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.
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Asset classes used as collateral for security
Insolvency lawyers frequently encounter problems in relation to goods that are purchased under a reservation of title and the assertion of resulting rights to separate these goods from the debtor's estate. In particular, the obligation to provide notice of withdrawal from the contract regularly raises issues. A recent example of Austrian case law demonstrates that the absence of an express notice of withdrawal can also be problematic.
The right to set-off claims and obligations in insolvency proceedings is an important tool for creditors in order to protect themselves against the insolvency risk of a contractual counterparty. This article gives a short overview of the rules for set-off in insolvency proceedings in Austria and certain CEE jurisdictions not taking into account special provisions for close-out netting and similar transactions.
Austria
Set-off in insolvency proceedings
While in other jurisdictions creditors of an insolvent company may swap their debts into equity, creditors in Austria are still confronted with a “take it or leave it” approach as to the proposed quota payment to unsecured creditors. The recent insolvencies of large Austrian companies show the inadequacy of Austrian insolvency law in that respect.
Financial crisis just arrives
One of the primary objectives of the reformed Austrian Insolvency Act ("IO"), which entered into force on 1 July 2010, has been to increase the number of successful corporate reorganisations and to facilitate the continuation of business operations during financial crises. After the initiation of insolvency proceedings, the creditors of an insolvent debtor shall not be entitled to revoke or terminate contracts that are essential for continuing the debtor’s business operations.
Coherent and clear rules for restructuring proceedings
Introduction
On October 20 2010 insolvency proceedings were opened against A-TEC Industries AG, the Austrian holding company of industrial group A-TEC. With outstanding debt of around €650 million (including contingent claims), this insolvency is set to be the third-largest insolvency in Austria to date. Claims included around €300 million of bond debt (two convertible bonds and a corporate bond) issued by the company.
Austria has implemented radical changes to its insolvency law and introduced a new restructuring proceeding with self-administration (Sanierungsverfahren mit Eigenverwaltung) in its newly adopted Insolvency Code (Insolvenzordnung, or "IO").[1] One of the main features of the new type of insolvency proceeding is that the insolvent company (the "Debtor") largely remains in control of its business, but under the supervision of a restructuring administrator.
Step-by-Step Guide to the New Austrian Self-Administration Proceeding
An important decision was issued last week by the Bankruptcy Court for the District of Delaware in favor of Squire Patton Boggs’ client CCA Bahamas, Inc. (“CCA Bahamas”). The decision provides guidance on when U.S. bankruptcy courts should dismiss cases filed by foreign debtors. See In re Northshore Mainland Services, Inc., et al., Case No. 15-11402 (KJC).
The Liquidation Rules Committee has published the Foreign Proceedings (International Cooperation) (Relevant Foreign Countries) Liquidation Rules 2016.
The most recent statutory enactment in relation to corporate insolvency in the Bahamas is the designation of a list of relevant foreign countries to which the Bahamian court will extend international cooperation in insolvency proceedings.