Recent Developments in Commercial Law in the EU and Austria

Recent Developments in

Commercial and Corporate

Law in the EU and Austria 

Ivano-Frankivsk, Ukraine 27 September

2019

General Introduction to

Commercial Law in the EU

Introduction

•

“Commercial law”

–

Law reigning commerce and commercial transactions

–

Principles that guide commercial processes and commercial

actors

–

Contrast with company law => that area of the law that deals

with the organisation of companies

•

“Commercial law of the EU”

–

Supranational law 



 neither national nor international: first

competition law cases before the CJEU (Court of Justice of the

European Union)

–

Many aspects of European Union law relate to commercial law

Introduction

•

Addressees of EU commercial law

–

Originally: only the Member States (MS) as parties to the

Treaties



Eg, Article 4(3) TEU: „The Member States shall take any appropriate measure,

general or particular, to ensure fulfilment of the obligations arising out of the

Treaties or resulting from the acts of the institutions of the Union. The

Member States shall facilitate the achievement of the Union’s tasks and

refrain from any measure which could jeopardise the attainment of the

Union’s objectives.”

–

Many rules in the Treaties directly address companies



Eg, Article 101 TFEU (prohibiting cartels)

–

Today, individuals are also accepted to be addressees of EU

commercial law

Introduction

Introduction

•

Overview: The legal development of the EU

–

1951: European Coal and Steel Community (ECSC) is founded by

Germany, France, Italy, the Benelux countries



Ended in 2002

–

1957: European Economic Community (EEC) and European

Atomic Community (EAC) are founded, same six Member States



Common market as a common goal



To be realised until December 1969

–

1986: Single European Act (SEA)



Used the term single market



Community’s competences were enhanced

Introduction

–

1989: Delors-plan to set up an Economic and Monetary Union

(EMU) was introduced

–

1992: Treaty of Maastricht on the European Union



European Union (EU) was founded



Marks departure from a merely economic towards a more political union

–

1997: Treaty of Amsterdam



More co-operation between Member States



Role of the European Parliament strengthened



Schengen-Treaty was incorporated into the EU



New numbering of Articles

Introduction

–

2001: Treaty of Nice



To prepare for the numerous accessions in 2004 & 2007



Three pillar model

Introduction

–

2002: Euro (€) introduced as a common currency

–

2004: Treaty establishing a Constitution for Europe



Signed, but never ratified (negative referenda in France, the Netherlands)

–

2007: Treaty of Lisbon



European Community and European Union were merged (Article 1 TEU), pillar

structure abandoned



Treaty on European Union  TEU



Treaty on the Functioning of the European Union  TFEU (former Treaty on the

European Community, TEC)



Charter of Fundamental Rights  became binding



Internal market remains one of the main goals

Introduction

•

Legal sources in the EU

–

Acquis communautaire



All legal rules that are legally binding for the MS

–

International Treaties (?)



Rank within the EU‘s legal norm system is disputed

–

Primary law



Founding Treaties (TEU, TFEU)



Annexes to the Treaties (eg, Protocols)



Changes to the Treaties (eg, Treaty of Lisbon)



Charter of Fundamental Rights



Accession Treaties



General principles of law (eg, common constitutional principles)

Introduction

•

Secondary law /1

–

Law enacted by organs of the EU on the basis of primary law

–

Article 288 TFEU: Regulations, Directives, Decisions

–

Regulations



Directly applicable in all MS, no implementation necessary



Aim at unification

–

Directives



Address the MS only



Implementation into national law necessary – MS can choose the means



Aim at substantive harmonization

–

Decisions



Address specific addressees (eg, MS, organs of the EU, individuals)



Binding for the addressees

Introduction

•

Secondary law /2

–

Recommendations, statements



Not legally binding



Commission often calls them Guidelines, Notices, Guidance Papers



Work in progress at the Commission: Staff Working Documents; Green and

White Papers

Introduction

Introduction

•

The legal bases of commercial law in the EU

–

Article 3(3) TEU: “The Union shall establish an internal market.”

–

Article 3(4) TEU: “The Union shall establish an economic and

monetary union whose currency is the euro.”

–

Article 3(1) TFEU: “The Union shall have exclusive competence

in the following areas:



(a) customs union;



(b) the establishing of the competition rules necessary for the functioning of

the internal market;



(c) monetary policy for the Member States whose currency is the euro;



(e) common commercial policy.”

Introduction

–

Article 4(2) TFEU: “Shared competence between the Union and

the Member States applies in the following principal areas:



(a) internal market;”

–

Article 26 TFEU – Internal Market



“1. The Union shall adopt measures with the aim of establishing or ensuring

the functioning of the internal market, in accordance with the relevant

provisions of the Treaties.



2. The internal market shall comprise an area without internal frontiers in

which the free movement of goods, persons, services and capital is ensured in

accordance with the provisions of the Treaties.”

Principles of EU Law applicable

to Commercial Law

Principles of EU Law

–

Direct applicability of EU law



Case 26/62 van Gend & Loos [1963] ECR 3



ECJ held that Community (now: Union) law was autonomous and therefore

directly applicable

–

Supremacy of EU law



Case 6/64 Costa/ENEL [1964] ECR 1253



ECJ stated that Community (now: Union) law has priority over any national law

Principles of EU Law

–

Subsidiarity of EU law



Article 4(1) TEU: “[C]ompetences not conferred upon the Union in the Treaties

remain with the Member States.”

–

Single market objective



Eg, Article 3 TEU



Important for interpretative purposes

–

Duty of loyalty



Article 4(3) TEU: Member States have a duty of loyalty to the EU



Important in EU commercial law, eg for state-owned companies

Principles of EU Law

–

Narrow interpretation of exceptions and derogations



Case C-234/89 Delimitis [1992] ECR I-935



Are to be interpreted strictly and narrowly

–

Protection of fundamental rights



Charter of Fundamental Rights of the European Union



Important for interpreting EU commercial law

–

Purposive interpretation of the Treaties



Eg, Article 3 TEU and Articles 3 to 6 TFEU



Treaties are usually given a purposive, teleological interpretation by the court

– in the light of the objectives of the Treaties

General Introduction to

Company Law

Introduction

•

Terminology /1

–

Company = Product of legal imagination: existence assumed by

law



always formed according to the laws of a state



enjoys nationality of the state according to whose laws it was formed



acting in another jurisdiction is dependent on recognition by that state

–

National company law 



 different conditions and formations 



different terminology

Introduction

•

Terminology /2

–

Company in EU law:

„every entity engaged in an economic activity, 

regardless of

the legal status of the 

entity and the way 

in which it is

financed”

(ECJ, C-41/90, Höfner/Elser, E.C.R. 1991, I-1979, 

para 

21)

Introduction

•

Terminology /3

–

Company in EU law: Art 54 TFEU:



Companies or firms 

formed in accordance with the law of a

Member State

 and having their 

registered office,

central

administration

or principal place of business 

within the

Union shall, for the purposes of this Chapter, be treated in

the same way as natural persons who are nationals of

Member States. ‘Companies or firms’ means companies or

firms constituted     under civil or commercial law, including

cooperative societies, and other legal persons governed by

public or private law, 

save for those which are non-profit-

making.

Introduction

•

Terminology /4

–

2 requirements to be considered as a company:

1.

Formed in accordance with the law of a member state

(MS) & registered office/administration/business in

the EU &

legal personality

2.

   Profit-making

Introduction

•

Terminology /5

–

Registered office = Presence of a company in a state‘s territory



business register

–

Real seat = Location of the companies main administration

Introduction

•

Terminology /6

–

Branch



No legal personality



No statutory registered office / central administration / principal place of

business in the EU

–

Subsidiary



Distinct from parent company



Statutory registered office of principal place of business in the EU

Introduction

•

What is covered by company law ?

–

Formation of companies

–

Dissolution of companies

–

Restructuring of companies

–

Shareholders-rights

–

Reporting standards

–

Corporate governance

–

Tax law

Introduction

•

3 pillars of EU company law

1. National company law and its compatibility with the

internal market

2. Harmonisation of national company law

3. Supranational company law



National discretion of MS

Introduction

•

 1. The internal market and national company law /1

–

The internal market: Article 26 TFEU

1. The Union shall adopt measures with the aim of establishing or

ensuring the functioning of the internal market, in accordance

with the relevant provisions of the 

Treaties.

2. The internal market shall comprise an area without

internal frontiers in which the free movement of goods,

persons, services and capital is ensured in accordance with the

provisions of the Treaties.

Introduction

•

1. The internal market and national company law /2

–

Primary law and case law

–

Check compatibility of national company law with the provisions of

the Treaty

–

Aim: Enhance cross-border mobility

–

Principle: Mutual recognition of companies from another MS

Introduction

•

 1. The internal market and national company law /3

–

4 freedoms:



Freedom of goods (Art 28 ff TFEU)



Freedom of establishment (Art 45 ff TFEU)



Freedom of services (Art 56 TFEU)



Freedom of capital (Art 63 ff TFEU)

Introduction

•

1. The internal market and national company law /4

–

Freedom of establishment



To allow an EU national to participate, on a stable and continuing basis, in the

economic life of a MS other than his state of origin



no situations that are purely internal to a MS!



Art 49 and 54 TFEU

Introduction

•

 1. The internal market and national company law /5

–

Freedom of services



To provide services to people living in another MS



no situations that are purely internal to a MS!

–

Art 56 TFEU

Introduction

•

2. Harmonisation of national company law /1

–

Based on internal market

–

Secondary law: Regulations and Directives

–

Principle of minimal harmonisation 



 national discretion

–

National act required to implement secondary law into national

law

–

Still huge differences in national company laws

Introduction

•

2. Harmonisation of national company law /2

–

„Company law directives“

e.g.:



Takeover Directive



Directive on Cross-border mergers



Directive on Divisions



Directive on Company Accounts etc

–

Important regulations:



IAS-Regulation



European Insolvency Regulation

Introduction

•

3. Supranational company law /1

–

Based on internal market

–

Alternatively to national company law

–

Legal instrument: Regulation



 to ensure uniform regime

–

Background:



Lack of trust in certain foreign company forms (e.g. ltd)



Enhance cross-border activity

Introduction

•

3. Supranational company law /2

–

EU company formations:



European Economic Interest Group (EEIG)



European Cooperative Society (SCE)



European Public Company (SE)



European Private Company (SPE)



European Foundation (FE)



European Association (EA)

Introduction

•

3. Supranational company law /3

–

Hardly accepted

–

In contrast to harmonisation national law is largely untouched

–

Regulations leave potential for national discretion  national act

required to transform regulation into national law



e.g.: Austria: SE-Gesetz

Company Law and the Internal

Market

Company Law and the Internal

Market

•

Freedom of establishment

•

Establishment of companies

•

Freedom of services

•

Their interactions

Company Law and the Internal

Market

•

General remarks /1



Aim: enhance and remove obstacles to cross-border mobility



Freedom of establishment / services



Long term:

„the actual pursuit of

an economic activity

through a fixed

establishment in

another MS for an

indefinite period“



Short term



Subordinate to

freedom of

establishment

Company Law and the Internal

Market

•

General remarks /2



ECJ, C-55/94, Gebhard [1990] ECR I-5165: difference

between freedom of establishment and services has to be

determined by



Duration of the provision of services

o

Regularity

o

Periodicity

o

Continuity



Some form of infrastructure of provider (e.g. office or consulting rooms)

in host state does not imply establishment!

Company Law and the Internal

Market

•

General remarks /3

–

No applicability to activities related to the exercise of official

authority



Official authority = the power of enjoying prerogatives outside the general

law, privileges of official power, and powers of coercion over citizens



Narrow interpretation

o

E.g. the activites of notaries are not connected with the exercise of official

authority

Company Law and the Internal

Market

•

Art 49 TFEU: Freedom of establishment /1

Within the framework of the provisions set out below,

restrictions on the 

freedom of establishment 

of nationals of a

Member State 

in the territory of another Member State 

shall

be prohibited. Such prohibition shall also apply to restrictions

on the 

setting-up of agencies, branches or subsidiaries 

by

nationals of any Member State established in the territory of

any Member State.

Freedom of establishment shall include the right to take up

and pursue activities as 

self-employed

 persons and 

to set up

and manage undertakings, in particular companies or firms

within the meaning of the second paragraph of Article 54,

under the conditions laid down for its own nationals by the

law of the country where such establishment is effected

,

subject to the provisions of the Chapter relating to capital.

Company Law and the Internal

Market

•

Freedom of establishment /2

–

Abolition of restrictions



Primary establishment



Secondary establishment

–

Equal treatment of nationals and non-nationals

Company Law and the Internal

Market

•

Freedom of establishment /3

–

Justification of restriction: Art 52 para 1 TFEU

The provisions of this Chapter and measures taken in

pursuance thereof shall not prejudice the applicability of

provisions laid down by law, regulation or administrative

action providing for special treatment for foreign nationals on

grounds of 

public policy, public security or public health.

Company Law and the Internal

Market

•

Freedom of establishment /4

–

Further justifications (Case law):



Consumer protection



Preventing crime

Company Law and the Internal

Market

•

Art 54 TFEU: Establishment of companies /1

Companies or firms 

formed in accordance with the law 

of a

Member State 

and having 

their registered office,

central administration or principal place of business

within the Union shall, for the purposes of this Chapter, 

be

treated in the same way as natural persons who are

nationals of Member States.

‘Companies or firms’ means companies or firms 

constituted

under civil or commercial law, including 

cooperative societies,

and other legal persons governed by public or private law,

save for those which are non-profit-making.

Company Law and the Internal

Market

•

Establishment of companies /2

–

Freedom of establishment applies to



Establishment by companies



Establishment of subsidiaries

o

Even subsidiaries of foreign companies provided that subsidiaries are formed in

accordance with law of a MS



No application to branches!  specific provisions (e.g. insurance sector or

capital market)

–

Removal of discrimination



„under the conditions laid down for its own nationals“

Company Law and the Internal

Market

•

Establishment of companies /3

–

Problem of recognition of companies formed in another EU

member state



Pseudo-foreign companies

o

Incorporation and actual activity in different MS to avoid stricter domestic

requirements



Definition of foreign company

o

2 Theories:



The Incorporation Theory



The Real Seat Theory

Company Law and the Internal

Market

•

Establishment of companies /4

–

Definition of a foreign company / 1

1.

The Incorporation Theory:

o

Law of a state where company has been incorporated and is registered

o

„contracting out“

o

Divergence between registered office and administration

Company Law and the Internal

Market

•

Establishment of companies /4

–

Definition of a foreign company /2

2. The Real Seat Theory:

o

Law of a state where company has its real seat of administration

o

No divergence between registered office and administration

o

Hinders cross-border mobility

Company Law and the Internal

Market

•

Establishment of companies /5

–

Case Law / 1: Daily Mail 1988



Transfer of real seat to Netherlands to avoid taxation in UK



UK: approval of government necessary to move real seat  no authorisation

given



ECJ:

o

Company exists only within legal framework of „home state“

o

i.e. If the home law provides that a company ceases to exist if it leaves the country

without authorisation, it loses ist legal personality

Company Law and the Internal

Market

•

Establishment of companies /6

–

Case Law / 1: Daily Mail 1988



Thus it can not longer invoke freedom of establishment



National company law enjoys priority over the freedom of establishment

Company Law and the Internal

Market

•

Establishment of companies /7

–

Case Law / 2: Centros 1998



Centros ltd. incorporated in UK, registration of branch in Denmark



No economic activity in UK  registration has been denied by danish

authorities (pseudo-foreign company to circumvent danish minimum capital

requirements)



ECJ:

o

Pseudo-foreign companies compatible with freedom of establishment

Company Law and the Internal

Market

•

Establishment of companies /8

–

Case Law / 2: Centros 1998



ECJ:

o

No justification on grounds of creditor protection or public interest

o

 creditors would not be protected if Centros had been doing business in the UK

Company Law and the Internal

Market

•

Establishment of companies /9

–

Case Law / 2: Centros 1998



Companies may choose MS with least restrictive company law



Such behaviour does not constitute abuse of freedom of establishment!

–

Controversial: the judgement in Centros was described as „a

judicial willingness to break down the remaining constraints to

the free movement of companies"

Company Law and the Internal

Market

•

Establishment of companies /10

–

Case Law /3: Überseering 2002



De facto relocation of the real seat from the Netherlands to Germany



German courts: company ceased to exist



ECJ:

o

Any company established under the laws of a MS must be accepted, irrespective of

its real seat



no denial of legal capacity of foreign companies



real seat theory can not longer be upheld!

Company Law and the Internal

Market

•

Establishment of companies /11

–

Case Law /4: Inspire Art 2003



Pseudo-foreign companies were accepted by Netherlands but additional

domestic requirements were imposed (de facto compliance with domestic

minimum capital)  violation of secondary establishment



EJC:

o

Confirmation of Überseering and Centros

o

Foreign companies cannot be subjected to domestic requirements („defence

legislation“)

o

If requirements suffice in country of origin it must suffice in another MS as well

Company Law and the Internal

Market

•

Establishment of companies /12

–

Case Law / 5: Cartesio (2008)



Transfer of seat of Hungarian company to Italy was not permitted by

Hungarian authorities



Daily Mail: home state restrictions allowed



General Advocate: MS do not enjoy an absolute freedom to determine the

„life and death“ of a company formed under their domestic law



ECJ: confirmation of Daily Mail

Company Law and the Internal

Market

•

Establishment of companies /13

–

Summary



Distinguish between restrictions on moving in and moving out



Moving out 



 restrictions imposed by home state

o

Primacy of law of origin

o

Restrictions under real seat theory allowed

Company Law and the Internal

Market

•

Establishment of companies /14

–

Moving in 



 restrictions imposed by host state:



ECJ in favour of incorporation theory



Legal personality of companies incorporated in one MS must be accepted in all

MS irrespective of real seat



Acceptance of pseudo-foreign companies



Justification in comparison to „real“ companies



No defence legislation

Company Law and the Internal

Market

•

Establishment of companies /15

–

Restrictions on freedom of establishment of companies



Different taxation rules (appropriate circumstances)



Vessel registration requirements

Company Law and the Internal

Market

•

Art 56 TFEU: Freedom to provide services /1

Within the framework of the provisions set out below,

restrictions on freedom to provide services within the Union

shall be prohibited in respect of nationals of Member States

who are established in a Member State 

other than that of the

person for whom the services are intended.

•

Art 62 TFEU:

The provisions of Articles 51 to 54 shall apply to the

matters covered by this Chapter.

Company Law and the Internal

Market

•

Freedom of services /2

–

Art 57 TFEU:



Services shall in particular include:

o

activities of an industrial character

o

activities of a commercial character

o

activities of craftsmen

o

activities of the professions



Broad interpretation

–

As far as services are not governed by other freedoms

Company Law and the Internal

Market

•

Freedom of services /3

–

Protection of provider of services

–

Protection of recipient of services



 i.e. provider and receiver are protected

–

Removal of discrimination

Company Law and the Internal

Market

•

Freedom of services /4

–

Services need to be provided for renumeration



Economic nature of activity



Non-profit making enterprises



Sporting nature

Company Law and the Internal

Market

•

Freedom of services /5

–

Application to companies:



E.g. the right of a British television company to travel to Spain to make a

television serial

Company Law and the Internal

Market

•

Freedom of services /6

–

Justification of restriction: Art 52 para 1 TFEU

The provisions of this Chapter and measures taken in

pursuance thereof shall not prejudice the applicability of

provisions laid down by law, regulation or administrative

action providing for special treatment for foreign

nationals on grounds of public policy, public security or 

public

health.

Company Law and the Internal

Market

•

Freedom of services /7

–

Further restrictions (case law):



Consumer protection



Protection of fundamental rights



Protection of national cultural policy

–

Test for justification



Legitimate public interest



Applied without discrimination



Proportionality



Respect fundamental rights

Company Law and the Internal

Market

•

Freedom of services /8

–

Directive 2006/123 on services in the internal market



Services supplied by service providers established in a MS (Art 2)



Excluded services (Art 2)



Restrictions of service activities only justified by public interest and no less

restrictive alternative (Art 9)

Company Law and the Internal

Market

•

Freedom of services /9

–

Before: „double-track approach“:



Some sectors have been subject to specific internal market legislation



ECJ: „catch-all“ legal regime

–

Services directive is generally applicable to all kind of services

(some exclusions, e.g. social services)

Sources of Law in

the European Union

EU

•

EU Insolvency Regulations (Recast 2015), ABl L 2015/141, 19

/1

–

effective as of June 26, 2017

–

governs the procedural aspects of cross border company

restructurings

EU

•

EU Insolvency Regulations (Recast 2015), ABl L 2015/141, 19

/2



Original regulations bifurated main proceedings from

secondary proceedings with separate Annex A and Annex B.

Secondary proceedings were mainly winding up

proceedings.

EU

•

EU Insolvency Regulations (Recast 2015), ABl L 2015/141, 19

/3



Recast regulations maintain bifurcation between main and

secondary proceedings.



However, secondary proceedings may now include the types

of proceedings listed in Annex A.

EU

•

EU Insolvency Regulations (Recast 2015), ABl L 2015/141, 19

/4



For example, in the case of Austria, bankruptcy proceedings,

restructuring proceedings with debtor not in possession and

restructuring proceedings with debtor in possession are now

listed in Annex A.

EU

•

EU Insolvency Regulations (Recast 2015), ABl L 2015/141, 19

/5



As such, each is defined as „insolvency proceedings“ under Art.

2(4) of the recast Regulations.



As a defined „insolvency proceeding“, such proceedings may be

a main proceeding under Art.3(1) or a secondary proceeding

under Art.3(2) and Art.3(3).

EU

•

Current EU Capital Markets Union Project /1



In 2015, the Commission published an Action Plan on

Building a Capital Markets Union (COM(2015) 468 final)



Its goal is to provide investment in the long term by building

stronger capital markets.  This would „provide new sources

of funding for business, help increase options for savers and

make the economy more resilient.“

EU

•

Current EU Capital Markets Union Project /2



Higher degree of harmonization of insolvency laws in the EU

member countries is part of the Capital Markets Union

Project.



It is thought that further harmonization would be one

component of improving the capital markets in the EU

because it would make investments easier across borders.

EU

•

Current EU Capital Markets Union Project /3



In 2016, a directive was proposed for preventive

restructuring framework (COM(2016) 723 final) which

sought to complement the EU Insolvency Regulations by

„requiring Member States to ensure that their national

preventive restructuring procedures comply with the

minimum principles of effectiveness

.“

EU

•

Current EU Capital Markets Union Project /4



On June 20, 2019, this directive was adopted by the

European Parliament and the Council of the European Union

(Directive (EU) 2019/1023).



As such, member states will now be required to adopt

measures which will implement the directive in their

respective jurisdictions.

Austria

Sources of Law

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/1

–

amended in 2010 and effective as of July 

1, 2010

–

most recent amendment in 2017, effective as of June 26, 2017

and November 1, 2017 and further amended, 2019, effective as

of May 23, 2019, BGBl I 38/2019

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/2

–

legislative intention for the 2010 amendment



revise a system that was perceived as too stringent and lacking

business perspective



encourage entrepreneutial risk taking

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/3

–

under the 2010 revisions two insolvency proceedings are now

available



Bankruptcy-type Proceedings (

Konkursverfahren or Konkurs

) (§ 180 IO)



Reorganization Proceedings (

Sanierungsverfahren

)

(§§ 166 ff IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/4



Bankruptcy-type Proceedings (

Konkursverfahren or

Konkurs

) (§ 180 IO)



may be filed by debtor or creditor ( §§ 69, 70 IO)



may result in successful completion of restructuring 

scheme or

liquidation of the debtor



Reorganization Proceedings (

Sanierungsverfahren

)



may only be filed by a debtor (§ 69 IO, § 167 (1) Z 1 IO)



debtor not in possession (with bankruptcy receiver)  (§§ 166 – 168 IO)



debtor in possession (§§ 169 – 179 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/5

–

Bankruptcy-type Proceedings (§ 180 IO) /1



Commencement of insolvency proceedings is compulsory if debtor fulfills

certain criteria of insolvency:  over-indebtedness (§ 67 IO)  (

Überschuldung

)

and illiquidity (§ 66 IO) (

Zahlungsunfähigkeit

).



Failure to do so by debtor without „culpable“ delay may expose debtor to

claims by creditors and the administrator, as well as potential criminal liability.

(§ 69 Abs 2 IO)



Creditors of the debtor may also file for bankruptcy proceedings against the

debtor. (§ 70 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/6

–

Bankruptcy-type Proceedings (§ 180 IO) /2



Over-indebtedness (

Überschuldung

) comprises a two factor test

(§ 67 IO) :

o

negative equity 

(Lehre, stRsp)

o

calculatory over-indebtedness (

rechnerische Überschuldung

) which

means the value of the debtor´s assets is less than its liabilities 

(Lehre,

stRsp)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/7

–

Bankruptcy-type Proceedings (§ 180 IO) /3



However, even if the debtor suffers from calculatory indebtedness,

it may still abstain from filing for bankruptcy if it can show that it

qualifies for a positive Going-concern Prognosis

(

Fortbestehensprognose

).  This is in essence a conservative plan

business that shows more likely than not that the debtor will

return to solvency in the short term and achieve a turn-around in

the long term.

(Lehre, stRsp)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/8

–

Bankruptcy-type Proceedings (§ 180 IO) /4



Illiquidity (§ 66 IO)

o

inability of the debtor to pay ist debts as they fall due 

(Lehre, stRsp)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/9

–

Bankruptcy-type Proceedingsmay be converted to a

restructuring scheme (§§ 140, 167 Abs 1 Z 2 IO)

(

Sanierungsplan

)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/10

–

Restructuring Scheme (§§ 140 ff IO) /1



A debtor may apply to the court to convert its bankruptcy

proceedings to a restructuring scheme

(§ 140 Abs 1 IO, § 167 Abs 1 IO)



The scheme forms a part of the bankruptcy proceedings because it

is filed once the bankruptcy proceedings have commenced.

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/11

–

Restructuring Scheme – criteria for the debtor´s proposal /2



repayment of at least 20% of all indebtedness within two years

(§ 141 Abs 1 IO)



demonstrable capability of fulfilling proposal

(§ 141 Abs 1 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/12

–

Restructuring Scheme (§§ 140 ff IO) /3



If the court does not dismiss the proposal on preliminary, formal

grounds (§ 141 IO, § 142 IO) , the proposal is submitted to a

creditors´vote.  The creditors may accept the proposal by a simple

majority of those at the hearing and by a simple majority of the

creditors measured by the value of their claims. (§ 147 Abs 1 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/13

–

Restructuring Scheme (§§ 140 ff IO) /4



Creditors may accept the statutory repayment of 20% of all

indebtedness over a two year period or may negotiate for a higher

percentage with a different repayment period before they accept

the debtor´s proposal.

(§§ 141 Abs 1, 147 Abs 1 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/14

–

Restructuring Scheme (§§ 140 ff IO) /5



Once the proposal is accepted by the creditors, the court may

confirm the proposal barring any grounds for refusal.  These

grounds may be unlawfulness in commencement of the

bankruptcy proceedings or serious procedural mistakes.

(§§ 152, 152 a, 153, 154 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/15

–

Restructuring Scheme (§§ 140 ff IO) /6



Once the court confirms the proposal, it will issue an order

confirming the terms of the agreement and the amount of debt to

be repaid by the debtor.  If the debtor fulfills the terms of this

order, including, of course, the repayment, the court will confirm

that the restructuring scheme has been implemented and all debt

discharged (

Restschuldbefreiung

). This discharge is also effective

against non-participating creditors.

(§ 156 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/16

–

Restructuring Scheme (§§ 140 ff IO) /7



In practice, it has been noted that the statutory minimum of 20%

repayment of all indebtedness acts as a bar to debtors being able

to avail themselves of the restructuring scheme once they are in

bankruptcy proceedings.

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/17

–

Restructuring Scheme (§§ 140 ff IO) /8



Furthermore, if the proposal is not accepted by the creditors, the

court proceeds with the bankruptcy which typically means the

liquidation of the debtor. (§ 142 Z 3 IO)



Or, the debtor must be liquidated if continuing the restructuring

scheme would lead to further losses by the creditors.

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/18

–

Restructuring Proceedings (§§ 166 ff IO) (

Sanierungsverfahren

)

/1



Under the 2010 amendment to the Insolvency Act, debtors may

also apply for restructuring proceedings, instead of bankruptcy

proceedings.  Creditors may not file for restructuring proceedings

against the debtor.(§§ 69, 167 IO)



Not available to private individual debtors.   Only available to

debtors that are entrepreneurs, corporate entities, partnerships or

legal estates. (§ 166 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/19

–

Restructuring Proceedings – two types (§§ 166 IO) /2



Debtor not in possession and a bankruptcy receiver is appointed

(§§ 166 – 168 IO)  (

Sanierungsverfahren ohne Eigenverwaltung

)



Debtor in possession (§§ 169 – 179 IO) (

Sanierungsverfahren mit

Eigenverwaltung

)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/20

–

Debtor not in possession (§§ 166-168 IO) 

(

Sanierungsverfahren

ohne Eigenverwaltung

)



Debtor submits a proposal which contains a minimum satisfaction

of 20% of all indebtedness within two years.

(§ 147 Abs 1 IO)



Follows the same procedure as the restructuring scheme

described previously.



The difference is that the debtor avoids the term „bankruptcy“

and cannot be liquidated for 90 days. (§ 168 Abs 2 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/21

–

Debtor in possession (§§ 169 - 179 IO)(

Sanierungsverfahren mit

Eigenverwaltung

)



Debtor submits a proposal which contains a minimum satisfaction

of 30% of all indebtedness within two years.

(§ 169 IO)



Debtor remains in place, but the court appoints a restructuring

receiver (

Sanierungsverwalter

) who supervises the debtor and

consents to certain material actions. (§§ 80 ff , 169 IO)

Austria

•

Insolvency Act 

(Insolvenzordnung) 

/22

–

Debtor in possession (§§ 169 - 179 IO) (

Sanierungsverfahren mit

Eigenverwaltung

)



Under certain situations (for example, the plan is not approved

within 90 days from the beginning of the proceedings), the court

may withdraw the right of possession and convert the proceedings

to a restructuring proceeding with a bankruptcy receiver. (§ 170

Abs 1 IO)



If the restructuring fails, then the proceedings will be converted to

a bankruptcy proceeding with the view of liquidating the debtor.

(§ 170 IO)

Austria

•

Business Reorganization Act of 1997

(Unternehmensreorganisationsgesetz)



In practice, seldom used



Available only to solvent debtors that engage in entrepreneurial

activities, i.e. companies, partnerships, etc (§§ 1, 2 URG)



Only the debtor can file a reorganization plan

(§ 1 Abs 1 URG)



Other criticism include „strict access conditions“ such as obtaining

an expert certificate or proof of the approval of a high majority of

creditors. (See, for example, Evaluation of the Implementation of

the Commission Recommendation of 12.3.2014 on a New

Approach to Business Failure and Insolvency, §2.1)

Austria

•

Out of Court Settlement 

(außergerichtlicher Ausgleich, stiller

Ausgleich)

 /1



Out of court settlement between the debtor and its

creditors

Austria

•

Out of Court Settlement 

(außergerichtlicher Ausgleich,

stiller Ausgleich)

 /2



Pro´s:



private (for example, no negative publicity)



 can be quicker (for example, no 90 day non-liquidation period as in the

case of the S

anierungsverfahren ohne Eigenverwaltung

)



 and less expensive than a court proceeding (for example, no need to put

up a EUR 4,000 deposit as in the case of the 

Konkurs

)



Con´s:



agreement must be with all of the debtor´s creditors, leading to potential

hold-out by dissenting creditors



in the background lurks the statutory requirement (60 

days) on debtor to

file for insolvency when it is insolvent, leaving little time to negotiate a

settlement