AUSTRIA Law and Practice Contributed by: Markus Fellner, Stefan Sallat and Florian Henöckl, Fellner Wratzfeld & Partner Rechtsanwälte GmbH
an undue hardship to the party holding the security interest. On a separate note, it must be considered that secu- rity rights may be challenged or voided by the insol- vency administrator if and to the extent that they have been created within certain time limits applied to the opening of insolvency proceedings, and subject to additional criteria. 7.2 Waterfall of Payments There are two basic categories of creditors: senior creditors (ranking pari passu) and junior creditors. A junior ranking of debt may be agreed in lending doc- umentation (on junior/hybrid financial instruments or subordinated loans) as well as by way of retroactive subordination waiver ( Rangrücktritt ), which would result in the relevant creditor not being repaid in the course of insolvency or liquidation proceedings until and unless any and all non-junior creditors have been repaid. Other than that, statutory law may order man- datory subordination in the case of certain shareholder loans deemed to qualify as equity financing (equitable subordination); this will apply if and to the extent that financing is provided by a qualified shareholder to an Austrian company during a “crisis” (which is assumed if certain financial ratios are fulfilled). “Quotas” (ie, proceeds obtained in the course of insol- vency proceedings) obtained by unsecured senior creditors are typically fairly low; junior debtors (along- side equity holders) do not typically receive proceeds from insolvency proceedings. 7.3 Length of Insolvency Process and Recoveries Insolvency proceedings in Austria take an average of three years. The average satisfaction rate with pay- ment schedules is 31.9%, while the average satisfac- tion rate with restructuring plans is 38.6%. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency While the Austrian legislature introduced “reorganisa- tion proceedings”, which should be initiated if a “need for reorganisation” ( Reorganisationsbedarf ) is identi- fied, in 1997, this regime was and continues to be without any practical relevance.
Besides that, since July 2021 the new Restructuring Act provides a pre-insolvency restructuring regime in line with the Directive (EU) 2019/1023 on Restructur- ing and Insolvency. A debtor may use the procedures provided by the Restructuring Act to avert insolvency and ensure the viability of its company in the event of “likelihood of insolvency”, which is the case if the existence of the debtor’s company would be at risk without restructuring. The procedure is not available to companies which are illiquid within the meaning of the Insolvency Act, but the restructuring procedure itself may constitute a reorganisation measure that serves to remedy material insolvency. The core of the restructuring procedure under the Restructuring Act is a restructuring plan which defines classes of “affected creditors”. In order for the restruc- turing plan to come into effect, the majority of the creditors in each class is required in the first instance; a cram-down is also possible. In addition, the court has to confirm the restructuring plan. Therefore, other than insolvency proceedings, out- of-court restructuring efforts constitute the prevailing market procedure in Austria. Unless there are specific lending arrangements (such as syndicated loans with market standard majority rules), effective out-of-court restructuring efforts (if a uniform pro rata debt reduc- tion is sought) require, in principle, the consent of all lenders to (i) a definitive settlement (typically requiring a hair-cut), or (ii) organised contractual arrangements with a view to the implementation of a restructuring under stand-still and restructuring contractual provi- sions. If such a settlement and/or regime is established with (only) majority consent, the dissenting lenders will fully retain their legal position (and remain entitled to full repayment, subject only to a quota reduction in insolvency proceedings). The same considerations apply to liabilities incurred under bonds. Unlike other (European) jurisdictions, Austrian legislation has not (yet) adopted collective action clauses so that, in principle, the restructuring of a bond (eg, by way of a, possibly temporary, morato- rium or hair-cut) would require the consent of all bond- holders. Recent Austrian practice has seen individual cases where a special joint representative ( Kurator ) has been appointed in order to represent bond credi-
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