The Austrian Insolvency Code provides for the possibility to challenge certain disadvantageous transactions carried out by the debtor after material insolvency has occurred, especially if the creditor knew or should have known of its debtor's material insolvency. This risk of legal actions being contested is of particularly high relevance for shareholders who are also creditors of the debtor company, as the Austrian Supreme Court recently decided that shareholders' information rights would result in an increased level of due diligence.
Legal Status
The conundrum evolves
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
The Austrian Act on Financial Collateral (Finanzsicherheiten-Gesetz; FinSG), which regulates the granting and enforcement of financial collateral arrangements between participants in the financial markets, has recently been amended with effect from 30 June 2011. Changes include the extension of the scope of application of the law.
In times of financial difficult and a challenging market environment, establishing a restructuring trust provides an insolvencyproof structure that meets the demand of the financing banks for an immediate change of control in the com pany while ensuring a professional M&A process with an upside for all stakeholders.
With effect as per 1 July 2013, the Austrian legislator has enacted an amendment to the Limited Liability Companies Act (GesRÄG 2013) providing primarily for a de-crease of the minimum share capital to EUR 10,000, as well as a decrease of the formation costs. These changes are aimed at maintaining Austrian limited liability companies’ competitiveness in comparison to other European limited capital compa-nies and to fostering the formation of new limited liability companies also by small service providers.
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