The Austrian Supreme Court recently considered whether the knowledge of a debtor may be attributed to a third party in an avoidance action.

Background

The debtor, in an attempt to safeguard real property against the enforcement efforts of his creditors, asked a third party to form a limited liability company and – acting as a trustee for the debtor - purchase real property.  While both the formation of the company and the purchase of the property were financed by the debtor, the debtor did not disclose to the third party that the goal of the transaction was to keep the property out of the reach of his creditors. 

In order to determine whether the transaction would be subject to avoidance, the court had to decide, whether or not the knowledge of the debtor could be attributed to the third party who knew nothing about the debtor's intentions.

Decision

In its decision the Austrian Supreme Court reinforced its practical approach to attributing the debtor’s knowledge to third parties in relation to avoidance claims and avoided the transaction holding that: 

• Generally, in the case of actions taken by an authorised body of a company, the knowledge of the individual member of the authorised body is decisive. 
• If the debtor uses the members of an authorised body as nothing more than “uninformed tools”, the debtor’s knowledge is to be attributed to the third party, when determining if a transaction is voidable.  

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.