Austria is moving forward with plans to implement the directive on preventive restructuring frameworks. The draft new law implementing the changes was published in February 2021.
The focus of the draft law is to introduce preventive restructuring proceedings. This will provide a structure for pre-insolvency restructuring to allow for the cram-down of dissenting creditors provided certain conditions are met.
Key points of the current draft
- Preventive restructuring proceedings may only be applied for if an insolvency of the company is "likely".
- Unlike insolvency proceedings, preventive restructuring proceedings do not have to be published in the publicly available Austrian edict database (Ediktsdatei). While there are advantages to avoiding the publicity of publishing the proceedings, only published proceedings are recognised under the European Insolvency Regulation. The effects of proceedings that are not published would consequently be limited within the EU to Austria.
- The draft also provides for a "simplified" restructuring plan proceeding with "financial creditors", broadly defined to include banks and all creditor claims with a "financing purpose" (for example, suppliers with extremely long due dates for their receivables). The debtor agrees the restructuring measures (potentially including sale of assets/business and debt cut) and – together with the required majority of financial creditors – applies for the court's approval of the restructuring plan; these proceedings are essentially the Austrian version of pre-pack proceedings. Currently these proceedings would not be published in the edict database and their effects consequently limited within the EU to Austria.
- Generally, the outcome in preventive restructuring proceedings should not be disadvantageous for creditors when compared to the (likely) alternative outcome of insolvency proceedings. If the preventive restructuring plan was more disadvantageous for the creditors than the likely alternative, the court would have to refuse (upon application by a dissenting creditor) to confirm the preventive restructuring plan.
Find out more
To discuss the draft new law in more detail, please contact a member of our Restructuring & Insolvency team.