The Coronavirus and the measures taken to contain it continue to have a firm grip on Austria’s economy. On 24 March 2021, further changes in the area of insolvency law came into effect with Federal Law Gazette I No. 48/2021 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 30 June 2021; and
  • The protection of short-time work bridge loans from being challenged was reintroduced with retroactive effect from 1 January 2021.


The suspension of the obligation to file for insolvency in cases of over-indebtedness has been prolonged1:

A debtor is not required to file an insolvency petition for over-indebtedness (within the meaning of the Austrian Insolvency Act2) occurring between 1 March 2020 and 30 June 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 30 June 2021, they must petition for insolvency without undue delay, at the latest within (i) 60 days after 30 June 2021, or (ii) 120 days from when the over-indebtedness started, whichever period ends later.

Between 1 March 2020 and 30 June 2021, the management liability for payments made after the occurrence of over-indebtedness (under the Austrian Joint-Stock Corporation Act3) 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 Act4.

The statutory materials clarify that management liability due to a violation of the filing obligation under the Insolvency Act5 as a protective law does not apply if debtors become over-indebted and management does not petition for insolvency during this period.

ince 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!

 

Protecting bridge loans for short-time work from being challenged (§ 10 of the 2nd COVID-19 Judicial Accompanying Act):

With retroactive effect from 1 January 2021, the protection of short-time work bridge loans from being challenged has been reintroduced – the protection had expired at the turn of the year due to an editorial oversight on part of the legislature (we reported on this in our last COVID-19 Insolvency / Restructuring Update); this error has now been corrected.
Since the short-time work subsidy from AMS (the Austrian Labor Market Services) is only paid retrospectively, companies have to finance their employees’ salaries temporarily, and they often use bridge loans. Such loans, granted between 1 March 2020 and 30 June 2021, in the amount of the subsidy, and their immediate repayment upon receipt of the subsidy, are not subject to challenge under § 31 of the Austrian Insolvency Act, as long as (i) no collateral was provided by the borrower, and (ii) the lender was not aware of the borrower’s illiquidity at the time the loan was granted. The restriction on borrower collateral is meant to prevent cases where the last assets of a company are used to secure a bridge loan and therefore a restructuring following the opening of insolvency proceedings – which the statutory materials expect for a significant number of cases – is frustrated. However, bridge loans may be secured by third parties and still be protected from challenge.

 

[1] § 9, 2. COVID-19 Judicial Accompanying Act
[2] § 67 Abs 1 IO
[3] § 84 Abs 3 Z 6 AktG
[4] § 25 Abs 3 Z 2 GmbHG
[5] § 69 Abs 2 IO