Recent case law from the Supreme Court(1) demonstrates once again that lenders can be held liable by creditors of an insolvent borrower under certain conditions. In particular, a lender may be held liable where it has significant influence over the borrower's management. However, only a few cases have met the necessary level of influence. The case discussed below shows that total disregard of this risk can have severe consequences for lenders.
Summary
A recent ruling from the Austrian Supreme Court concerning the liability of auditors in damages for providing an unqualified opinion on an insolvent debtor.
Legal Background
Pursuant to sec. 275 para 2 of the Austrian Commercial Code auditors are liable for damages caused by negligent (or intentional) violation of their duty to perform audits impartially and diligently. The liability is capped at EUR 2 mill. for audit of smaller companies.
Facts of the Case
To all insolvency proceedings opened before a court of an EU Member State after 26 June 2017, the Regulation (EU) 2015/848 of 20 May 2015 on Insolvency Proceedings (recast) will be applicable.
As can be read in the media, reorganization proceedings were opened on the assets of the Kärntner Landes- und Hypothekenbank-Holding.
The reason for the application for initiation of reorganization proceedings is the liability by virtue of law of the applicant for all current and future liabilities of the bad bank HETA Asset Resolution AG, universal successor of Hypo Alpe-Adria-Bank International AG.
The Austrian “Bundesgesetz über Sanierungsmaßnahmen für die HYPO ALPE-ADRIA-BANK INTERNATIONAL AG” (HaaSanG), published on 31 July 2014 in the Austrian Federal Law Gazette and implemented in August 2014 by the Austrian government, paved the way for the establishment of Heta Asset Resolution AG (Heta) as a wind-down vehicle to assume and manage large parts of the assets of the failed Austrian bank, Hypo Alpe-Adria Bank international AG (HAA).
The first bank resolution under the new European bank resolution regime is currently taking place in Austria: the Austrian Financial Market Authority (FMA), the official government regulator for banks, funds and financial institutions, is busy with the resolution of HETA Asset Resolution AG (HETA - formerly Hypo Alpe-Adria Bank International AG).
Legal Status
In three similar decisions of 17 March 2015[1] the Austrian Supreme Court (“OGH”) clarified how insolvency proceedings may affect an already pending arbitration.