Implementing the Restructuring Directive in Austria

The Restructuring and Insolvency Directive Implementation Act (RIRL-UG) has now been passed by the National Council for the domestic implementation of Directive (EU) 2019/1023 of the European Parliament and of the Council of June 20, 2019. The Restructuring Regulation (ReO) contained in the RIRL-UG provides for a judicial restructuring procedure and will come into force together with accompanying amendments to the Insolvency Regulation (IO) - in time for the expiry of the implementation period specified by the EU - on July 17, 2021.

With the deadline for implementing Directive (EU) 2019/1023 already expiring on July 17, 2021, the final version of the Restructuring and Insolvency Directive Implementation Act (RIRL-UG) has been eagerly awaited. The core objective of the introduction of a restructuring order (ReO) envisaged therein is to rescue companies that have got into financial difficulties by means of a "pre-insolvency" judicial restructuring procedure and to restore their viability in order to avert insolvency. This new form of restructuring could be an important lifeline for many companies - especially in view of the knock-on effects of the Corona crisis. The Federal Act on the Restructuring of Companies (ReO) contained in the RIRL-UG will enter into force on July 17, 2021.

Key elements of the reform

The new restructuring procedure is generally open to all (viable) companies, including SMEs and one-man businesses (with the exception of the financial sector in particular), and requires that the debtor is "likely to become insolvent". This is the case if there is a threat of insolvency or if the URG ratios are not met (equity ratio below 8% and notional debt repayment period of 15 years exceeded). It is essential that the company is able to continue as a going concern. Against this background, the presentation of a going concern forecast is required. This can also be provided conditionally with the acceptance and confirmation of the restructuring plan. However, the new restructuring procedure is generally not available to insolvent debtors.

The core of the proceedings is the so-called restructuring plan, which contains possible restructuring measures, including in particular the deferral and reduction of creditors' claims. In principle, the restructuring plan must be submitted when the proceedings are initiated. However, it can also be drawn up during the proceedings with the involvement of a restructuring representative (who is similar to an insolvency administrator), provided that at least a restructuring concept is already submitted in the application. The debtor is granted self-administration in the proceedings.

In order to support the negotiation of a restructuring plan, the debtor may request that execution proceedings against its assets may not be granted (so-called enforcement bar). This also leads to a suspension of the debtor's obligation to file for insolvency in the event of over-indebtedness under insolvency law, restricts the obligation to file for insolvency in the event of insolvency and also has the effect of eliminating or at least reducing the liability of the company's bodies for delaying insolvency. The suspension of enforcement may not exceed three months, but may be extended upon request (to a maximum total period of six months).

The ReO also provides for a "standstill" for material company-related contracts still to be performed, which are necessary for the going concern of the company. There is no provision for the preferential termination of continuing obligations or employment contracts within the meaning of Sections 21 et seq. of the IO.

The vote on the restructuring plan is held in so-called "creditor classes" (secured, unsecured, bondholders, creditors in need of protection and subordinated creditors), which is a novelty in Austrian law. The adoption of the restructuring plan requires a simple (head) majority of the creditors in each class and a qualified majority of 75% of the total amount of the claims of the creditors included. Notwithstanding the foregoing, a restructuring plan which has not been adopted by the relevant classes of creditors in each voting class may, upon application by the debtor, be confirmed by the court (so-called cross-class cram-down), provided that the statutory requirements for this are met.

The reorganization within the meaning of the Reorganization Regulation can therefore also be implemented, if necessary, against the resistance of individual, so-called "chord disruptors". Even individual classes of creditors can be outvoted under certain conditions.

It is also essential that the debtor can limit the procedural instruments of the ReO to individual creditors and "creditor classes" and, in principle, decide for himself whether or not the restructuring proceedings are to be made public in the edict file. In particular, the possibility of secrecy can considerably facilitate continued operation and prove to be extremely practicable in practice.

In addition, the ReO also provides for a limitation of the risk of avoidance for new financing and interim financing as well as other transactions in connection with the restructuring in the event of a subsequent insolvency of the debtor.

Conclusion an Outlook

In view of the current tense economic situation and the lack of practical relevance of reorganization proceedings as defined in the URG, the legislative attempt to prevent insolvency by means of "pre-insolvency" restructuring proceedings is in any case to be welcomed.

Since the ReO creates a legally clear and modern framework for the reorganization of companies and contains partly innovative new features, such as the possibility of a restructuring against the will of individual "piecework disruptors" as well as the minimization of the risk of avoidance in the case of new and interim financing, the draft law represents overall a quite successful implementation of Directive (EU) 2019/1023. However, it remains to be seen whether the new "pre-insolvency" restructuring procedure will actually be accepted and gain significance in practice.

Autor: Nina Pichler
Autor: Raphael Höfer