My company is bankrupt - what now?

In times of high energy costs and expiring COVID-19 aid, the number of insolvencies in Austria is set to rise significantly again. However, insolvency does not necessarily mean the end of a company, but can also represent a fresh start within the framework of restructuring proceedings. Key questions regarding options and necessary prerequisites are answered below.

When must an application for insolvency be filed?

The prerequisites for opening insolvency proceedings are:

• The insolvency of the debtor (general ground for the opening of insolvency proceedings) or
• its insolvency law over-indebtedness (for legal entities, partnerships where no personally liable partner is a natural person, and for estates).

In addition, insolvency proceedings can be opened if insolvency is imminent.

The insolvency proceedings for companies can generally be divided into the following basic variants:

• Insolvency proceedings;
• Rehabilitation proceedings without Self-administration;
• Rehabilitation proceedings Met Self-administration.

Whether the insolvency proceedings lead to the opening of a reorganisation or bankruptcy proceeding depends, amongst other things, on the debtor's will. Creditors can only bring about the opening of insolvency proceedings by making an application. Reorganisation within the scope of a reorganisation proceeding can only be pursued by the debtor.

The following graphic provides an overview of the insolvency events and their consequences.

What further steps should be taken if the insolvency status of over-indebtedness or illiquidity exists?

An application for the opening of insolvency proceedings must be filed, provided the conditions are met, no later than 60 days from the occurrence of insolvency or over-indebtedness. This must be submitted to the competent regional court (or Commercial Court of Vienna) at the company's registered office.

Wer muss einen Insolvenzantrag stellen?

• For sole traders: the natural person (owner);
• In partnerships: all fully liable partners;
• the company law director of a GmbH.

Likewise, any creditor of a company is entitled to file for insolvency proceedings if the company fails to meet its payment obligations and there is a justified suspicion that this will not change in the foreseeable future.

How must the insolvency application be filed? What documents are required?

• A full list of creditors with their respective outstanding debts;
• the company's commercial register extract;
• the company's articles of association;
• The company's asset register, including the current asset status;
• a full creditors' list;
• a complete list of the company’s D1TP7 gates;
• the company's financial statements for the last 3 years;
• an asset register;
• a full inventory list;
• a complete list of employees.

How are the costs of insolvency proceedings covered?

A fundamental prerequisite for initiating insolvency proceedings is the certification of assets sufficient to cover costs. This typically involves paying an advance payment of €4,000 to the competent court. In this scenario, the managing director of a limited liability company (GmbH), for example, is liable up to this amount for the anticipated costs of the insolvency administrator. If this advance payment cannot be raised due to a lack of available company assets, insolvency proceedings can be dismissed for lack of funds.

What happens after the opening of insolvency proceedings?

The competent court appoints an insolvency administrator by court order. In an initial meeting with the company representative, the question is also discussed as to whether the company can still be continued at the time the insolvency proceedings are opened.

Should the company not have ceased trading by then, the answer to this question will depend primarily on a positive going concern forecast. Management should have already clarified the question of the company's ability to continue trading in advance. Documentation for any potential restructuring proceedings should also already have been drawn up.

Course of the insolvency proceedings

The insolvency proceedings are initiated by application from a creditor or the debtor through an opening order. This is followed by the examination phase, during which the insolvency administrator determines whether the company can be restructured and continued, or alternatively, how the assets can be sensibly liquidated.

The decision is made by the reporting creditors' meeting, at which the insolvency administrator reports on whether the conditions for an immediate closure of the entire company or individual business areas, or for continuation, are met, as well as whether a reorganisation plan corresponds to the common interest of the insolvent creditors and whether its fulfilment is likely to be possible. Following the creditors' meeting comes the creditors' filing of claims, which is decided upon at the general verification meeting. The reporting creditors' meeting and the verification meeting can be combined.

The insolvency proceedings terminate with the realisation and distribution (final distribution) of the insolvency estate (distribution schedule) as well as the accounting or final accounting schedule.

Procedure for the restructuring process

The insolvency proceedings are referred to as restructuring proceedings when a permissible restructuring plan is available upon the opening of the proceedings. If no such plan is available, the insolvency proceedings are to be referred to as liquidation proceedings. The objective of restructuring proceedings is the swift financial restructuring (debt relief) of the company through the adoption of a restructuring plan. It can be applied for in the form of restructuring proceedings with or without self-administration.

Fundamentally, the procedure for a restructuring process corresponds to that of bankruptcy proceedings. However, it has the following special features:

• The opening of insolvency proceedings may be applied for even when insolvency is imminent.;
• The court has, with the opening decision, set a restructuring plan hearing for 60 to 90 days after the opening;
• the company may only be realised if the restructuring plan proposal is not accepted within 90 days of the opening.
• In both cases, it should be noted that a double majority of creditors present at the meeting is required for the acceptance of the restructuring plan (majority of persons and majority of capital). If assets covering costs are available or an advance payment is made, the insolvency proceedings will be opened – provided all other conditions are met.

Restructuring proceedings with self-administration

The following prerequisites must be met.

• The restructuring plan is already in place before the opening of insolvency proceedings.;
• At least 30 % of the debt must be repaid within two years;
• The majority of creditors agree to the restructuring plan.;
• The procedure is prepared.

The key difference compared with restructuring proceedings without self-administration is the higher quota requirement (30 % instead of 20 %). Furthermore, there are significantly fewer restrictions on the debtor, as they are able to dispose of their assets under the supervision of a reorganisation administrator. The following documents must be submitted prior to the commencement of proceedings with self-administration:

• Reorganisation plan with an offer to affected creditors to pay a dividend within 2 years (the amount depending on the type of reorganisation procedure);
• a precise inventory of assets;
• a current and complete overview of assets and liabilities, showing and valuing the components of the assets, and stating and itemising the liabilities with the repayment amount (status);
• a breakdown of anticipated income and expenditure for the next 90 days showing how funds necessary for the continuation of the business and the payment of the costs of the proceedings are to be raised and applied (financial plan);
• a list of creditors;
• an overview of how the funds necessary to implement the recovery plan are to be raised;
• Details regarding the number of employees and the bodies established within the company.;
• Information on the organisational measures, particularly financing measures, required to implement the reorganisation plan;
• The last 3 annual financial statements.

Insolvency proceedings without self-administration

The advantage of the restructuring procedure without self-administration is the lower quota requirement of 20 % (compared with 30 % in restructuring procedures with self-administration). The conditions for commencing the procedure are:

• The restructuring plan is already in place before the opening of insolvency proceedings.;
• At least 20 % of the debt must be repayable within two years;
• The majority of creditors approve the restructuring plan.

Once the restructuring plan is confirmed, the insolvency proceedings are terminated – the debtor regains control over their assets.

Image: © Adobe Stock - Eigens