Insolvency law continued to figure prominently in the news in 2015, as the drama of the defunct HETA Asset Resolution AG (HETA), an entity functioning as a bad bank vehicle for the remnants of the failed Hypo Alpe Adria, continued to play out. In March 2015, the Austrian Treasury Secretary, Hans Jörg Schelling, decided to play hardball with the bondholders of HETA by subjecting it to the BaSAG,2 a special insolvency law for credit institutions modelled after the EU Directive 2014/59/EU (the developments of this year clearly focused on issues on the European level). Thus, Section V, infra, will focus on the Hypo Alpe Adria/HETA controversy3 and its legal ramifications, along with a discussion of the failure of a prominent retail chain that raised a lot of questions about the efficacy of the 2010 insolvency law reform. Furthermore, in the area of legislative developments, 2015 was marked by the passing of the Austrian version of the ‘business judgment rule’.


The basic Austrian legal framework for insolvency, as shaped by the amendments of the Austrian Insolvency Act adopted in 2010,4 has been quite stable and was carried over into 2014 virtually unchanged.

i The Austrian dynamic insolvency concept5

Austrian law makes the filing for insolvency mandatory if a debtor crosses certain threshold criteria of financial distress. The focus on a holistic, economic assessment in defining insolvency from a legal point of view,6 rather than merely relying on a mechanical balance-sheet test or the inability to pay as defining criteria, is one of the distinctive features of Austrian insolvency law. This approach, together with the mandatory filing requirement, helps to combat the tendency that debtors would file with excessive delay and at the same time prevents a mechanical stampede to the courthouse.

There are two scenarios in which corporate entities are deemed insolvent:

  • a over-indebtedness:7 the determination as to whether a company is insolvent by reason of over-indebtedness involves a two-step test. The necessity to apply this test is triggered by a finding of negative equity. For the first step of the test, a company needs to assess whether it is in a state of technical ‘over-indebtedness’, meaning whether the ‘value’ of its assets is less than the amount of its liabilities (including provisions). It is now the prevailing view8 that, for the purposes of this analysis, the assets of the prospective debtor have to be taken at their liquidation values. If the company is technically over-indebted, it needs to perform the second step of the test to show that it qualifies for a positive going-concern prognosis.9 This prognosis is in essence a test in the form of a standardised business plan prepared based on generally accepted conservative business planning practices, showing with a preponderance of likelihood that the company will return to and retain a state of solvency (cash flow) within the first six to 12 months following the date of the prognosis, and will be able to achieve a sustainable turnaround over a two to three-year period. Recently, courts have taken a stricter view as to the requirements for a positive going-concern prognosis. If the debtor relies on outside financing, he or she needs to be in possession of a legally enforceable commitment by the financier; optimism and vague promises are not enough.10 If the prospective debtor company qualifies for a positive going-concern prognosis, there is no obligation to file for insolvency, any negative equity and technical over-indebtedness notwithstanding;
  • b illiquidity:11 a prospective debtor is considered illiquid if it is unable to pay its debts as they fall due. While a temporary delay of payments does not amount to insolvency, delays beyond a reasonable period – in keeping with the customs of the particular industry – indicate illiquidity, particularly if more than 5 to 10 per cent of the obligations of the debtor are involved.

Pursuant to Section 69(2) of the 2010 Insolvency Act, a debtor is under the obligation to commence insolvency proceedings without culpable delay (i.e., less than 60 days) once its financial condition meets the statutory criteria for insolvency. If the debtor is a legal entity, it is the non-delegable duty of its officers12 to assess its financial condition and to file for insolvency without undue delay if so warranted under the circumstances. In addition, creditors may apply to the court to have an insolvency proceeding opened in respect of an insolvent debtor.13 Not all insolvency filings will lead to the opening of a case even if the respective debtor may be insolvent from a legal point of view; in fact, almost 50 per cent of insolvency petitions are rejected in limine because the petitioning entity does not have sufficient assets to cover the (court) costs of the insolvency proceeding in its initial stage.14 This ratio has barely changed over the years.15

Insolvent companies unable to fund the initial costs of a formal insolvency proceeding will ultimately be struck from the company register and dissolved ex officio for (presumed) lack of financial resources.16 In many instances, this means that disreputable operators of businesses succeed in simply walking away from their liabilities by ‘going out of business’. The legal remedies of the Criminal Code and tort law are not an effective deterrent against such behaviour.

However, well-intentioned managers of debtor companies also face difficult choices at the stage of incipient insolvency, considering that there is no hard and fast rule as to when they should realise that further attempts to stabilise their business will not be able to restore it to solvency by the end of the 60-day grace period, at which point they are required to immediately file for insolvency. As the Austrian Supreme Court has reinforced that the restoration of a debtor’s solvency must be completed within this 60-day period,17 increasing numbers of managers will decide to err on the side of caution and, at the first sign of serious difficulties, abandon rescue efforts if it appears uncertain whether they are capable of being completed in the 60-day period. Likewise, it may be difficult to find qualified managers to assume ‘officer liabilities’ in scenarios like this.

ii Overview of insolvency and reorganisation proceedings

There has been no change with respect to the types of insolvency proceedings introduced by the 2010 Insolvency Act,18 which distinguishes between two basic forms of insolvency proceedings:

  • a liquidation-type proceedings:19 these are the default type of insolvency proceedings, that aim at the maximisation of the estate’s value under the management of a court-appointed and supervised insolvency administrator for the purposes of eventual prorated distribution of the debtor’s assets to its creditors,20 but exonerating the debtor only to the extent that allowed creditors’ claims are satisfied as a result of the proceedings; and
  • b reorganisation proceedings: as an incentive for early filing and proactive planning of a reorganisation, these allow the debtor to retain control of the estate’s assets under certain circumstances (debtor-in-possession (DIP) regime), and to start over with its debts extinguished if the debtor is either able to pay at least 30 per cent of allowed claims of its creditors over a two-year period if it retains DIP control, or at least 20 per cent of the allowed claims over the same period while yielding control over the estate to an insolvency administrator.21

The Business Restructuring Act (URG) of 199722 does not provide for an alternative to, or a third type of, insolvency proceedings. It merits a brief discussion nonetheless, as it is the legislation closest to providing for the stand-alone pre-bankruptcy proceedings increasingly popular in other European jurisdictions and because it contains important statutory criteria for the determination of the financial soundness of businesses in general.

Section 23 URG provides that a debt-equity ratio of below 8 per cent and, in Section 24, a pro forma debt amortisation period of 15 years or more, are early warning signs of an impending insolvency. Pursuant to the URG, debtors entering this ‘zone of insolvency’ are theoretically required to avail themselves of the tools of the URG. In essence, the URG requires such businesses to devise, with the help of a reorganisation auditor under court supervision, measures to turn around their business outside insolvency proceedings. As it does not provide for a real stay or debt relief, it has been rarely used in the almost 20 years of its existence, except as a reference point for solvency criteria.

However, as we reported, the Hypo Alpe Adria crisis also inspired the first known creative use of this statute for a long time. Kärntner Landesholding (a special purpose entity created by Carinthia23 to hold its assets in a variety of business and real estate ventures) (KLH), which is liable by statute as a surety for various guarantees and bonds in connection with HETA obligations,24 initiated a URG proceeding25, much to the dismay of many critics, most of whom were associated with the creditors’ camp. However, we will never know whether their claims that this was merely a ruse to avoid an outright insolvency filing are true, as KLH abruptly withdrew its petition shortly before the reorganisation auditor was to issue his report. Regardless of the merits of the case, this is a very unfortunate outcome as judicial guidance for the use of the URG would have been very helpful, in particular, in light of the increasing popularity of semi-formal standalone pre-bankruptcy proceedings in continental Europe.26

iii ‘New’ reorganisation proceedings – the core of the 2010 amendments to the Insolvency Act
Reorganisation proceedings with a DIP regime

Debtors have the option to enter into something akin to a pre-planned bankruptcy by petitioning the insolvency court27 to open a reorganisation proceeding with a DIP regime. It shares some features and important policy objectives with a US Chapter 11 proceeding, even though it was not the model for the Austrian law. A reorganisation proceeding with a DIP regime is aimed at allowing debtors to emerge debt-free from insolvency without having lost control of the day-to-day operations of their businesses. This type of ‘fresh start’ is possible only if the debtor manages to negotiate (and fulfil) an arrangement with all participating creditors (which then becomes binding on all creditors holding allowed (allowable) claims, regardless of whether they participated in the proceedings) providing for payment of as little as 30 per cent (in the case of a DIP scenario)28 of allowed insolvency claims and, respectively, of at least 20 per cent29 of the allowed insolvency claims, in a case without DIP (as discussed in more detail below). The maximum time period for fulfilling these obligations is two years30 from the date of approval by the creditors representing more than 50 per cent of the allowed insolvency claims represented by all creditors present at the approval hearing.31

To obtain DIP status, the debtor must meet a number of additional prerequisites in terms of general trustworthiness and submitting ‘clean’ financial records going back three years, and providing the court, along with the insolvency petition, a credible plan as to how the debtor would be able to emerge from insolvency within 90 days of the opening date.32 If the 90-day mark has passed and no plan of reorganisation has been approved, DIP status is lost in any event (if it has not been revoked earlier by the court, for example, because the debtor fails to cooperate with the administrator or seems otherwise insufficiently trustworthy, or the prospects for the turnaround have become unrealistic).33 Even after the loss of DIP status, the case still proceeds as an (ordinary) reorganisation proceeding with the insolvency administrator assuming full control over the estate.34

Reorganisation proceedings without DIP and reorganisation plans filed incidental to a liquidation-type proceeding

If the debtor submits along with his or her petition an otherwise qualifying plan proposal but does not ask the court to be allowed to retain control over the estate, or this aspect of the petition is rejected by the court, the management of the debtor’s estate is placed in the hands of an insolvency administrator, and the case proceeds as reorganisation proceeding without DIP. As this type of proceeding, which allows for a longer period of time to devise (and find ways to finance) a reorganisation plan, is a virtual continuation of the time-tested forced composition of the pre-2010 Bankruptcy Act35 (an instrument used with a great deal of skill and sophistication by Austrian insolvency administrators), it is no wonder that the majority of insolvencies proceed in that form (discounting those cases resulting in the outright liquidation of the debtor’s estate). If there is a continuing, and by the same token, surprising, trend in Austrian insolvency practice, then it is the scant interest of debtors in obtaining DIP status for their reorganisation proceeding.36 Considering that most insolvency administrators in Austria are willing to establish a cooperative relationship with the management of the debtor they are replacing, it seems that the extra amount of control of DIP status37 and the – presumed – PR advantage of a reorganisation proceeding with DIP status is not worth the effort (or beyond their financial capacity) for most debtors in reorganisation. The majority requirements for the approval of a plan of reorganisation are no different in a regular reorganisation proceeding under the control of an insolvency administrator than in a proceeding with DIP status.

Moreover, a plan of reorganisation can also be presented until very late during the course of a proceeding that has been commenced as a regular liquidation-type proceeding (discussed in more detail below). The likelihood that the debtor is able to benefit from this possibility increases significantly if the debtor has been able to persuade the insolvency administrator at the outset of the proceeding that it is feasible and in the best interests of the creditors as a whole not to liquidate the debtor’s business right away but to continue the operations of the debtor’s business – at least temporarily – until the end of an initial assessment phase that lasts up to 90 days and culminates in the reporting hearing.38 In practice, the temporary continuation of the business will be possible only if the estate’s operating cash flow and additional sources of financing (e.g., a non-refundable contribution by a third party affiliated with the shareholders of the debtor) combined are sufficient to avoid any further losses of the estate (for which the insolvency administrator would be personally liable) throughout this period. However, if these prerequisites are met, there is a ‘presumption’ for keeping the debtor’s business in operation, as this tends to yield better results for the creditors, even if the business is eventually sold as a whole.

Thus, based on a favourable recommendation by the insolvency administrator, courts tend to approve the continued operation of the debtor’s business beyond the reporting hearing for up to one year (in special circumstances, for two years).39 Despite the seemingly restrictive stance of the Insolvency Act,40 in practice, debtors will be permitted to present a plan until a very late stage of the proceeding if it means an economic improvement for the creditors. Any proposal for a plan of reorganisation not rejected for formal defects will be put to a vote within six weeks or less in a special hearing.41 While the court has considerable scope in permitting a plan, or even shaping some of its terms (it may reject a plan that is very lenient),42 it has no ability to force acceptance of a plan even though it may be the best solution under the circumstances.

iv Liquidation-type proceedings

Approximately 75 per cent of insolvencies are conducted as liquidation-type proceedings43 under the management of an insolvency administrator. The default rules of this type of proceeding also form the basic framework for the aforementioned reorganisation proceedings. Importantly, the economic outcome for the creditors of a liquidation-type proceeding must not automatically be worse than those achieved in other types of proceedings. This is because the policy preference of keeping the debtor’s business operation intact, at least for an initial period of time, frequently allows the administrator to sell off the debtor’s operation as a going concern.

One of the most important features of a liquidation-type proceeding shared by all types of insolvency proceedings is the general temporary44 stay (both as to pending litigation and enforcement actions).45 In addition, there are certain limitations on the creditors’ ability to use insolvency as grounds for termination of contractual agreements. Sections 21 to 26 of the 2010 Insolvency Act outlaw clauses providing for an eo ipso termination of a contract just because a contracting party whose performance is incomplete has filed for insolvency.46 Credit agreements, where the outstanding performance consists of advancing (further) funds to the debtor, have been excluded from this rule.47

Under Sections 21ff of the 2010 Insolvency Act, the insolvency administrator has the right to reject or assume executory contracts,48 where the outstanding performance of the debtor consists of the payment of money, within 93 days of the commencement date of the proceedings.49 Obligations of the estate stemming from assumed (or unterminated) agreements become administrative expenses of the estate, which need to be satisfied prior to any distributions to creditors.

v The taking and enforcement of security
Security arrangements

There were no changes to the types of security arrangements available to creditors in 2015. As the payment obligations of the surety are not affected by an insolvency filing of the principal obligor, surety agreements are quite advantageous for creditors in insolvency scenarios. Guarantees in the sense of Section 880a of the Austrian Civil Code, second semi-clause, pursuant to which the guarantor agrees to hold the beneficiary completely harmless and indemnified in the case of any default by the original debtor of the beneficiary, continue to be standard tool whenever obligations are secured. The reason for this popularity is that guarantees are independent of, and not subject to, any defences based on the underlying contractual relationship between the beneficiary and the original debtor.

Retained title arrangements, whereby the legal title with respect to the merchandise delivered to the customer remains with the vendor until payment in full by the customer, continue to be widely used, as they confer upon the creditor rights in rem with respect to the collateral, as do trust sale arrangements. Another widely used credit enhancement tool is the use of existing and future accounts receivable as collateral in the form of an assignment in trust for the benefit of the creditor.

These types of security arrangements are favoured by creditors over any pledge arrangements involving moveable property, as they require the creditor to have actual or constructive possession of the collateral in order for the arrangement to be enforceable against third parties. Austria does not have a system to register a creditor’s security interests in moveable property, whereas a creditor’s security interests in land used as collateral (mortgages) are perfected and enforceable against all third parties by entry in the land register.

The effects of insolvency on security arrangements

The impact of insolvency proceedings on security arrangements depends on whether they confer an absolute right in rem (retention of title, trust sale, assignment of receivables, mortgages) or, as is the case with pledges, a preferred right of the creditor to be paid out of the proceeds from the collateral. In the first case, secured creditors are in principle entitled to have the collateral segregated from the estate and turned over to them. However, due to specific provisions of the 2010 Insolvency Act, creditors holding collateral as a result of trust sale or a trust assignment of receivables are treated as merely having the rights of a pledgee. Pledgees and secured creditors treated as pledgees as a matter of law do not have a right to have the collateral turned over into their control. The collateral is notionally segregated within the estate and, unless the underlying claim is satisfied by the insolvency administrator, disposed of, with the proceeds forming a separate fund primarily serving the satisfaction of the secured claims of the pledgees (with any surplus flowing into general funds of the estate). To the extent the proceeds of the sale of the collateral are insufficient to satisfy the creditor’s entire claim, they participate as unsecured creditors and have a right to vote on an eventual reorganisation plan.

A potential obstacle to the enforcement of security interests is their vulnerability to challenges under the preference statute, as discussed in more detail below.

vi Clawback actions

The preference and anti-avoidance statutes of the 2010 Insolvency Act (Sections 27 to 31) can be grouped into two types of provisions. One group focuses on the culpable (intentional) conduct of the debtor and its close affiliates or accomplices to harm creditors by acting with knowledge or reckless ignorance of the insolvent state of the debtor to prejudice, and reduce the potential recovery of one or more, innocent creditors, by concealing assets, creation of sham liabilities or dissipation of assets through transactions entered into without adequate consideration. Depending on the level of culpability of the perpetrators, the clawback period may extend to up to 10 years, and most of the causes of action available in this context pursuant to the 2010 Insolvency Act have companion provisions in the Austrian Penal Code.50

The second group of statutes is, in large measure, an expression of a fundamental policy of Austrian insolvency law requiring that all similarly situated creditors are entitled to equal treatment. The most important of those provisions are summarised below.

Granting of undue preferences51

Certain acts of a debtor intended to satisfy or provide security to a creditor to which the creditor was entitled, but not at the time at or in the manner in which the performance was rendered, are subject to challenge if the favoured creditor ‘gets ahead’ of other creditors. Furthermore, even if the creditor was entitled to exactly that type of performance or payment at the time at which it was rendered by the debtor, it may be challenged under this rule if the creditor knew or should have known that the debtor intended to grant the debtor a preferential treatment by the subject acts. The scope of this rule extends to all transactions with, or performances by, the debtor (including the granting of securities) after the debtor becomes legally insolvent, or within 60 days prior to commencement of the debtor’s insolvency proceedings. An exception exists if the creditor was not put in a better position than its fellow creditors by reason of the challenged performance or transaction. Typical examples of ‘vulnerable’ transactions are the acceleration of payment terms or the granting of a security interest without a contemporaneous exchange of new value.

Knowledge of insolvency52

Under this statute, in essence, transactions with, or performances by, the creditor (including the granting of securities) may be set aside if they occurred within six months prior to the debtor filing for insolvency or any time after the debtor filed a petition for insolvency, if the counterpart knew or should have known of the insolvent status of, or the filing by, the debtor, and if the transaction or performance had a direct prejudicial effect on the possibility of recovery by other creditors or the estate, or such prejudicial effect was objectively foreseeable in the event of an indirect prejudicial effect of the performance or transaction in question. Importantly, even transactions with third parties who are not creditors can be challenged under this statute.

vii Liability of directors and officers

Directors and officers of Austrian corporations are required to perform their duties with the care of a prudent and diligent business manager.53 In general, such duty is first and foremost to the company and not to its creditors. Thus, a failing management is potentially exposed to claims on behalf of the company pursued by their successors in the office or the administrator. There are, however, limited exceptions in the event that the conduct of directors and officers breaches a statutory duty and the statute establishing such duty is deemed to have the protection of third parties, such as creditors, as its normative objective. A typical example is the violation of the statutory duty to file for the commencement of insolvency proceedings without undue delay. Officers of an Austrian company have the absolute personal duty to commence insolvency proceedings without culpable delay as soon as they have actual or constructive knowledge (i.e., they ignore the relevant facts with wilful blindness) that the respective entity is affected by one or more relevant insolvency scenarios. Creditors may recover from the responsible officers any losses that they have sustained as a result of the delayed commencement of insolvency proceedings.54

Apart from civil liability, Austrian directors and officers may also face criminal charges under the Austrian Penal Code (e.g., for the undue preferred treatment of certain creditors55 or for the intentional failure to remit the employer’s social security contributions to the respective social security agency).56

viii Restructuring tools used outside of formal proceedings

The climate for use of restructuring tools outside of formal insolvency proceedings is not as favourable as it is, perhaps, in other jurisdictions. Inter alia, this is the result of the strict rules regarding the equal treatment of all creditors, and the legal certainty afforded by, for example, acquiring a business in the course of a reorganisation proceeding, knowing that all debts have been extinguished once the terms of the corresponding plan have been complied with. A 2014 amendment to the Austrian Civil Code (ABGB)57 in the area of Gesesellschaften Bürgerlichen Rechts (Civil Code Partnerships), a rudimentary form of business associations, has introduced the notion that, in cases of a majority decision to inject capital, members not willing or able to contribute can be squeezed out rather than just suffering dilution (Section 1184 ABGB). As this is a frequent scenario in out-of-court reorganisations, the amendment may have introduced a new dynamic in restructuring negotiations.

Silent reorganisations

Silent reorganisations involve negotiated arrangements with all or some of the creditors of financially distressed entities, providing sometimes for limited debt relief or more favourable business terms such as extended terms of payment. They are particularly suitable to remedy the financial difficulties of companies in the 60-day grace period after the company became first insolvent.


As the majority of insolvencies in Austria concern small and medium-sized enterprises, private litigation is a less prevalent factor shaping the development of insolvency law than, for example, in the United States. However, two recent decisions of the OGH58 (the convictions of the managers in the Libro case59 and the Styrian Spirit case60), arising from the prosecution of officers of insolvent businesses pursuant to Section 153 of the Austrian Penal Code, have not only driven an amendment of the Penal Code, but also resulted in the introduction of an Austrian version of the ‘business judgment rule’ in the Stock Corporation Act (Article 84 Paragraph 1a) and the Act on Limited Liability Companies (Article 25 Paragraph 1a), which took effect on 1 January 2016. Pursuant to this new business judgment rule, a managing director is deemed to have acted with the ‘due care of an orderly business manager’, if three requirements are met: (1) the managerial decision in question must not have been influenced by ‘extraneous considerations’; (2) the decision must have been taken with reliance on ‘adequate information’; and these prerequisites form the basis for (3) the managing director’s ‘permissible assumption to act in the best interests of the company’. However, the requirement that a managing director must rely ‘on adequate information’ for his decision does not settle the question of how much information is enough information (e.g., in an insolvency setting, with respect to the financial condition of one’s own company). Even if one accepts that the differences between the legally required degree of real-time awareness of financial problems for AGs and GmbHs will continue to apply, it is easy to see that the business judgment rule is unlikely to protect the managing director in borderline cases.

Moreover, the burden of proof for the facts supporting the invocation of the business judgement rule as an affirmative defence is still with the officer or director defending his conduct, as this was the (criticised) practice prior to the business judgement rules amendments in Austrian corporate law. In particular, when it comes to proving the absence of undue influence of ‘extraneous considerations (not merely a conflict of interest)’ as a guiding factor for his or her decision-making, a defendant faces at times an impossible task. Here, the legislator missed the opportunity to clarify the law (e.g., by giving the business judgement rule the status of a rebuttable presumption).


In 2015, about 21,800 jobs were affected by insolvency proceedings. Thus, although the number of insolvency proceedings in Austria decreased by 5 per cent compared to 2014, the number of employees affected by insolvencies increased by 4.3 per cent. This is mainly because of the failing of Zielpunkt, the third-largest Austrian supermarket chain, with more than 229 stores in Austria and roughly 2,700 employees. The insolvency of Zielpunkt (with more than €220 million debts) received extensive media coverage as the owner and the management of Zielpunkt were widely criticised for opening the insolvency proceedings right before Christmas.61 The insolvency of Zielpunkt also materially affected Schirnhofer, a producer of meat and sausage products mainly delivering to Zielpunkt, which could, however, be saved as a result of the successful implementation of a restructuring plan.62

Two other material insolvencies making the news were BISO Schrattenecker (a traditional Austrian producer of harvesting technology for agriculture63 with roughly €68 million debts) and Hanlo (a company selling prefabricated houses with about €44 million debts64).

Also, although not as spectacular in numbers, but quite interesting from an outside investor’s perspective, Dunkin’ Donuts, as a newly established franchise chain in Austria, failed after having entered the market less than two years ago.65

Austria’s economy is still stagnant with investors focusing on wealth preservation and real-estate transactions rather than on new business development.66 In an attempt to revitalise Austria’s economy, Christian Kern, who succeeded the ill-fated Werner Faymann in office in 2016 as Federal Chancellor, recently presented a new concept for the promotion of start-ups and the generation of new jobs in Austria.67


From an international and European law perspective, the most important recent developments in Austria continue to be the events surrounding the Hypo Alpe Adria Group and the special banking insolvency laws enacted in the this context.

i Hypo Alpe Adria: from a local building society to a failed international bank

What became known as Hypo Alpe-Adria-Bank Group is the successor to a local building society formed by Carinthia in the late 19th century to facilitate the access of the local population to home loans. Having morphed into a full service commercial bank majority owned – in effect – by Carinthia, it used this public ownership as leverage on its wantonly ambitious international expansion throughout the SEE region, with Carinthia in the end guaranteeing bond obligations of the bank in the €10 billion range. Prior to the 2008/2009 crash, there were already signs that the bank had overextended itself, and Carinthia sold its majority stake in 2008 to the financially stronger BayernLB, a bank controlled by Bavaria (Germany). However, a year later the bank was again in trouble and, as the new owners were not willing to prop up the bank indefinitely, to avoid a collapse of the bank, Austria was forced to take over the BayernLB ownership stake for the nominal purchase price of €1.68 Despite massive capital injections financed by the Austrian taxpayers, it was impossible to put the bank back on solid footing and, under growing pressure from the European Commission because of the state aid involved, in September 2013 the decision was made to start an orderly winding down of the bank. Prior to this decision, the group’s ultimate parent company (HBInt) had already been set up as ‘bad bank’ after the performing assets, in essence its Austrian banking operations, had been placed into a 100 per cent subsidiary, which was sold to a foreign investor in 2013.

ii First haircut: HaaSanG (2014)

In July 2014, the government transformed HBInt (renamed HETA Asset Resolution AG) into an asset management company without a banking licence and passed the Federal Act on Restructuring Measures for HBInt (HaaSanG).69 This law authorised the Austrian Financial Market Authority (FMA70) to issue a decree that in essence wiped out certain subordinated liabilities and shareholder liabilities of HBInt together with guarantees and sureties issued by third parties to secure such obligations (restructuring liabilities), and deferring the maturity dates of certain disputed liabilities until 30 June 2019. Furthermore, the decree enacted a ban on dividend payments (however unlikely) until the end of 2019.

The HaaSanG has been heavily criticised not only by the affected creditors but also by the banking industry in general as undermining Austria’s reputation on the financial market. The Austrian Constitutional Court validated the challenges of various creditors based on alleged violations of constitutional substantive due process guarantees (violation of right to equal treatment) and unauthorised interference with property rights.71

iii BaSAG72

On 1 January 2015, the BaSAG (transposing the EU Directive establishing a framework for the recovery and resolution of credit institutions into Austrian law) became law.

Instead of providing for the liquidation of failing or unsound banking institutions under normal insolvency proceedings, the BaSAG provided the FMA with a set of special regulatory recovery and resolution tools. Even though authorised by the EU- Directive, the most controversial of those measures is the authority to bail-in shareholders and creditors of the failing institution. Other tools are more conventional and to a large extent of a procedural nature. They range from the power of early intervention to prevent the failure of a financial institution to powers aimed at the restructuring and winding down of a failed institution, such as selling the business or shares of the institution, the separation of the performing assets from the impaired or under-performing assets of the failing institution, and the setting up of bridge institutions.

On 1 March 2015 the FMA issued a decree (mandate opinion),73 also known as ‘Moratorium’, under the authority of the BaSAG deferring, inter alia, the maturity of certain (subordinated and non-subordinated) debt instruments issued by HETA until 31 May 2016. This Moratorium defers the performance by HETA of any of its obligations under the covered debt instruments. The measures of the Moratorium in this case also sparked a public outcry by the affected creditors who promptly sought legal redress, claiming that the BaSAG violated Austrian constitutional law and EU law. Even so, the Moratorium has so far withstood all legal challenges. A bigger threat to the efforts of the Austrian FMA to wind down HETA are the lawsuits pending before German courts in Frankfurt (the bonds sought to be enforced in those lawsuits contained a forum selection clause for the Frankfurt courts), as they are approaching the verdict stage on the trial level. Even though subject to appeal, trial court decisions of German courts in civil matters are, in most cases, immediately enforceable and an adverse ruling would force the FMA to put HETA into insolvency without delay to preserve the par condicio creditorum. Somewhat astoundingly, the judges in Frankfurt do not seem to hesitate to accept jurisdiction over one of the main claims of the creditors – that the Austrian government had misconstrued EU law when placing HETA under the umbrella of the BaSAG after it had surrendered its full commercial banking licence. However, the courts in Frankfurt have so far yielded to the amicus curiae arguments of the FMA (which is not a party in the Frankfurt proceedings) to postpone their ruling until the question of the correct application of EU law is settled by the courts of the European Union.


After initially rejecting unofficial settlement overtures by Carinthia and the Austrian government in 2015, and an offer in the form of a public tender for the HETA bonds affected by the Haircut Decree and the Moratorium, which would have resulted in a pay-out of 85 cents to the dollar, a potential breakthrough is on the horizon. In May 2016, after the Austrian government improved its offer to slightly more than 90 per cent (depending on the class of affected bonds), there was, for the first time, a positive reaction from a significant number of HETA creditors. So far, 75 creditors of HETA, holding roughly €5 billion of HETA’s debt, have signed a memorandum of understanding on the terms stated above. These efforts could still be derailed, in particular by a small number of hold-outs appearing as plaintiffs in the above-mentioned Frankfurt proceedings.

The guardedly optimistic assessment of Austria’s near-term economic development of the 2014 edition of this publication has proved to be correct. External factors, such as the economic sanctions mutually imposed by the European Union and Russia, and a heightened sense of political insecurity, driven by a wide range of factors, such as perceived threats by terrorism, uncontrolled migration, and a deteriorating geopolitical climate, continue to weigh on a more accelerated growth of Austria’s economy.

On the domestic side, the continued stranglehold of special (local) political interests on efforts to reign in the financial adventurism of provincial governors and the resulting spending on pork projects will hinder further fiscal reforms aimed at reducing non-wage labour costs. The continuing erosion of well-paying manufacturing jobs that, in many cases, are migrating just a few hundred kilometres eastwards or to the south to benefit from the lower labour costs in neighbouring countries will continue to contribute to Austria’s unemployment rate. As a result, the number of jobseekers in Austria increased in 2015 from 7.4 per cent to its current 8.3 per cent. However, the income effect of the 2015 tax reform has, in fact, started to boost the spending powers of the average Austrian household.

This challenging business climate is also reflected in the growing number of insolvency filings. The filing data of the first quarter of 2016 reflect a year-on-year increase of filings of 18 per cent, even though the majority of the first time filers are small companies (often, single shareholder entities and sole proprietorships). This is, in part, because of the pent up ‘demand’ commented on previously. As we reported, the unusual drop in filings in 2014 was attributed by some observers to the practice of managers of distressed businesses of flouting the law and artificially delaying the – mandatory – insolvency filing to squirrel away enough cash to fund the initial 90-day continuation of business operations following the opening of formal insolvency proceedings. However, this cash preservation strategy is bound to fail in most instances, as the increasing number of filings rejected in limine suggests, where the debtor is turned away at the doorstep of the courthouse because the debtor or its principals are unable to pay the €3,500 mandatory cost advance. One of the few positive outcomes of this otherwise disturbing trend is, at least from an insolvency law perspective, that the acceptance of the centrepiece of the 2010 insolvency law reform, the new reorganisation proceedings, appears to be growing. The non-DIP version (with an administrator replacing the debtor’s management) of reorganisation proceedings showed an increase (in terms of its share in overall business insolvencies) of 16.8 per cent compared with last year.

As the imminent threat of Carinthia’s insolvency has been removed, even in the case of failure of the tentative settlement mentioned above and the HETA-related claims continue in court for many years, no immediate fallout from this crisis is expected in 2016. In the area of personal bankruptcies, only a modest increase in filings is expected, despite the growing unemployment rates. Some experts explain this with the fact that even the most basic form of personal bankruptcy offering debt relief requires more financial resources than a large percentage of individual debtors can set aside. In addition, the fairly positive development of the real estate market may have helped, in many cases, to cushion the blow of a sudden loss of employment.


1 Christian Hammerl is of counsel and Doris Buxbaum is counsel at Wolf Theiss Attorneys-at-Law.

2 Federal Law on the Restructuring and Winding-up of Banks as well as the Amendment of the Banking Act, the Financial Markets Supervisory Authority Act, the Insolvency Act, the Takeover Act, the 2007 Securities’ Control Act, the Alternative Investment Funds Manager Act, the Rating Agency Implementation Act, and of the Stability Tax Act and the Repeal of the Banking Intervention and Restructuring Act (BGBl I 98/2014).

3 In a departure from its policy to stand behind the remaining Hypo Alpe Adria entities, the government pulled the emergency brake and announced, by application of the Act on the Recovery and Resolution of Banks (BaSAG), a one-year moratorium prohibiting payments to most creditors to stave off immediate insolvency and to ensure that no more (federal) tax euros would be wasted to prop up HETA.

4 The Bankruptcy Law Amendment Act (IRÄG) 2010, BGBl I No. 29/2010, as amended (BGBl I No. 109/2013) (2010 Insolvency Act).

5 For a review of the various methods to determine the insolvency of a debtor discussed in German and Austrian jurisprudence, see Karollus/Huemer, Die Forbestehensprognose im Rahmen der Überschuldungsprüfung, Wien 2006, in particular pp. 49–59.

6 See the discussion concerning over-indebtedness and illiquidity below.

7 Section 67 of the 2010 Insolvency Act.

8 Burger, Entwicklungslinien der Rechtsprechung zum Überschuldungstatbestand, wbl 1988, 144; Schumacher in Bartsch/Pollak/Buchegger, Österreichisches Insolvenzrecht (2004), Vol. II/2 Section 67 of the KO RN. 74 and 75.

9 Karollus, ‘Zwei Jahrzehnte moderner Überschuldungsbegriff in Österreich’, Eckpunkte der Fortbestehensprognose, RWZ 2007, 1.

10 Konecny, ZIK 2015, 76.

11 See generally Widhalm-Budak, Anfechtungsrecht (2013), 12 et seq.

12 In the case of the most popular types of corporate entities (the limited liability company (GmbH) and the stock corporation (AG)), both of which have a two-tier board system, this duty is incumbent on the members of the executive board (the managing directors in the case of the GmbH, and the management board in the case of the AG) and not on the members of the supervisory board. Importantly, outside some narrow exceptions, shareholders are never liable to file for insolvency of their company (but are also not in a position to (lawfully) prevent the members of the executive boards to go ahead with such a filing).

13 Section 70 of the 2010 Insolvency Act. However, they are not authorised to file for a reorganisation proceeding in respect of a debtor.

14 The requirement that the estate be able to finance the entire insolvency proceeding is an iron-clad principle of Austrian insolvency law, even if at a later stage the estate’s funds run dry, the entire proceeding is abandoned and the debtor is put back into its previous situation, without any protection against its creditors (Section 123 of the 2010 Insolvency Act). See also Sections 71 et seq. of the 2010 Insolvency Act.

15 See footnote 14, supra. This is true despite the requirement that the authorised representatives (almost always the officers) of a company and, as result of the 2010 Insolvency Act, also shareholders and members holding an equity stake of more than 50 per cent, are required to provide an advance of up to €4,000 unless they, in turn, do not have sufficient assets to provide such funding.

16 Section 84(1) No. 4 GmbH-Gesetz (Act on Limited Liability Companies) RGBl 58/1906 as amended BGBl I No. 13/2014; Section 203(1) Nos. 3 and 4 of the Stock Corporation Act BGBl 98/1965, as amended BGBl I No. 40/2014; and Section 40 of the Company Register Act, BGBl No. 10/1991, as amended BGBl I No. 13/2014.

17 See OGH 9 Ob 19/15k.

18 Mohr, ecolex 2009, 848.

19 For a comprehensive discussion of the insolvency laws of Austria and certain CEE countries, see Hoenig/Hammerl (eds) Insolvency and Restructuring Law in Central & Eastern Europe: An Introduction for Practitioners, forthcoming.

20 Regardless of its focus on liquidating the debtor’s assets, in practice, this type of proceeding often also leads to a sale of the debtor’s business as a going concern, and not to a liquidation of the debtor’s business and distribution of the liquidation proceeds as, typically, a much higher value can be realised by preserving the debtor’s business as a going concern.

21 The insolvency administrator (in reorganisation proceedings referred to as a reorganisation administrator) is appointed by the insolvency court to oversee the insolvency proceedings and the administration of the debtor’s estate. In most instances, insolvency administrators, who must be independent from the debtor, are chosen from a list of potential appointees posted on the website of the Federal Ministry of Justice.

22 BGBl I No. 114/1997, as amended, BGBl No. 58/2010.

23 State Holding Law of Carinthia, LGBl No. 37/1991, as amended.

24 Currently there are asserted claims in an amount of €2.8 billion.

25 JUVE 26.05.2015 ‘Kärntner Schuldenschnitt: Gläubigervertreter auf Distanz zum Abel-Plan’: www.juve.de/nachrichten/oesterreich/2015/06/kaerntner-schuldenschnitt-

26 For example, the German ‘Protective Shield Proceedings’ introduced by the German statute known as ESUG in 2011.

27 For corporate debtors, this is the commercial division of the locally competent superior court; in Vienna, it is the Commercial Court existing as a stand-alone judicial body (Section 63 et seq. of the 2010 Insolvency Act).

28 See Section 169 (1) No. 1 lit. (a) of the 2010 Insolvency Act for the 30 per cent quota.

29 See Section 141 (1) of the 2010 Insolvency Act for the 20 per cent quota.

30 Section 141(1) of the 2010 Insolvency Act.

31 Section 147(1) of the 2010 Insolvency Act.

32 Section 169 of the 2010 Insolvency Act.

33 Section 170 of the 2010 Insolvency Act.

34 Section 140(1) of the 2010 Insolvency Act.

35 RGBl No. 337/1914 idF BGBl I No. 29/2010.

36 The latest indicator confirming that trend is a 2015 report issued by Creditreform, one of the statutorily privileged societies for the protection of creditors’ interests: www.creditreform.at/index.html.

37 This extra amount of control may also be illusory. While Section 171(1) of the 2010 Insolvency Act suggests that the debtor retains the authority to represent the estate in all transactions in the ordinary course of business (including to sue and to be sued), already this subsection shifts the authority to assume or reject executory contracts to the reorganisation administrator. Moreover, even transactions ordinarily within the scope of authority of the DIP may be vetoed by the reorganisation administrator, with the effect that they are not binding on third parties who know or should have known of those restrictions.

38 Section 114a of the 2010 Insolvency Act.

39 Section 115 Paragraph 4 of the 2010 Insolvency Act.

40 Section 114b of the 2010 Insolvency Act requires that the court issues a ruling that a plan of reorganisation would be in the common interest of the creditors, following which the debtor is granted 14 days in which to present such a plan.

41 Section 114c(1) of the 2010 Insolvency Act.

42 See Section 141(2) of the 2010 Insolvency Act for formal defects and Section 154 of the 2010 Insolvency Act regarding discretionary refusal of confirmation.

43 Section 180 of the 2010 Insolvency Act.

44 The stay in respect of litigation is lifted after the hearing in which the insolvency administrator has to declare whether the claims filed are allowed or contested. The stay of enforcement proceedings persists until the case is either dismissed or closed.

45 Sections 6 et seq. of the 2010 Insolvency Act.

46 Section 25a of the 2010 Insolvency Act provides further that agreements, the termination of which would jeopardise the continued operation of the debtor’s business, may not be terminated absent good cause (not consisting of the deterioration of the economic condition of the debtor or any default with pre-petition payment obligations) by the creditor for the first six months of the proceedings, unless this would impose an undue hardship on the creditor.

47 Section 25a(2) No. 2 of the 2010 Insolvency Act.

48 Special rules apply to most labour contracts and real estate leases.

49 A shorter deliberation period of five days following a demand by the creditor applies if the debtor’s outstanding performance consists of furnishing goods or services; Section 21 of the 2010 Insolvency Act.

50 Criminal Code BGBl No. 60/1974, as amended BGBl I No. 134/2013.

51 Section 30 of the 2010 Insolvency Act.

52 Section 31 of the 2010 Insolvency Act, in particular subsections 2 and 3.

53 Section 84 of the Austrian Stock Corporation Act, Section 25 of the Austrian Act on Limited Liability Companies. However, pursuant to changes enacted in connection with the 2015 amendment of the Austrian Penal Code, both provisions have been modified to include a rudimentary ‘business judgement rule’ as a safe harbour for bona fide business decisions.

54 Section 69 of the Austrian Insolvency Code.

55 Section 158 of the Austrian Penal Code.

56 Section 153c of the Austrian Penal Code.

57 GesbR-Reformgesetz (GesbR (companies constituted under civil law) Reform Bill) (BGBl I 2014/83).

58 The Supreme Court is the highest judicial body in civil and criminal matters.

59 OGH 30 January 2014, 12 Os 117/12s (12 Os 118/12p) (Libro decision).

60 OGH 29 October 2013, 11 Os 101/13g, OGH 11 Os 139/13w.

61 See: www.thelocal.at/20151130/zielpunkt-chain-files-for-insolvency-before-christmas; and www.internationalsupermarketnews.com/news/23202.

62 See: www.trend.at/branchen/bonitaet/schirnhofer-insolven-glaeubiger-sanierungsplan-6227969.

66 Insolvency statistic for 2015, see: www.ksv.at/downloads-insolvenzstatistiken.

68 See: www.faz.net/aktuell/wirtschaft/unternehmen/hypo-group-alpe-adria-verstaatlicht-oesterreich-verhindert-den-domino-effekt-1896466.html.

69 Federal Law decreeing the promulgation of a Federal Law for the creation of a Bad Bank Vehicle, a Federal Law for the Establishment of a Holding Company of the Federal State for the Hypo Alpe Adria Bank SPA, the Federal Law regarding the Establishment of a Bad Bank Vehicle Participations Stock Company of the Federal State and of a Federal Law Providing for Restructuring Measures for the HYPO ALPE ADRIA BANK INTERNATIONAL and amending the Financial Markets Stability Act and the Financial markets Supervisory Authority Act (BGBl I 51/2014).

70 The FMA is the Austrian agency responsible for the supervision and monitoring of banks, insurance undertakings, pension companies, corporate provision funds, investment firms and investment service providers, investment funds, financial conglomerates and exchange operating companies. The FMA also ensures that trading in listed securities complies with legal requirements and the principles of fairness and transparency (supervision of the market and stock exchange), and that prospectuses concerned with the public sale of securities appropriately explain the opportunities and risks of investment to the general public (prospectus supervision). For further information see www.fma.gv.at/en/about-the-fma.html.

71 Haberer/Zehetner, ecolex 2014, 594.

72 See footnote 2, supra.

73 See www.fma.gv.at/en/about-the-fma/media/press-releases/press-releases-detail/article/fma-ordnet-per-bescheid-die-abwicklung-der-heta-asset-resolution-ag-gemaess-dem-