Vol 14 (2017) - Issue 4

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Preventive Restructuring Mechanisms in Austria: More Flexibility Needed? A Practical Analysis of Existing Tools and Possible International Impacts

1. Introduction
One of the key questions in corporate restructuring and insolvency practice is how to enable and encourage timely restructuring to prevent the insolvency of companies. The reasoning is simple: Healthy (solvent) companies are usually better for the economy than unhealthy (insolvent) companies. Thus, possible improvements of existing legislation represent an important challenge for Austrian and other national as well as international policymakers.
The European Union (EU) has already been trying to set common (but non-binding) standards which encourage statutory preventive restructuring mechanisms. The main goals are to preserve enterprise value and jobs and to reduce negative impacts on the economy. The main solution approach is to promote statutory and flexible preventive restructuring mechanisms for companies which allow them to react timely to financial difficulties in order to avoid insolvency. In November 2016, the European Commission (EC) has published a proposal for a 'Directive of the European Parliament and of the Council on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU' (EC Proposal on Preventive Restructuring).
As there is no harmonised international or European restructuring and insolvency framework yet, different jurisdictions provide numerous different statutory tools. Tools such as the English 'schemes of arrangement' are very flexible and therefore popular preventive restructuring tools for UK as well as non-UK companies (keyword forum shopping). On the contrary, Austrian tools are hardly even accepted in the country itself which is why in Austria, preventive restructuring is mainly performed without using statutory tools and without court involvement (non-judicial restructuring).
This article will analyse the Austrian preventive restructuring practice and the available tools. The article will furthermore try to identify possible reasons for the observation that in economic reality, statutory tools are mainly ignored. The focus will be on companies. Giving an overview and unless otherwise stated, the article deliberately excludes detailed, special or exception provisions.