Director Liability in Austria in Case of a Company’s Insolvency
By Raffaela Lödl-Klein and Mario Kapp, KAPP & PARTNER Rechtsanwälte GmbH
When a company is in serious financial distress, managing directors must fulfil a considerable variety of duties and responsibilities towards the company itself, towards its shareholders and towards third parties (i.e. creditors). As long as directors fulfil their general duties of care, they are not threatened with personal liability, especially not simply because the company has become insolvent. Nevertheless, a company’s crisis bears liability risks.
“60-days-period” for restructuring measures
In the moment of actual “insolvency” (illiquidity or over- indebtedness according to §§ 66, 67 of the Austrian Insolvency Code) the directors face certain challenges: They must decide whether it is possible to restructure the business within 60 days to a state of financial health or whether the company must face judicial insolvency proceedings. The 60-day period is an absolute maximum period and may only be exploited if there are serious chances of the recovery for the company. During this period, the directors must closely monitor whether any restructuring measures (i.e. selling assets or reducing staff) deployed are in fact yielding the desired result in time. If this is not possible, the directors have an obligation to file a petition with the competent court for the commencement of an insolvency proceeding. If directors violate this duty to file, they may become personally liable toward the company and, in certain cases, also toward the creditors of the company (e.g., in case of a criminal conviction due to “bankruptcy offence”).
Defence and limitation of liability
Of course, it depends on the individual case and the allegations. In general, directors must monitor and adapt their actions to the company’s situation. Directors should record every step and seek external advice (especially regarding the “insolvency signs”). Perhaps the company was not insolvent at all (not illiquid or over-indebted) or the “insolvency signs” were not objectively recognisable for the management. Written evidence can be a key argument against personal liability.
Mario KappKAPP & PARTNER Rechtsanwälte GmbH, Graz, Austria
T: +43 316 22 59 55
KAPP & PARTNER Rechtsanwälte GmbH has four partners and five associates and has an outstanding reputation for bankruptcy law in Austria. The law firm is mainly focused on bankruptcy law, reorganisation law, company restructuring, commercial law, banking law, real estate law and international law.
Mario Kapp was the sole founder of the law firm in 2006. He is Managing Partner and specialises in bankruptcy law, corporate law and business restructuring.
Raffaela Lödl-KleinKAPP & PARTNER Rechtsanwälte GmbH, Graz, Austria
T: +43 316 22 59 55
Raffaela Lödl-Klein is Managing Partner of KAPP & PARTNER Rechtsanwälte GmbH situated in Graz, Austria, and specialises in real estate and corporate and insolvency law. She joined the firm in 2013.
Published: Debt Collection, Restructuring & Insolvency, No. 10, Spring 2019 l Photo: Boris Stroujko - stock.adobe.com