previously applicable maximum payment period of two years (§§ 141(1) and 169(1)(a) IO) will be extended to three years for restructuring plan applications submitted by 31 December 2021.
Legal note in passing: Under § 17(1) of the 2nd COVID-19 Judicial Accompanying Act (now obsolete), provisions that were not explicitly extended were set to expire at the end of 31 December 2020, thereby ending some of the Act’s earlier provisions. This expiry seems curious to us with regard to the previously granted protection against avoidance for bridge loans (§ 10 of the 2nd COVID-19 Judicial Accompanying Act (now obsolete) – see our previous newsletters for further information). This protection would have applied to the entire duration of the suspension of insolvency petitions (as recently extended, see above), but it lapsed at the turn of the year because no special rule was made regarding its expiration. In addition, section 17 of the 2nd COVID-19 Judicial Accompanying Act has expired in its entirety, including the detailed regulations on the effective dates and future expiry of the individual statutory provisions, which was only supplemented in the course of the most recent amendment in December 2020. This appears to have happened inadvertently, and we anticipate further legislative action.