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Insolvency and criminal law aspects of the Covid-19 pandemic – Part IV

The Covid-19 pandemic and its far-reaching economic consequences have also resulted in numerous changes in insolvency law.

The 2nd Austrian COVID-19 Act (Federal Law Gazette I No. 16/2020) initially clarified that the German term "Naturkatastrophe" (comparable to force majeure) in Section 69 para 2a Austrian Insolvency Act ("IO") also covers epidemics and pandemics. Therefore, if insolvency occurs due to the Covid-19 pandemic, the obligation to file an insolvency application is automatically extended from 60 to 120 days. However, this period is (as before) a maximum period, i.e. an immediate application for insolvency may only be waived if serious and promising attempts to recover financial stability are made. The period begins to run as soon as the insolvency or over-indebtedness is objectively evident.

With the 4th Austrian COVID-19 Act (Federal Law Gazette I No. 24/2020), the legislator has further introduced: If over-indebtedness (within the meaning of Section 67 IO) occured after March 1, 2020, the obligation to file an insolvency application is automatically suspended until June 30, 2020. The reason for over-indebtedness therefore does not oblige an immediate application for insolvency if the over-indebtedness occurred after March 1, 2020, e.g. because the Covid-19 pandemic made it impossible to obtain a positive prognosis for the entity’s continued existence. If over-indebtedness under insolvency law exists at the end of June 30, 2020, the obligation to file an insolvency application applies, depending on which period ends later, for a maximum of 60 days after the end of June 30, 2020 or a maximum of 120 days after over-indebtedness has occurred. 

There are no changes, however, in the case of insolvency e.g. the inability to pay. In this case, the obligation to file an immediate insolvency application still exists, whereby the maximum period for filing is 120 days in case of correspondingly promising recovery efforts, as set out above, if the current insolvency is a consequence of the Covid-19 pandemic. If, however, the insolvency is due to other reasons, an extension of the time limit pursuant to Section 69 para 2a IO does not apply; the time limit then continues to be 60 days (maximum).

From a criminal law perspective, it should be pointed out that the new regulations in insolvency law resulting from the current Covid-19 pandemic have not led to any changes regarding the assessment and application of creditor protection offences (e.g. fraudulent insolvency pursuant to Section 156 Austrian Criminal Code ("CC"), grossly negligent interference with creditor demands pursuant to Section 159 CC). The suspension of the obligation to file an insolvency application in the case of over-indebtedness, as established in the 4th Austrian COVID-19 Act, does not affect the criminal liability for a creditor protection offence. Such liability is still determined according to the same criteria as before the Covid-19 pandemic. It should be mentioned that although omitting to file an application ("delay in filing for insolvency proceedings" - "Insolvenzverschleppung") does not constitute a criminal offence alone, but some creditor protection offences do not require formally initiated insolvency proceedings or insolvency or over-indebtedness under insolvency law (e.g. fraudulent insolvency pursuant to Section 156 CC, grossly negligent interference with creditor demands pursuant to Section 159 para 3 CC). 

In addition, it should be pointed out that someone is also subject to prosecution if he or she intentionally favours one creditor after the insolvency has occurred and thereby puts another creditor at disadvantage (undue advantaging of a creditor pursuant to Section 158 CC). Such a risk of criminal liability would also be realized in times of the Covid-19 pandemic, for example, if a managing director of a limited liability company, knowing that the company has already become insolvent, still instructs current payments to employees and suppliers and is therefore no longer able to meet his or her payment obligations towards tax authorities or the Austrian Health Insurance ("Österreichische Gesundheitskassa"). It is therefore absolutely necessary to regularly and carefully assess your status quo in order to avoid being confronted with personal criminal consequences.

If you have any questions regarding criminal law issues in connection with the Covid-19 pandemic crisis, our attorneys at wkk law Dr Norbert Wess (n.wess@wkklaw.at), Mag Markus Machan (m.machan@wkklaw.at) and Dr Vanessa McAllister (v.mcallister@wkklaw.at) will be pleased to provide you with legal expertise at any time.