New EU directive on company insolvencies disadvantageous for Austria?

Due to a new definition of micro-enterprises, the association fears a significant additional effort in the courts and longer procedures. This results in a higher financial risk for the creditors. In Austria, around 90 percent of company bankruptcies in the previous year fell on micro-enterprises.

According to the EU proposal, all companies with up to 10 employees, a turnover of 2 million euros and a balance sheet total of 2 million euros are to be classified as micro-enterprises. Due to the fragmented nature of the domestic economy, that would be problematic. “For Austria, that would mean that around 90 percent of insolvency proceedings would have to be handled as special proceedings for micro-entrepreneurs,” writes the KSV. That would entail significant additional work for the courts and lengthy proceedings. “That would represent an additional financial risk, especially for the creditors.”

Doing without an insolvency administrator for micro-enterprises

Even doing without an insolvency administrator for micro-enterprises would have major disadvantages for the creditors concerned. “The absence of an insolvency administrator would make it de facto impossible to uncover breaches of duty on the part of the debtor and to derive claims against dishonest persons from this,” the association continued. It would also impose additional work on courts that they could not afford due to a lack of resources.

Furthermore, according to the proposal for the directive, facts relevant to appeals should be standardized through minimum standards and the appealability in procedures for micro-enterprises should be severely restricted, writes the KSV. However, that would also be at the expense of the creditors, because such claims for avoidance would often represent the only relevant value, especially in the case of small companies with physical assets of hardly any value.

The KSV therefore advocates rethinking the definition of micro-enterprises. A corresponding statement was sent to the EU Commission and the Austrian Insolvency Law Reform Commission.