On 22 February 2021, the eagerly awaited ministerial draft regarding the Federal Law on the Implementation of the Directive on Restructuring and Insolvency (EU) 2019/1023 (DRI) was published. The draft includes not only a new federal law on the restructuring of companies ("Restructuring Act", abbreviated to "RA"), but also amendments to the Austrian Insolvency Code, the Court Fees Act, the Judicial Contribution Act and the Lawyers' Tariff Act. The review period ends on 6 April 2021. Austria is obliged to implement the directive by 17 July 2021.

Objectives of the Directive on Restructuring and Insolvency (DRI)

The main objective of the DRI is to establish a uniform pan-European restructuring framework that enables debtors to restructure their enterprises in order to limit the unnecessary liquidation of economically viable companies. For this purpose, viable companies that have run into financial difficulties are to have access to a courtbased "pre-insolvency restructuring proceedings".

Key elements of the new Restructuring Act

Legal Subjects

In principle, the new Restructuring Act is to be applicable to all entrepreneurs, which also includes sole proprietors. However, certain companies in the financial sector, such as credit institutions pursuant to Section 1 para 1 of the Austrian Banking Act, as well as public bodies and natural persons who are not entrepreneurs, are expressly excluded.

Restructuring Proceedings

The Restructuring Proceedings is intended to be available to companies in the event of "probable insolvency". It must be initiated at the request of the debtor and is intended to enable the debtor to avert insolvency and ensure the viability of its company. Insolvency is probable if the existence of the debtor's company would be at risk without restructuring. This is particularly the case if (a) insolvency is imminent or (b) the equity ratio falls below 8% and the notional debt repayment period exceeds 15 years. The preventive restructuring framework is not available for insolvent debtors. If insolvency occurs during the proceedings (or was present at the time of initiation) and an application is made to open insolvency proceedings, the court must - if the other requirements are met - open insolvency proceedings.

The Restructuring Proceedings shall be a proceedings with self-administration. According to the draft legislation, the debtor in the Restructuring Proceedings shall in principle retain full or at least partial control over its assets and the day-to-day op-eration of its business. However, the court may make certain legal acts subject to the approval of a so-called restructuring officer or assign them to a restructuring officer.

Conclusion of the Restructuring Plan

The draft stipulates that the debtor must submit a (rough) restructuring concept or a (more detailed) restructuring plan at the time of commencement of proceedings, showing that the company's viability can be achieved. If a restructuring plan is not already submitted at the time of filing the initial request, the court shall set a maximum period of 60 days for this purpose.

The debtor must form creditor classes for "affected creditors", i.e. those whose claims are to be reduced or deferred.

In order for the restructuring plan to come into effect, a majority of the creditors included in each class is required in the first instance, whereby the sum of the claims of the creditors agreeing to the restructuring plan must amount to at least 75% of the total sum of the claims of the creditors included in the restructuring plan. If the majority of creditors in each creditor class is reached, then the court must decide on the confirmation of the restructuring plan.

In order to protect overruled creditors, the court must examine whether the so-called "creditor interest criterion" is met before confirming a restructuring plan. This essentially involves checking that an outvoted creditor must not be worse off than in insolvency proceedings.

If a restructuring plan is not confirmed by all classes of creditors, there is the possibility of a "cross-class cram-down" in order to nevertheless obtain confirmation of the restructuring plan.

According to the draft, shareholders may not prevent or impede the adoption, confirmation and implementation of a restructuring plan without cause. If a restructuring plan does not interfere with the legal or economic position of the sharehold-ers, an approval of the shareholders required under corporate law may be substi-tuted by court order.

In connection with the creation of the Restructuring Act, there will also be an amendment to the provisions of the Austrian Insolvency Code. Accordingly, new financings included in a restructuring plan confirmed by the court are not contestable under Section 31 of the Austrian Insolvency Code on the grounds of over-indebtedness.

Material Effects

At the debtor's request, the court may order a stay of execution proceedings for a period of up to three months (extendable to a maximum of six months) to support negotiations on a restructuring plan. During this stay of execution proceedings, the debtor's obligation to apply for the opening of insolvency proceedings due to overindebtedness shall be suspended. On the other hand, no decision shall be taken on a creditor's application for commencement of insolvency proceedings during the period of the restructuring proceedings. There are also restrictions on the fulfill-ment of contractual obligations in favor of the debtor, insofar as their fulfillment is necessary for the continuation of the company's operations.

Facilitated Restructuring Proceedings

If only financial creditors are affected, it is possible, at the debtor's request, to force the consent of individual financial creditors to a restructuring negotiated out of court in facilitated and expedited proceedings.

Conclusion

With the draft of the new Restructuring Act, the present draft legislation represents a welcome step towards a uniform, more in-depth legal framework for restructurings. The new Restructuring Act gives debtors the important opportunity to take appropriate measures to avert insolvency or to make the liquidation process more efficient and orderly. The possibility of forming creditor classes is a key tool in this respect. The restriction of a contestation under the Austrian Insolvency Code for new financings, which offers financing partners more legal certainty, is also particularly relevant in practice.

The Q&A of fwp's insolvency law and restructuring experts on the new restructuring framework is available here.