Precautionary measures to avoid insolvency

Monday, 18 January 2021

Limited liability companies and stock companies must file for the opening of insolvency proceedings if they are unable to pay their open debts (illiquidity) or over-indebted without a positive prognosis. If such ground to file for insolvency has occurred, managers are obliged to file for insolvency as soon as possible, but at the latest within 60 days. Otherwise they are personally liable - without limitation - for damages caused by a delayed filing for insolvency (i.e. loss of new creditors and quota damage of old creditors) and may also be subject to criminal prosecution. In Austrian practice, approximately 99% of all insolvency proceedings are opened due to illiquidity, whereby according to established case law illiquidity is presumed if 95% of the due debts cannot be paid when due.

Due to the current crisis, the Federal Government has extended the 60-days-period to 120 days. This extended period shall however only apply if the insolvency was caused by the current Corona crisis or if at least the Corona crisis contributed to the occurrence of insolvency. Even if the period is extended to 120 days, managers may only exhaust this period as long as restructuring measures that are implemented within this (extended) period have a chance of success.

The Federal Government is attempting to avoid the spread of the virus through comprehensive measures that reduce personal contact between people. As welcome as these measures are, they lead or can lead to liquidity shortages due to a lack or total loss of revenues. Further, slow payment of outstanding receivables is likely, especially as debtors may also have lower liquidity due to the Corona crisis. There is no need to say that companies must therefore adjust their liquidity planning, especially the 12-week cash flow plan, to the current situation.

The law clearly stipulates that managers are obliged to exercise the diligence of a prudent businessman in their management of the company. If they fail to do so, they are liable. The diligence of a prudent businessman also includes adapting liquidity planning to changing situations. This is also required by the Business Judgement Rule, which the legislator introduced as a 'safe harbor' a few years ago.

In our opinion it is therefore required by law that (probably almost all) companies reassess their sales expectations for the coming weeks. This may as well lead to higher sales in the food trade. Generally, however, this expectation will probably include lower sales, at least due to risk discounts (e.g. for uncertain supply chains). On the other hand, companies must now also keep a closer eye on their costs: In this newsletter, we will also show you possible measures to achieve this (possibilities, deferral of tax and ÖGK (Austrian health insurance company) contributions, short-time work and others).

We recommend checking and documenting the adapted liquidity planning and assessing whether this is in line with existing liquid funds or revolving credit facilities. It should also be assessed, whether such facilities are still fully available.

If there are significant changes in turnover, other measures must also be taken, such as the postponement of projects (if performance of such projects is still feasible at all; also in case of concluded contracts, this may be possible due to MAC clauses or force majeure) or the (partial) suspension of profit distributions. Please also note that you must include relevant information in the management report of the previous financial year - if such report has not yet been approved. (see

All this also applies to group companies in Austria and abroad, that may be more or less affected by the crisis. Without open communication within the group - and in any case also externally in the event of serious risks for individual group companies - this will otherwise lead to even greater difficulties.


- (Temporarily) No obligation to file for insolvency in case of over-indebtedness

Events of over-indebtedness under insolvency law occurring in the period from 1 March 2020 to 30 June 2020 (calculated over-indebtedness without a positive prognosis of continued existence) do not trigger the debtor's obligation to file for insolvency. This period, in which the debtor´s obligation to file for insolvency in the event of over-indebtedness is suspended, has now been further extended to 31 March 2021 (BGBl I 2020/157 on the amendment of the 2nd COVID-19-Justice Accompanying Act of 23 December 2020). In addition, the liability linked to the over-indebtedness pursuant to Sec 84 para 3 lit 6 Stock Corporation Act (breach of the prohibition of payment) also ceases to apply to stock corporations during this period. For limited liability companies (GmbH) this was not explicitly included in the legal text of the 4th COVID-19 Act. However, Sec 25 para 3 line 2 GmbHG already provides for a similar solution. The legal text aims at the "points in time at which they [directors] were obliged to file for insolvency ", whereby this point in time for over-indebtedness is after 31. March 2021 (see below).

Furthermore, in the case of over-indebtedness, insolvency proceedings are not opened even if creditors file for insolvency of the debtor due to over-indebtedness but not illiquidity.

After 31 March 2021 over-indebted debtors must file a petition for the opening of insolvency proceedings without undue delay (i.e. immediately or as long as restructuring measures still have a chance of success), but no later than 60 days after 31 March 2021 (i.e. by 30 May 2021) or 120 days after the occurrence of over-indebtedness - whichever is later.

This provision for the event of over-indebtedness does not apply for insolvency due to the illiquidity. In the event of a lack of liquidity, debtors must therefore file for insolvency no later than 120 days after the occurrence of the inability to pay.

Since in Austrian reality considerably more than 95% of all insolvency proceedings are opened due to illiquidity (and this reason for insolvency has not changed), the legislator has thus in reality regulated that managing directors and board members should not open insolvency too early in order to avoid their own liability. This makes sense in principle, as the declining insolvency statistics for the year 2020 already show that around 40 % fewer insolvency applications were filed compared with the yearly results form 2019, while a very significant increase is expected from spring/summer 2021 (should the existing measures not be extended again).  The corona measures thus provide companies with a certain amount of time to master the difficult situation. However, there is a risk that necessary insolvency applications will only be postponed. The problem itself will certainly not be solved by the current corona measures in place.

- Relief for existing payment plans

According to Section 11 of the 2nd  COVID-19-Justice Accompanying Act, the debtor may apply for deferral of the instalments of the payment plan (Zahlungsplan) if his income and assets have changed to an extent  making it impossible for the debtor to meet due obligations (resulting from measures taken to prevent the spread of COVID-19). Such a request for deferment must (only) be published in the edict file. However, in principle, the deferment requires the consent of the majority of the insolvency creditors entitled to vote, whereby no statement shall be deemed as consent. Further, the court may nonetheless grant deferment, where the deferral does not cause serious personal or economic disadvantages for the creditor objecting to the deferral.

- Relief for restructuring plans

With the amendment of the 2nd COVID-19-Justice Accompanying Act of 23 December 2020 (BGBl I 2020/157) the legislator extended the payment period for the conclusion of a restructuring plan from the current maximum of two years to a maximum of three years (Section 11a para 2 COVID-19-Justice Accompanying Act). This extension of the payment period for the restructuring plan quota applies to applications for the conclusion of a restructuring plan submitted by 31 December 2021. With this amendment, the legislator obviously strives to motivate companies to initiate reorganization proceedings (this is already possible in the case of imminent insolvency) already at this point in time by making the reorganization proceedings more attractive during the ongoing Corona crisis (by extending the payment period of the reorganization plan quota). 

- Benefiting from short-term shareholder loans for bridging purposes

Credits granted by shareholders to companies in crisis are considered equity substitutes. Therefore, the company may only repay such credits after the crisis has been resolved. In addition, such credits are only satisfied subordinately in insolvency proceedings.

The corona-related reliefs relate to credits granted and paid out by shareholders between 5 April 2020 and 31 January 2021 for no more than 120 days do not fall under the Equity Replacement Act and are therefore not reclassified as equity. However, this only applies if the company has not granted a lien or comparable security from its assets in favour of the shareholder to secure the credit. This measure intends to make it more attractive for shareholders to provide short-term liquidity to the company in difficulty.

- Contesting of bridging credit repayments for short-time work is restricted

Both the granting of bridging loans in the period from 1 March 2020 to 31 January 2021, which are granted to finance the COVID-19 short-time working allowance, and the repayment immediately after receipt of the short-time working allowance cannot be contested under Section 31 Insolvency Act (contestation due to knowledge of inability to pay). This only applies if the borrower did not grant any security from his assets and the lender was not aware of any insolvency-risk of the borrower at the time the credit was granted. These reliefs therefore do not generally apply to bridge finance, but only to the extent fudns are granted to finance short-time working assistance. 


Notwithstanding the benefits of these legislative measures in insolvency law, they also entail a considerable risk under criminal law. In detail:

- Dispersal of insolvency

Managers are obliged to file an application for the opening of insolvency proceedings in due time (i.e. without culpable delay). The deadline, which has now been extended from 60 to 120 days, may only be used if the Corona crisis was at least partly responsible for the occurrence of the reason for filing for insolvency. Moreover, restructuring measures must still have a realistic chance of success. For companies that are "only" over-indebted under insolvency law but not illiquid, an insolvency application must be filed no later than 60 days after 31 January 2021 31 October 2020 (i.e. by 31 March 2021) or 120 days after the occurrence of over-indebtedness. However, this does not relieve managers from their duties. It is urgently recommended for managers to constantly review the liquidity situation of the company, document restructuring efforts and their probability of success and file for insolvency in due time. Violation of these rules may also result in criminal prosecution. For example, late filing of an application may constitute a criminal offence of grossly negligent impairment of creditors' interests according to Sec 159 of the Austrian Criminal Code or - in case of intent to cause damage - that of fraudulent intervention with a creditor’s claims fraudulent Krida (Sec 156 of the Austrian Criminal Code).

- Caution with bank loans and the application for short-time work

Some companies finance their current need for liquidity by taking out short-term loans or increases in current account credit lines provided by their house banks. In some cases, the Austrian state also provides liability for such loans. Of course, especially during the current crisis, managers are obliged to provide banks with complete and truthful information on the current economic situation of the company when being granting credit. Otherwise, the manager may be liable to prosecution for fraud if he acts intentionally.

This also applies to subsidies for short-time work. Misuse of the application or exploitation of such benefits may result in criminal prosecution.

- Insider Trading

In general, but especially in the current environment, stock markets react extremely impulsively to new price-sensitive information. This is currently increasing the temptation to use insider knowledge to conduct one's own stock market transactions.

The first criminal charges and indications of criminal insider trading in connection with share buy-backs have already been filed with German authorities.

It is therefore particularly important at present to increase the sensitivity of employees for this issue

- Caution in case of data protection violations

Many companies currently collect data from employees (possibly even particularly sensitive health data) and process and use it for operational purposes.

The provisions of the General Data Protection Regulation (GDPR) and the Austrian Data Protection Act (DSG) must be observed in particular. These provide for substantial fines in the event of unlawful data processing (e.g. unlawful transmission or disclosure of data).

- Caution with tax deferments

In the course of the current legislative measures, the Federal Minister of Finance has also provided for tax deferral applications.

These tax deferrals intend to retain additional liquidity in the company. A prerequisite for this is, however, that the tax debtor credibly demonstrates an individual case of concern (concretely, e.g. a liquidity shortage), caused by the consequences of COVID-19 infections. It is the responsibility of the tax debtor himself to examine whether these prerequisites are fulfilled. In his application, the tax debtor only has to substantiate that he is subject to a liquidity shortage due to the consequences of the COVID-19 crisis. The tax office does not check the requirements itself, but reserves the right to check them at a later date - this entails a potential liability:

According to Sec 9 BAO, managing directors are liable for taxes, which cannot be collected as a result of culpable violation of the obligations imposed on them. In this respect, there is a risk that the tax office - even if the company overcomes the crisis - will demand proof of the prerequisites for the tax deferral in a subsequent insolvency. If a managing director is unable to provide this proof (e.g. due to lack of sufficient documentation of the company's difficulties regardless of the COVID-19 crisis), he is personally liable for the outstanding tax debts.

It is therefore essential to examine and document whether the prerequisites are fulfilled - this with the best of one's knowledge and conscience before filing an application. In addition, this tax deferral must not be confused with a discount - the deferred taxes will become due again at a later date.

Your contact persons:

Felix Hörlsberger
Head of the Practice Group Insurance & Restructuring 
T +43-1-533 4795-17

Magdalena Nitsche
Expert for Insurance & Restructuring 
T +43-1-533 4795-17