The regulations governing personal insolvency in Austria will change on 1 November 2017. Whilst generally the regulations remain somewhat the same, some key debtor-friendly amendments have been effected.
The changes primarily concern mandatory quotas as well as the duration of the proceedings.
The following is an outline of the ‘new’ Austrian insolvency proceedings for natural persons.
Phase one – payment schedule
- It is still the case that before the creditors can vote on any payment schedule, all (with some minor exceptions) of the debtor’s assets have to be realised. The gains from the sale of the assets are distributed to the creditors but are not considered part of the offered recovery rate. The debtor then proposes a payment schedule, detailing proposed payments based on his projcted income.
- The debtor formerly had to propose a payment schedule to the creditors with at least a minimal recovery rate over a seven year period.
- It is now the case that if the debtor is expected to have no income surpassing the Austrian living wage (in 2017, EUR 889.00) during the next five years, he does not need to offer to make periodical payments going forward.
Phase two – ‘disgorgement’ proceedings
- If the necessary majority of creditors (50% of the creditors with at least 50% of the claims) do not accept the debtor’s proposed payment schedule, the alternative is so-called ‘disgorgement’ proceedings, on the debtor’s application.Should the court open these proceedings, the entire debtor’s income that surpasses the living wage will be distributed to his creditors for a fixed period following the coming into effect of the court’s order. At the end of this period, the proceedings end and the debtor is granted a residual debt discharge.
- The fixed period for distribution of the debtor’s income has now been shortened, from seven years to five years.
- The formerly required minimal recovery rate for the residual debt discharge has gone; the discharge will now be available irrespective of the recovery rate of the claims achieved.
- However, as before, disgorgement proceedings cannot be opened if the debtor either (a) was unemployed, and failed to seek employment, or rejected a reasonable job offer; or was employed but in a job with a wage which was (objectively) too low for his earning capacity during Phase One; or (b) was a member of the board of a legal person during (or five years prior to) the opening of insolvency proceedings over the estate of that legal person and either negligently or deliberately infringed on his duty to collaborate with the insolvency administrator (and the insolvency court) of that third party.
- Also has before, the proceedings will (on application by any creditor) end prematurely and without a residual debt discharge if either (a) the debtor has been issued with a final sentence finding him guilty of certain crimes (e.g. creditor preference, thwarting enforcement, providing the court with a false schedule of assets, etc.); or (b) he becomes unemployed and fails to seek employment or rejects a reasonable job offer; takes up new employment but in a job with a wage which is objectively too low for his earning capacity; or ( c) has no income surpassing the Austrian living wage, and fails to provide the court and the insolvency trustee with an account of his efforts to find a suitable job.