European restructuring proceedings: Last lifeline before insolvency?

In addition to the numerous insolvency proceedings that have dominated Austrian news coverage in recent months (keywords: SIGNA; KIKA/Leiner; Fisker GmbH), there is a domestic premiere from an insolvency law perspective: 

In late fall 2024, Pierer Industrie AG initiated a so-called "European Restructuring Procedure" ("EU-ReProc") and in so doing converted its status from "dead law" to "law actually used in practice". But what are the special legal characteristics of such proceedings and why has it not been applied so far? A brief overview:

The EU-ReProc is governed by para 44 of the Austrian Restructuring Act ("ReO"). The ReO is based on the Directive on restructuring and insolvency ("RIRL", Directive 2019/1023/EU), but no international dimension is required for the EU-ReProc. The EU-ReProc differs from the ordinary restructuring procedure only insofar as it is public, so "Public Restructuring Procedure" could have been a more suitable choice of wording.

But first things first: Restructuring proceedings are initiated upon application. Any debtor who runs a company is entitled to do so, regardless of the debtor’s legal form. The "probable insolvency" (para 6 (1) of the Austrian Insolvency Act [“IO”]) must be stated in the application - a vague term that may causes problems in practice. This is the case if

• the existence of a company would be at risk without restructuring, in particular in the event of pendent illiquidity (i.e. according to the company’s liquidity plan not all liabilities due can be fulfilled within the next twelve months)
• the company only has an equity ratio of less than 8% (para 23 of the Austrian Reorganisation Act [“URG”]) and a notional debt repayment period exceeds 15 years (para 24 URG). This is a legal presumption and can be rebutted by obtaining an expert opinion.

However, if the company is already insolvent, restructuring proceedings are precluded. Over-indebtedness (para 67 IO), on the other hand, does not prevent the initiation of restructuring proceedings if the company can present positive prospect for the company’s survival. In the case of EU-ReProc, the debtor must apply for the initiation of proceedings to be made public by edict before the proceedings are initiated - i.e. in practice at the same time as the application for the initiation of proceedings. The publication can be found in the "Europäisches Restrukturierungsverfahren" section of the edict file.

Another special feature of the EU-ReProc is the debtor's option to request creditors to file claims (para 44 (4) ReO). Although the timely filing of claims is a prerequisite for participation in the restructuring proceedings, the effects of the restructuring plan also extend to other creditors who have been specifically named by the debtor. Finally, the public nature of the proceedings makes it even easier for the debtor: they can apply to the court for a general suspension of execution, which is accompanied by an extensive suspension on the opening of insolvency proceedings and the termination of contracts (para 26 ReO) and affects all creditors (and not just certain ones as in "normal" restructuring proceedings).

Ultimately, however, it must be critically questioned why it has taken several years since the ReO came into force in 2021 for EU-ReProc to be applied for the first time. One possible reason could be the negative connotation of the term "restructuring", which is often associated with economic problems, mismanagement or failed business models. From a legal perspective, the fact that the ReO does not offer any relief for the termination or amendment of contracts could be a significant disadvantage compared to insolvency proceedings

However, the EU-ReProc could be more attractive for holding companies (such as Pierer Industrie AG), for which a debt cut with a broader creditor base could be the last lifeline before insolvency  – not a change in the employee structure or realignment of business partnerships.