COVID-19 insolvency emergency measures in Austria

The Austrian insolvency act (Insolvenzordnung) provides that companies usually have to file for insolvency within 60 days (at the latest) of becoming insolvent. If the company (represented by the management) fails to file for insolvency in time, the management faces liabilities for any damages caused by the failure to file in time. The liabilities include the total losses of all creditors that have claims arising after the business had to file for insolvency.

The Austrian insolvency act defines insolvent as:

• the company is over-indebted and there is no positive forecast, and/or
• the company is unable to pay more than 95% of its due liabilities within an acceptable time-frame (usually around 2 weeks) – also referred to as "illiquidity".

Due to the current COVID 19 crisis, a special provision in the Austrian insolvency act – added after a major flood in 2002 - will now become applicable on a national scale for the first time ever.

Section 69 of the Austrian insolvency act provides that when a natural disaster (including pandemics) was cause for the illiquidity, the deadline for filing for insolvency is extended to 120 days.

In an additional effort to grant business more "breathing room" to combat the current crisis, Austria partially suspended the obligation to file for insolvency:

• In case over-indebtedness occurs between 1 March 2020 and 30 June 2020 companies are not required to file for insolvency (please note that if the company is illiquid at the same time, the obligation to file for insolvency within 60 or 120 days remains).
• If the company is still over-indebted after 30 June 2020, the company is obliged to file for insolvency, at the latest within 60 days after the end of 30 June 2020 or 120 days after the over-indebtedness occurred (whichever period ends later).

Since the obligation to file for insolvency is, in a way, only deferred, we advise managing directors and board members of over-indebted companies to use the time until 30 June 2020 to prepare forecasts based on the premise of the "re-start" of the economy.