Guidelines for Restructuring in Austria
By Mario Kapp & Raffaela Lödl, KAPP & STRIMITZER
The previous experience of extrajudicial restructurings in Austria have shown that the cooperation of Banks (and other creditors), when working with financially troubled companies, is essential in minimising damages for all participants. Early and successful reorganisation can avoid the need for judicial proceedings and the negative social and economic consequences for the debtor.
Due to the lack of a legal framework three major Austrian banks together with an Austrian law firm established the principles for extrajudicial restructurings in Austria.
Whilst the eight guidelines are not binding regulations, they are a reflection of the practical professional experience of restructuring experts. They are intended to help to overcome a company’s crisis in regard to international standards (e.g INSOL International’s Statement of Principles).
Stand still period Guideline 1-5
The starting point of an extrajudicial restructuring is an existing restructuring case. This is when a more than temporary deterioration in the economic situation of the debtor endangers its viability (e.g poor creditworthiness, negative equity).
A meeting with the bank and all creditors should be arranged as soon as possible. The debtor should provide information about his current economic situation (e.g liabilities, liquidity). The creditors then have to decide whether to grant the debtor a standstill period in order to review the possibility of an extrajudicial restructuring or not. If yes, the commencement of the period, its duration, and the milestones all need to be fixed in stone.
All participants should cooperate in granting the debtor a certain amount of time. Either in a written or oral standstill agreement rules should be set down, especially regarding a claims moratorium, the maintenance of credit lines and the equal treatment of all creditors.
Restriction of the debtor’s power. The debtor will require the consent of the creditors to be involved in activities outside the normal course of business or for granting new securities, for example.
The success of the restructuring is dependent on an organised and coordinated programme entered into by all parties. Those responsible for coordination, such as a consortium leader, should be appointed to steer and supervise the process.
All information provided by the debtor should be made available to all creditors with the same conditions offering information flow, such as an electronic data room.
Restructuring period Guideline 6-8
In the restructuring period the restructuring concept is the basis for the conclusion of a restructuring agreement. The agreement, as the legal framework, should especially aim the harmonisation of key contractual provisions (grounds for termination, covenants) and should provide the participants with a certain level of legal security.
In order to safeguard the debtor’s interests, all information concerning the restructuring case must be kept strictly confidential.
Fresh liquidity should only by supplied when the standstill measures (Guidline 2) and additional liquidity measures of the economic owners are insufficient to maintain the debtor’s ability to pay.
Result and future developments
The guidelines are not only intended to help deal with major cases, they also state basic rules for all extrajudicial restructurings, namely cooperation, a certain degree of patience (standstill) and a professional and thoughtful response to the debtors economic situation.
Mario KappKAPP & STRIMITZER Rechtsanwälte GmbH, Graz-Seiersberg, Austria
T: +43 316 22 59 55
Raffaela LödlKAPP & STRIMITZER Rechtsanwälte GmbH, Graz-Seiersberg, Austria
T: +43 316 22 59 55
Mario Kapp is managing partner of KAPP & STRIMITZER Rechtsanwälte GmbH situated in Graz, Austria, specialising in bankruptcy law, corporate law and business restructuring. Mario Kapp was the sole founder of the law firm in 2006.
Raffaela Lödl is a lawyer candidate of the KAPP & STRIMITZER Rechtsanwälte GmbH since 2013. She is specialized in civil law, corporate and insolvency law.
KAPP & STRIMITZER Rechtsanwälte GmbH has two partners and five lawyers 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. For further information, visit the homepage www.kapp.at.
Published: September 2015 l Photo: anderm - Fotolia.com