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Coronavirus – Effects of COVID-19 on insolvency - Austria

  • Austria
  • Coronavirus - Country overview
  • Coronavirus - Tax issues

23-04-2020

The restrictions on economic life imposed by COVID-19 have not only triggered an economic crisis, they have deprived many companies of their livelihood. While there is no income, expenses continue to run, and in some cases insolvency is unfortunately unavoidable. Not least for this reason, a number of changes have been made to insolvency law as part of the law on measures.

We therefore take a look at the changes that have been made and what to look out for.

What are the reasons for insolvency in Austria?

In fact, a distinction is made between two reasons for insolvency: illiquidity according to § 66 IO and over-indebtedness according to §67 IO.

Illiquidity is deemed to exist if the joint debtor actually stops payments or is not able to settle all liabilities after due date due to lack of available funds and is also unable to procure the necessary funds in the foreseeable future - due to the expected development.

Over-indebtedness, in turn, does not already exist in the case of book over-indebtedness or the existence of an under-balance sheet, but only if the status at liquidation values results in a negative value and there is also a negative forecast of continued existence.

What has been changed on insolvency due to COVID-19?

The reason for the insolvency of the over-indebtedness was changed. Previously, an application for the opening of insolvency proceedings had to be filed within 60 days. Now, the obligation to file an application in the event of over-indebtedness is suspended until further notice. However, this only applies if the over-indebtedness occurs between March 1st, 2020 and June 30, 2020, whereby the reason for over-indebtedness is not relevant. This "suspension" also applies to creditors. These too cannot file a request to open insolvency proceedings until June 30, 2020.

Attention: In our opinion, however, this exemption does not release the debtor from his obligation to minimise the damage to his creditors, so that if there is a threat of unequal treatment or a worse position of creditors due to a reduction in assets, an immediate application for the opening of insolvency proceedings is nevertheless recommended.

The insolvency reason for the illiquidity has not changed either. Here, the deadline for opening insolvency proceedings has been extended to 120 days, but only if COVID-19 was at least partly responsible for the illiquidity. However, if there is a reasonable prospect of an improvement in the financial situation within the next two to three months, even if it is only through bridging loans or other support, this does not constitute illiquidity.

What happens if I am still overindebted after 30.6.2020?

If there is still over-indebtedness after June 30, 2020 and the prognosis for continued existence is negative, an insolvency application must be filed either within 60 days of June 30, 2020 or within 120 days of the occurrence of over-indebtedness, whichever period ends later.

I have to file for insolvency - what do I have to do?

Initially, only those transactions may be concluded that are necessary for the continuation of operations, and even these may only be concluded on a step-by-step basis. If other payments are made, the managing directors are liable for them.

Furthermore, a cost advance for the start-up costs of the insolvency proceedings in the amount of up to EUR 4,000.00 must be paid along with the application for insolvency, whereby this is to be made jointly and severally by the managing directors if the funds are not available in the company.

If there is no managing director, the majority shareholder is also obliged to make a contribution, as are all persons who have been the debtor's corporate representatives within the last three months prior to the filing of the petition to open insolvency proceedings.

As a managing director, can I be prosecuted under criminal law in the event of an insolvency?

If the insolvency is caused by gross negligence or intent, a prison sentence of up to one year or a fine of up to 720 daily rates is possible according to para 159 (1) Austrian Criminal Code (StGB). Should the creditors suffer a loss of at least EUR 1,000,000, the penalty is increased to up to 2 years imprisonment.

Due to COVID-19, the tax office defers the charges - what does this mean for the liability of the managing director?

In the context of the current COVID-19 crisis, it is possible to apply to the respective tax office for a deferral of the levies or their payment in instalments. In the case of concrete affectedness, the tax office has to grant a deferral until 30.9.2020 at the latest or payment in instalments until 30.9.2020. In addition, an application may be made to refrain from fixing deferral interest.

Attention: The amount of the charges must still be reported to the authorities in due time (regardless of the deferral)!

Since companies can sometimes experience economic turbulence as a result of the Corona crisis, the following aspects of managing directors' liability in the event of a culpable breach of duty must be observed with regard to the use of payment facilities (e.g. deferral) in the event of subsequent insolvency proceedings:

  • for transfer duties (wage tax, capital gains tax or withholding taxes) the liability of the managing director can be claimed by the tax authorities irrespective of any equal treatment of creditors. Attention should therefore be paid in particular to the deferral of wage taxes if net salaries are paid in full
  • in the case of other levies (e.g. corporate income tax, value added tax), the equal treatment of creditors must be proven in order to avoid a conceivable liability of managing directors (= equal treatment of the payment of tax debts in relation to other liabilities of the company)

However, the tax office also has no special position here and shall not be given preference. When paying debts, the managing director may not treat the tax debts worse than the other debts and vice versa.

Final comment on insolvency and COVID-19

Despite the extension of the deadline for insolvency applications by the COVID-19 measure laws, the liabilities of the managing directors remain. A delay in filing for insolvency in the knowledge that the illiquidity or over-indebtedness will continue to exist even after the extended deadlines, can lead to liability of the managing directors for delaying insolvency.

Contact an insolvency lawyer in Austria today