Following the opening of insolvency proceedings, the insolvency receiver typically tries to enlarge the insolvency estate by asserting voidance claims. Legal acts that occurred within certain suspect periods prior to the opening of insolvency proceedings might be declared void. Creditors may mitigate certain avoidance risks by investigating the debtor's financial situation when conducting legal transactions.
Responsibility to investigate
Legal acts, e.g. payments carried out after the debtor became materially insolvent or after filing for insolvency proceedings may be challenged under certain circumstances if the creditor knew or should have known of the material insolvency or insolvency petition (Sec 31 of the Austrian Insolvency Act). An entity is materially insolvent if it is illiquid (zahlungsunfähig) or over-indebted in terms of Austrian insolvency law (insolvenzrechtlich überschuldet).
When should a creditor have known that its debtor is materially insolvent? According to case law, a creditor "should have known" of the material insolvency or the insolvency petition if the creditor is (slightly) negligent in not knowing of such facts or circumstances. Whether a debtor is (slightly) negligent in not knowing the debtor's material insolvency depends on the information resources available to the creditor, and the reasonable analysis of such information. An increased (objective) standard of care applies to large creditors once there are insolvency indicators. The courts have held that certain creditors even have to actively request information from the debtor and investigate the debtor's financial situation once there are "insolvency indicators". Mere assurance by the debtor that it is not materially insolvent is not a sufficient defence; rather the creditor must verify such information.
Whether and to what extent the creditor should have properly investigated the debtor's financial situation is typically a question of each individual case. However, the Austrian Supreme Court has recently specified in three different decisions when a creditor is responsible to investigate.
Read the newspaper carefully
According to settled case law, media reports about the economic crisis of a debtor may trigger a responsibility to investigate for "large creditors", e.g. the Regional Health Insurance Fund (Gebietskrankenkasse) or key lending banks. Media reports on pending material insolvency are considered an insolvency indicator triggering a creditor's responsibility to investigate. The creditor is even required to investigate the debtor's financial position if the media subsequently reports that the debtor and its creditors agreed on a restructuring plan and it is clear from these reports that insolvency was only averted for the moment. In the case at hand the defendant also could not rely on optimistic press releases by the debtor's management that discuss promising restructuring measures (Austrian Supreme Court 13 July 2016, 3 Ob 92/16z).
Listen to your debtor
In another case, the debtor first offered to settle the outstanding debt in instalments within four weeks. A month later, the debtor offered to settle the (meanwhile increased) outstanding debt in instalments within six months and added that this would be "the only economically feasible option". The Austrian Supreme Court ruled that the creditor would have been responsible to investigate the debtor's financial situation as the second offer had been less favourable. In addition, the debtor's statement that the second offer would be "the only economically feasible option" was considered as an admission of its material insolvency. It was also considered that the debtor had frequently paid late and the creditor had initiated enforcement proceedings twice. The fact that the debtor was already insolvent in the past (but had undergone a successful restructuring proceeding) would not trigger the responsibility to investigate (Austrian Supreme Court 30 August 2017, 3 Ob 93/17a).
Delayed payment alone is not enough
Finally, the Austrian Supreme Court clarified in its latest judgment that frequent delayed payments (albeit still within the grace period) alone is not considered as a sufficient insolvency indicator and thus does not trigger the responsibility to investigate. In the case at hand, the debtor did not even request payment in instalments and the creditor was never compelled to initiate enforcement proceedings (Austrian Supreme Court 24 January 2018, 3 Ob 5/18h).
Legal acts might be subject to voidance claims if a creditor knew or should have known of the material insolvency or insolvency petition of its counterparty. In particular large creditors should act carefully when they spot any indication of a potentially difficult financial situation on the part of its debtors, e.g. through media reports or meetings with or statements by the debtor. Considering the rather casuistic case law, it must be assessed in each individual case whether and to what extent there is a responsibility to investigate.