AUSTRIA Law and Practice Contributed by: Farid Sigari-Majd and Mathias Lehner, Freshfields
2.9.5 Other Effects of a Lessee’s Insolvency A lease agreement with an Austrian lessee will not automatically be set aside due to the lessee’s insol - vency. The insolvency administrator may terminate the lease in accordance with the lease agreement or as provided under statutory law. If the administrator does not terminate the lease, any payments which fall due after the commencement of insolvency proceedings will qualify as preferential claims ( Masseforderungen ). If an asset is essential for the continuation of the busi - ness of the lessee, the lessor cannot terminate the lease (or repossess the aircraft) for six months other than for cause ( aus wichtigem Grund ) or due to an imminent grave economic disadvantage of the lessor. During a six-month period, the lessor cannot termi - nate the lease based on an alleged material adverse change in the lessee’s financial condition or based on a default prior to insolvency. If, however, the adminis - trator defaults on lease payments after the insolvency, the lessor could terminate for cause. If the lessor holds ownership in the leased aircraft, it will be possible to segregate ( aussondern ) the aircraft from the insolvency estate subject to the moratorium described above. Unsecured creditors will have no right to such assets. 2.9.6 Risks for a Lender if a Borrower, Guarantor or Security Provider Becomes Insolvent The central aim of a lender in the borrower’s insol - vency will be the protection of its security interest. Holders of collateral (eg, pledges) will generally have a preferred claim on enforcement proceeds relating to the collateral ( Absonderungsrecht ). The administrator would be responsible for the enforcement of collateral within its control (eg, by hav - ing the asset sold in an auction under the supervision of the court). The same will arguably apply if the asset is in the control of a third party. If it is in the control of the lender/pledgee, it may enforce the security inter - est itself in accordance with its terms. Enforcement proceeds will first be applied towards payment of the enforcement costs, second towards the settlement of the secured claim and third towards other insolvency claims.
2.9.7 Imposition of Moratoria in Connection With Insolvency Proceedings With effect from the beginning of insolvency proceed - ings, creditors will not be able to file claims against a debtor for non-payment until the administrator has had a chance to review and acknowledge the claim ( Prüftagsatzung ), and all pending proceedings will be suspended automatically. Austrian law does not, how - ever, provide for a moratorium on payments as such. 2.9.8 Liquidation of Domestic Lessees If an Austrian lessee is insolvent, any of its creditors may commence insolvency proceedings against the Austrian lessee (irrespective of whether the claim of the creditor is due or not) (see also 2.9.2 Overview of Relevant Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership ). The lessee itself (and its managing directors, respectively) is also required to file for insol - vency without undue delay and, in any event, within 60 days. 2.9.9 Ipso Facto Defaults Termination clauses which allow one party to termi - nate a lease or loan agreement solely based on the commencement of insolvency proceedings over the assets of the other party are not permitted under Aus - trian law. 2.9.10 Impact of Domestic Lessees’ Winding-Up The commencement of insolvency proceedings would not affect the interest of the owner in the aircraft, who would retain its right of segregation ( Aussonderung- srecht ). The lessee would, however, be prevented from making lease payments to the lessor without the consent of the insolvency administrator. In addition, the insolven - cy administrator could avoid certain lease payments (eg, payments received by the lessor during the last six months prior to the insolvency if the lessor was or should have been aware of the lessee’s insolvency or insolvency filing). If the insolvency administrator intends to continue the operations of the lessee (eg, with a view to selling a part of the business during the insolvency proceed - ings), the ability of the lessor to terminate the lease will
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