For entrepreneurs, managing directors and creditors
Bankruptcy proceedings in Austria
In bankruptcy proceedings (Konkursverfahren) an insolvency administrator administers the debtor’s assets, realises them and distributes the proceeds evenly among the creditors. This is the designation of all insolvency proceedings that were not applied for together with a restructuring plan (section 180 IO). They need not mean the end of the business: the administrator must initially continue it, and a restructuring plan can be applied for until the proceedings are terminated. I represent debtors and creditors in bankruptcy proceedings; the court also appoints me insolvency administrator.
How bankruptcy proceedings come about and what the opening entails
Proceedings are opened on the application of the debtor or of a creditor. The creditor must show credibly that the claim exists and that the debtor is insolvent (section 70 IO); the application is served on the debtor, and the court hears the debtor on it. At this stage it has to be clarified whether insolvency actually exists and whether the debtor will apply for restructuring proceedings instead.
A further requirement is assets sufficient to cover the costs: they must at least cover the initial costs of the proceedings (section 71 IO). If they are lacking and no advance on costs is paid, the proceedings are not opened; that decision is published as well (section 71b IO).
The effects of the opening begin at the start of the day following publication in the insolvency database (section 2 IO). From then on the debtor can no longer freely dispose of the insolvency estate, and the debtor’s legal acts concerning the estate are ineffective in relation to the insolvency creditors (section 3 IO). Administration lies with the insolvency administrator. The debtor must give him all necessary information (section 99 IO), and mail initially goes to him as well (section 78 IO).
I describe the duty to file in time and the liability for delay on the page Corporate insolvency, and the proceedings for persons who do not operate a business on the page Personal bankruptcy.
The procedure in five steps
- Opening and appointment of the administrator: the court publishes the opening in the insolvency database, appoints the insolvency administrator and sets the time limit for lodging claims and the hearings. The administrator immediately acquaints himself with the economic situation, the previous management and the causes of the financial decline (section 81a IO).
- Continuation or closure: until the report hearing the administrator must continue the business unless continuation would obviously increase the creditors’ shortfall; he may close it only with the court’s approval (section 114a IO). The report hearing takes place no later than ninety days after the opening. It is there that continuation, closure or a restructuring plan is decided (sections 91a, 114b IO).
- Lodging and verification of claims: creditors lodge their claims with the court (see Lodging a claim). At the verification hearing the administrator makes a statement on each claim; a creditor whose claim is contested may have it established by court action.
- Realisation: the administrator realises the assets: the business as a whole or in parts, real estate, movables and receivables. The estate also includes avoidance claims and claims against the company’s officers.
- Distribution and termination: the proceeds are first used to pay the claims against the estate; the remainder is distributed pro rata among the insolvency creditors. Once completion of the final distribution has been proven, the court terminates the proceedings (section 139 IO). If a restructuring plan comes about before that, the proceedings are terminated once its confirmation is final.
What remains after bankruptcy proceedings
Bankruptcy proceedings alone do not release the debtor from the debts: whatever the quota does not cover remains owing. For a company this no longer matters: once it has no assets left, it is struck off the companies register (section 40 FBG). For its officers, however, the insolvency may have financial and possibly criminal consequences; I describe directors’ liability on the page Corporate insolvency. For an entrepreneur who is a natural person, what counts is how the proceedings end.
Release from the remaining liabilities is obtained through a restructuring plan (section 140 IO), through a payment plan, which can likewise be applied for until the proceedings are terminated (section 193 IO), or, if the creditors do not accept the payment plan, through skim-off proceedings. Which of these routes is open depends on income, assets and the creditors’ position. I clarify this with you early on, because it determines what has to be done in the proceedings.
The proceedings may also end earlier: if it emerges that the assets do not cover the costs of the proceedings (section 123a IO), or if all creditors consent to termination (section 123b IO).
What I handle for you
I represent debtors throughout the proceedings: at the hearing on a creditor’s application, with their own application, at the hearings and in an appeal against the opening where it is well-founded and expedient. If a restructuring plan comes into consideration, I work it out with you; I describe how on the page Restructuring proceedings.
I represent your interests vis-à-vis the insolvency administrator, for example regarding continuation of the business, your duties to inform and cooperate, claims he is examining against you and the question of what remains for your maintenance. In most proceedings I work together with him in doing so and coordinate the steps with him, because orderly proceedings are in the interest of both sides.
I advise and represent managing directors and shareholders when the administrator examines or brings claims, for instance from officers’ liability or from avoidance. I know these claims from both roles; as insolvency administrator I bring them myself.
I represent creditors in lodging and enforcing their claims, in claim verification actions, regarding rights to separation and separate satisfaction, and at creditors’ meetings.
The court regularly appoints me insolvency administrator. I therefore know from my own work how an administrator proceeds and what the court and the creditors look for.
Frequently asked questions about bankruptcy proceedings
Is the business closed immediately in bankruptcy proceedings?
No. The administrator must continue the business until the report hearing unless continuation would obviously increase the creditors’ shortfall (section 114a IO). The court approves closure only if an increase in the shortfall cannot otherwise be avoided (section 115 IO).
Can I still submit a restructuring plan in bankruptcy proceedings?
Yes, until the proceedings are terminated (section 140 IO). At least 20 % within two years must be offered. At the report hearing the administrator reports on whether a restructuring plan is in the common interest of the creditors and whether it can probably be fulfilled (section 114b IO); it is therefore worth coordinating the plan with him early.
What may I still do myself after the opening?
You can no longer dispose of the insolvency estate; legal acts concerning the estate are ineffective in relation to the creditors (section 3 IO). The estate comprises the assets subject to enforcement; what is exempt from attachment, such as the attachment-free minimum from earnings, remains with you. You are obliged to give the administrator information (section 99 IO).
A creditor has applied for the opening. What can I do?
The court serves the application on you and hears you on it. What has to be clarified is whether the claim exists and whether you are actually insolvent. If you are, you should consider applying for restructuring proceedings yourself. Time is short; call me as soon as the application is served on you.
What happens if the assets do not cover the costs of the proceedings?
Then the proceedings are not opened unless an advance on costs is paid; the decision is published with a reference to the insolvency (section 71b IO). If the shortfall only emerges during the proceedings, they are terminated unless an adequate advance on costs is paid (section 123a IO). In both cases a company entered in the companies register is dissolved once the decision becomes final (section 39 FBG).
What do bankruptcy proceedings cost?
The costs depend on the course of the proceedings: the court’s flat fee, the administrator’s remuneration (section 82 IO) and the remuneration of the creditor protection associations (section 87a IO) follow statutory rates and are paid from the estate. I work out a first order of magnitude with my InsoRechner app; I will tell you the costs of my representation in advance. A figure of EUR 4,000 is often mentioned. That is not the cost of the proceedings but the advance on the initial costs which the regional courts and the Vienna Commercial Court require in practice where assets sufficient to cover the costs are lacking: only with this advance are the proceedings opened at all (section 71a IO). In the case of a legal person its officers are jointly and severally obliged to pay it, up to a maximum of EUR 4,000, as are those who held office within the three months before the application (section 72a IO), and in addition a shareholder holding more than 50 % (section 72d IO).