According to the European Commission's 2003 Final Report of the Expert Group for the "Best Project on Restructuring, Bankruptcy and a Fresh Start," by 2002 Austria had fully adopted 17, almost fully adopted 14, partially adopted 7, and not adopted 3 of the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. In Austria, there are two primary pieces of legislation governing insolvency and bankruptcy: the Bankruptcy Code and the Composition Code. The former deals with liquidations, the latter with reorganizations. According to a PricewaterhouseCoopers (PwC) report of 2005, the law is thought to be more favorable to creditors. Although the law appears on principle to prioritize restructuring of financially troubled firms, a report by Philippe & Partners and Deloitte and Touche (PP&DT) published in 2002 suggests that rigidities in the legislation actually make recourse to such proceedings unlikely. This finding is echoed in the more recent 2005 PwC report. Nonetheless, the PwC report notes that Austria's insolvency is still evolving. In 2003, the Act on International Insolvency Law was passed which potentially addressed some of the cross-border insolvency deficiencies noted in the PP&DT report.

General Overview

The European Justice Network (EJN) in Civil and Commercial Matters website offers information on Austrian bankruptcy and insolvency law. According to the EJN website, bankruptcy legislation includes the Composition Code (Ausgleichsordnung), which deals with composition procedures, and the Bankruptcy Code (Konkursverfahren), which deals specifically with bankruptcy or liquidation procedures. According to the Bankruptcy Code, proceedings are initiated only on the condition that a bankrupt company is deemed unable, not merely unwilling, to pay legitimate debts, or if the debt burden of a company is excessive and there are no personally liable natural persons (living or dead), with assets to cover the indebtedness. The primary goal is to satisfy all creditor claims equally, apportioned out of the available assets of the debtor firm. There is a preference to avoid liquidating financially troubled but otherwise viable firms, and to this end there is the possibility of compulsory composition, a requirement of which is that the debtor must repay a minimum of 20% of the debt within two years. In return, residual debt may be discharged.

In 2002, the European Commission set up an Expert Group on Restructuring, Bankruptcy and a Fresh Start to collect data on the legal and social consequences of business failure. In 2003, the Expert Group published a final report that considered, among other issues, EU member states' compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank in 2001. According to the report, by 2002 Austria had fully adopted 17, almost fully adopted 14, partially adopted 7, and not adopted 3 of the World Bank Principles. At the same time, Philippe & Partners and Deloitte and Touche were commissioned to conduct a study "Bankruptcy and Fresh Start." One chapter was devoted to the degree to which Austria observed the World Bank's established principles and guidelines on the subject.

Directly referencing these principles, the Philippe & Partners and Deloitte & Touche (PP&DT) report discloses several areas where the authors felt that Austria failed in observance. Under the subject of Legal framework for Creditor Rights, PP&DT note that there was no legislation that provides for global security interest, nor was there a system for recording and registering secured interests in movable assets. Also deficient was the process for realizing security interests. The report adds that "non-judicial enforcement methods are practically nonexistent" (p. 68). Regarding the Legal Framework for Corporate Insolvency, Austria fails to observe World Bank standards because of its legislative rigidity, which hinders effective reorganization procedures. In addition, Austrian law is reluctant to recognize non-EU foreign proceedings. (As an EU member, Austria was required to follow European Council Regulation of May 29, 2000, on Insolvency Proceedings No. 1346/2000 as it pertains to member states and cross-border proceedings.) The PP&DT report also finds that excessive liability is sometimes placed on directors and officers of debtor firms, which inhibits reasonable risk-taking. An additional shortcoming is the relative difficulty to shift from liquidation to restructuring proceedings compared to shifting in the reverse direction. Also, the PP&DT report notes that creditors can only initiate liquidation proceedings and have no influence on the selection of an administrator. Regarding Corporate Rehabilitation, the PP&DT report notes further deficiencies with respect to observance of the World Bank principles. Again, the authors note rigidity in the statutory provisions governing this activity, there is nearly no access to priority funding for a business undergoing reorganization, and creditors find it very difficult to get disclosure of necessary information. In addition, creditors have no input into a reorganize a plan. Finally, PP&DT criticize Austria's refusal to broadly recognize foreign insolvency judgments outside the EU, unless there is already in place a bilateral or multilateral agreement with the country in question.

Regarding the World Bank principles covering Informal Corporate Workouts and Restructurings, PP&DT again find problems. The report states that "there is no legislative framework to support informal workouts, on the contrary, the tight statutory time limit to file for judicial insolvency proceedings make informal workouts often impossible" (p. 69). Also problematic is that Austria's financial sector has no code of conduct that would allow concerned parties to predict a bank's likely response to a proposed restructuring. Finally, PP&DT take up the subject of Implementation of Insolvency Systems. Here the report finds that although Austria's civil court system has specialized departments to deal with insolvency proceedings, there is no specialized insolvency court. There are no formally established organizational or performance standards set for the courts, nor are there qualification criteria for judges. Finally, the PP&DT report notes that insolvency administrators are subject to no specific regulatory or supervisory authority. The report does note that an Insolvency Reform Act was in the works, and that it was expected to address the issue of standards for administrators.

In its 2005 report on the status of the Austrian insolvency regime, PricewaterhouseCoopers (PwC) note that creditors enjoy a more favorable position than do debtors, particularly with regard to choice as to the possibility for reorganization rather than liquidation. Voluntary reorganization (composition) occurs rarely, because of the high statutorily required debt-payback level (40% of outstanding debt within two years of initiating a reorganization procedure). Involuntary reorganizations, with the much lower (20% in two years) requirement, do occur with greater frequency. As of 2005, according to PwC, there was only one business reorganization reported in Austria. The PwC report further note that 2003 saw the passage of the Act on International Insolvency Law 2003, which amended the Bankruptcy Act and addressed some of the shortcomings noted in the earlier PP&DT report as they related to cross-border proceedings. The PwC report also mentions that there were plans to reform Austrian law to recognize criminal liability on the part of legal entities.

The World Bank's 2007 Doing Business snapshots of 178 countries offers a three-pronged evaluation of the procedure for closing a business, in which it looks at the time required, the cost (as a percentage of the debtor estate) and the recovery rate for creditors (expressed in terms of cents on the dollar). In Austria, it takes an average of 1.1 years to complete the closing of a business and costs 18% of the debtor's estate. Creditors average a recovery rate of 72.4 cents on the dollar. These figures compare to an average enjoyed across the member states of the Organization for Economic Cooperation and Development of 1.3 years, 7.5%, and 74.1 cents, respectively.