For entrepreneurs and managing directors
Restructuring proceedings in Austria
Restructuring proceedings (Sanierungsverfahren) are the Austrian insolvency proceedings for entrepreneurs who want to continue their business; they are open to natural persons operating a business as well as to companies (section 166 IO). In a restructuring plan you offer your creditors a quota. If the creditors accept the plan and you fulfil it, you are released from the remaining liabilities and keep your business. I prepare such proceedings and represent debtors in them; the court also appoints me restructuring administrator. The first thing you will hear from me is whether a restructuring plan can be fulfilled in your situation.
What restructuring proceedings require
Insolvency proceedings are designated restructuring proceedings if the debtor, together with the application to open them, submits an admissible restructuring plan and applies for its acceptance (section 167 IO). Unlike bankruptcy proceedings, they can be opened as soon as insolvency is imminent. Those who use that moment usually have more liquidity and more trust from creditors than later on. I describe the duties and deadlines before filing on the page Corporate insolvency.
The restructuring plan must offer the insolvency creditors at least 20 % of their claims, payable within no more than two years from acceptance (section 141 IO). The application is inadmissible, among other things, if fulfilment will obviously not be possible. The quota therefore has to be something that operations, or third parties, can actually raise; that calculation is where every preparation starts.
If you want to administer the insolvency estate yourself under the supervision of a restructuring administrator (self-administration), you must submit more: a restructuring plan offering at least 30 %, a detailed asset register, a statement of assets and liabilities, a financial plan for the following ninety days and information on how the funds for the plan will be raised (section 169 IO). I coordinate the financial plan with your tax adviser. The court withdraws self-administration, among other things, if the financial plan cannot be adhered to, if claims against the estate are not paid on time or if the plan has not been accepted within ninety days (section 170 IO).
Self-administration is narrower than its name suggests. Legal acts outside the ordinary course of business require the approval of the restructuring administrator, and even an ordinary act must be refrained from if he objects (section 171 IO). Avoidance actions, the verification of claims and certain sales are reserved to him (section 172 IO); he supervises the management and reports to the court on whether the restructuring plan can be fulfilled (section 178 IO). The essential decisions are therefore not taken without him here either.
Without self-administration, an insolvency administrator administers the estate and continues the business; a quota of 20 % is then sufficient. Which form fits your case depends on the quota that can be achieved, on liquidity and on the creditors’ trust.
The procedure in five steps
- Application and opening: the application, together with the restructuring plan and its enclosures, goes to the insolvency court, in Vienna the Commercial Court (Handelsgericht Wien). The opening is published in the insolvency database; the court appoints the administrator and at the same time schedules the hearing on the restructuring plan, as a rule sixty to ninety days ahead (section 168 IO).
- Continuation: the business is continued, in self-administration by you under the supervision of the restructuring administrator, otherwise by the insolvency administrator. It may only be realised if the restructuring plan is not accepted within ninety days of the opening (section 168(2) IO). This period shows whether the business covers its running costs.
- Lodging and verification of claims: creditors lodge their claims with the court within the time limit for lodging claims (see Lodging a claim); the verification hearing establishes which claims are acknowledged. That determines what the quota actually costs and who may vote.
- Hearing on the restructuring plan: the creditors vote on the plan. Acceptance requires a majority of the creditors present at the hearing and entitled to vote, and the claims of those in favour must exceed half of the claims of the creditors present (section 147 IO). If only one of the two majorities is reached, the debtor may request a further vote at a new hearing.
- Confirmation and fulfilment: the court confirms the accepted plan; once the confirmation is final, the insolvency proceedings are terminated (section 152b IO) and you may again dispose freely of your assets, unless the plan provides otherwise. The quota then has to be paid on the dates laid down.
What the confirmed plan achieves
Once the restructuring plan is finally confirmed, you are released from the obligation to make good the creditors’ shortfall later (section 156 IO). This applies to all insolvency creditors, including those who voted against the plan or did not take part in the proceedings. Anyone personally liable for the company’s debts, for instance as guarantor, needs a separate solution; we discuss that at the outset as well.
The release is subject to one condition: if you default on fulfilment, the reduction and other benefits lapse in relation to the creditor concerned and that claim revives (section 156a IO). Default only occurs if a payment that is due is not made despite a written reminder granting a grace period of at least fourteen days. The quota should therefore be set so that you can fulfil it even in a weaker year.
If the plan is withdrawn, rejected or not confirmed, the court changes the designation to bankruptcy proceedings (section 167(3) IO). A restructuring plan remains possible there until the proceedings are terminated (section 140 IO); whether a second attempt has prospects depends on why the first one failed.
What I handle for you
Before filing, I examine with you whether a restructuring plan can be fulfilled and what the quota will be paid from: ongoing operations, the sale of assets the business can spare, or contributions from shareholders and third parties. I describe how such a concept is developed in the section “The way out of the crisis” on the page Corporate insolvency. If I consider the plan unsound, I will tell you so plainly.
I then draft the application and the restructuring plan, compile the enclosures with you and represent you before the insolvency court and at all hearings.
Once proceedings are open, I represent you vis-à-vis the insolvency administrator or restructuring administrator. In most proceedings I work together with him in doing so and coordinate the steps with him: the continuation of the business, the documents for his reports, the financing of the quota and the timetable up to the hearing on the restructuring plan. Where it serves the acceptance of the plan, I also hold talks with the creditor protection associations and individual creditors before the vote.
During preparation, what happens in the business has to be legally safeguarded: payments to individual creditors may later be challenged (avoidance) and may trigger liability of the managing directors. I know these claims from both roles; as insolvency administrator I bring them myself.
I also represent you when proceedings are already under way, for example when a restructuring plan is still to be submitted in bankruptcy proceedings, and I accompany the fulfilment of the plan until the last payment. I likewise represent creditors who have to assess a proposed restructuring plan and vote on it.
The court regularly appoints me insolvency administrator and restructuring administrator. I therefore know what administrators, creditor protection associations and the court look for in a restructuring plan.
Frequently asked questions about restructuring proceedings
What is the difference between restructuring and bankruptcy proceedings?
Both are insolvency proceedings before the same court. Bankruptcy proceedings are geared towards realising the assets; restructuring proceedings aim from the outset at continuing the business and at the vote on a restructuring plan, which is scheduled when the proceedings are opened. A restructuring plan is, however, also possible in bankruptcy proceedings (section 140 IO).
Where does the money for the quota come from?
Usually from several sources at once: the surpluses of the continued business, the sale of assets the business does not need, and contributions from shareholders, relatives or investors. Often part is paid soon after acceptance and the rest in instalments within two years. We work out together with your tax adviser how high the quota can be.
Can I keep running my business during the proceedings?
Yes, that is what restructuring proceedings are designed for. In self-administration you run the business under the supervision of the restructuring administrator; anything beyond the ordinary course of business needs his approval (section 171 IO). Without self-administration the insolvency administrator continues the business; you are obliged to provide him with information and to cooperate, and your knowledge of the business remains important for that.
What happens if the creditors reject the restructuring plan?
If only one of the two majorities is missed, you may request a further vote at a new hearing (section 147(2) IO); the offer can often be improved in the meantime. If the plan is finally rejected, the proceedings continue as bankruptcy proceedings and the business may be realised.
How long do restructuring proceedings take?
The hearing on the restructuring plan usually takes place sixty to ninety days after the opening (section 168 IO). If the plan is accepted and confirmed, the proceedings are terminated once the confirmation is final. The payment period under the plan then runs, for no more than two years.
What do restructuring proceedings cost?
The costs depend on the type and 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. I work out a first order of magnitude for your case with my InsoRechner app; I will tell you the costs of my representation in advance.