Modifications to the law on personal insolvency

Hitherto, in case of insufficient assets to cover the costs, a natural person could only file for bankruptcy if the debtor certified that his efforts to reach an extra-judicial settlement had failed. This prerequisite has been abolished.

If, after the opening of bankruptcy, creditors refuse to agree to the payment plan (Zahlungsplan) offered by the debtor, the "skim-off proceedings" (Abschöpfungsverfahren) remain the only option for debt relief. The Amending Statute respectively provides for significant facilitations: the duration of the "skim-off proceedings" has been decreased from seven to three years. Moreover, the minimum quota of 10% has been abandoned. However, not everyone is pleased with these innovations, as there is – even more so than before – a risk that claims of creditors will not be satisfied.

As a consequence, also personal securities of shareholders (natural persons) have to be seen in a different light. If the guarantor lacks proper asset values and, therefore, private insolvency is not unlikely to occur, it is probably necessary to revalue the given securities and, where appropriate, to request additional securities.

Adaptation of the Austrian Insolvency Act to European Law

Due to the revision of the European Insolvency Regulation (Europäische Insolvenzverordnung – EuInsVO) further adaptations to the Austrian Insolvency Act (Insolvenzordnung – IO) become necessary, such as content-specific adjustment to the "insolvency edict" (Insolvenzedikt) to meet European law standards. Until end of June 2018, uniform and, for reasons of transparency, interconnected insolvency registers shall be maintained on an EU-wide basis. This will facilitate the verification by creditors and investors of whether a certain person is insolvent.

Furthermore, the substantive criteria of the lodgement of claims have to comply with European law standards. In future, the creditors need to state already in their lodgements of claims, if they intend to assert retention of title or if they request a set-off against a counter claim. It is unclear, whether the creditor conclusively loses his right to set-off, if he does not exercise it at this time. The legal consequences are still uncertain. Previously, a set-off could be declared to the insolvency administrator until the closing of the insolvency proceedings. For tactical reasons, creditors were able to wait and observe, whether the insolvency administrator asserts a claim or not. Only when a claim had been asserted by the insolvency administrator creditors declared a set-off. It remains to be seen, which risks are associated with such conduct in the future.

Authors:

Felix Hörlsberger, Partner, DORDA Attorneys at Law, Expert for Restructurings and Insolvency Law, [email protected]

Magdalena Nitsche, Senior Associate, DORDA Attorneys at Law, specialized in the fields of Restructurings and Insolvency Law, [email protected]