Despite the Supreme Court’s rejection of a structured dismissal in 2017,[1] there is a growing trend of bankruptcy courts approving structured dismissals of chapter 11 cases following a successful sale of a debtor’s assets under Section 363 of the Bankruptcy Code.

In a recent ruling, the Austrian Supreme Court has defined de facto managing directors and their obligations and liabilities in connection to wrongful trading.

The decision

The key takeaways from the ruling are:

The primary investment thesis of a private credit lender is simple — get the loan repaid at maturity. Private credit lenders do not make loans as a means to acquire their borrower’s business. There are circumstances, however, where private credit lenders must be prepared to take ownership when the borrower is distressed and there is no realistic prospect of near-term loan repayment. Becoming the owner of a borrower’s business may very well be the loan recovery option of last resort.

Austria is gearing up to implement the EU Directive on Restructuring and Insolvency (known as the Restructuring Directive). We anticipate that the Restructuring Regulation (ReO) will enter into force on 17 July 2021.

The core element of the Restructuring Directive (and of the implementing law) is the promotion of a new restructuring procedure, to avoid the need for formal insolvency proceedings.

The restructuring proceedings

Austria is moving forward with plans to implement the directive on preventive restructuring frameworks. The draft new law implementing the changes was published in February 2021.

The focus of the draft law is to introduce preventive restructuring proceedings. This will provide a structure for pre-insolvency restructuring to allow for the cram-down of dissenting creditors provided certain conditions are met.

Key points of the current draft

Worum geht es?

Das derzeit in der Begutachtungsphase befindliche Restrukturierungs- und Insolvenz Richtlinie-Umsetzungsgesetz (RIRL-UG) soll, wie auch der Name schon andeutet, die EU-Richtlinie über Restrukturierung und Insolvenz (kurz zumeist nur Restrukturierungsrichtlinie genannt) in Österreich umsetzen.

Kernelement der Restrukturierungsrichtlinie und damit auch des geplanten Umsetzungsgesetzes, das Restrukturierungsordnung (ReO) heißen soll, ist eine dem Insolvenzverfahren vorgelagerte präventive Restrukturierung.

Our private credit clients are preparing for the next restructuring cycle and have called us about ultrafast bankruptcy cases. These chapter 11 cases have grabbed headlines because they lasted less than a day. Specifically, FullBeauty Brands and Sungard Availability Services emerged from bankruptcy in 24 hours and 19 hours, respectively. Is this a trend and which companies are best suited to zip through chapter 11?

A. Prepacks, Pre-Negotiated Cases, and Free-Falls

The securities safe harbor protection of Bankruptcy Code (“Code”) § 546(e) does not protect allegedly fraudulent “transfers in which financial institutions served as mere conduits,” held the U.S. Supreme Court on Feb. 27, 2018. Merit Management Group LP v. FTI Consulting Inc., 2018 WL 1054879, *7 (2018). Affirming the Seventh Circuit’s reinstatement of the bankruptcy trustee’s complaint alleging the insolvent debtor’s overpayment for a stock interest, the Court found the payment not covered by §546(e) and thus recoverable. The district court had dismissed the trustee’s claim.

Summary

The regulations governing personal insolvency in Austria will change on 1 November 2017. Whilst generally the regulations remain somewhat the same, some key debtor-friendly amendments have been effected.

The changes primarily concern mandatory quotas as well as the duration of the proceedings.

The following is an outline of the ‘new’ Austrian insolvency proceedings for natural persons.

Phase one – payment schedule

The Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”) require each corporate party in an adversary proceeding (i.e., a bankruptcy court suit) to file a statement identifying the holders of “10% or more” of the party’s equity interests. Fed. R. Bankr. P. 7007.1(a). Bankruptcy Judge Martin Glenn, relying on another local Bankruptcy Rule (Bankr. S.D.N.Y. R.