28
Thu, Mar
72 New Articles

Insolvencies in Austria - The Glass is Half Full

Insolvencies in Austria - The Glass is Half Full

Austria
Tools
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

Reading newspapers in Austria these days one could get the impression that we are in the middle of a financial crisis. Each week another Austrian company seems to be in financial difficulties – or worse – filing for insolvency. But when taking a closer look at the individual insolvency proceedings, things are not as bleak as they seem.   

The recent Austrian business headlines have been focusing on the insolvencies of the retailer Forstinger, the commercial laundry group Wozabal, the Styrian technology and construction company SFL and, last but not least, the low-cost airlines Air Berlin and Fly Niki. In addition to these insolvencies, news of the South African retailer Steinhoff's accounting scandal is being feverishly covered by Austrian journalists. In its wake, Steinhoff's Austrian subsidiaries suffered a liquidity crisis but luckily recovered and started a comprehensive restructuring process. 

Forstinger had been experiencing financial difficulties since before 2017. As early as 2001 Forstinger was already subject to insolvency proceedings. Since then it has undergone several restructurings and changes in ownership. Forstinger is aiming for another restructuring, offering a 20% quota to its creditors. It remains to be seen whether the creditors will take Forstinger up on this offer. 

In the case of commercial laundry group Wozabal not one, but six companies filed for insolvency. The proposed restructuring plans for all six companies failed which led the insolvency administrators to coordinate the sale of the businesses of all six companies. All the businesses were recently acquired by the competitor Salesianer and their commercial activities are continuing. Schoenherr advised Salesianer on the successful acquisition of most of the Wozabal businesses. 

Fly Niki was put in insolvency after a take-over offer for Fly Niki by Lufthansa was revoked during the insolvency proceedings of parent company Air Berlin.  The European Commission rejected the take-over offer raising the issue of competition distortions. 

Seeing how there would be no easy solution for the Air Berlin Austrian subsidiary, the insolvency proceedings for Fly Niki were opened in Germany. In the course of the German insolvency proceedings, Fly Niki's assets were sold to IAG. Following a complaint by a Fly Niki creditor, a dispute over the COMI (centre of main interest) of Fly Niki – a company incorporated and having its registered seat in Austria – arose, and consequently, the competence of the German courts was brought into question. The German appellate court decided that, amongst others, due to Fly Niki's corporate seat in Austria as well as the fact that Fly Niki had used an Austrian operational permit and that 80% of the employment contracts were subject to Austrian law, the COMI of Fly Niki was in Austria and therefore, Austrian courts were competent to lead the insolvency proceedings. Fly Niki appealed against the decision to the German Supreme Court. On January 12, 2018 the main insolvency proceedings were opened with regard to Fly Niki in Austria. In a new sales process, the assets of Fly Nike were finally sold to the previous owner of Fly Niki, Niki Lauda. 

Despite the impression that there has been an increase of insolvencies in the last year, the number of insolvencies in Austria has actually fallen to a historic low. According to statistics published by Kreditschutzverband 1870 – Austria’s largest association for the protection of creditors – only 5,000 businesses filed for insolvency in 2017. This is the lowest number in 20 years. Also, the estimated amount of claims subject to insolvency proceedings fell by approximately 35% to EUR 1,9 billion. 

This development is certainly due to Austria's positive economic development and the continuing low interest rates. Rising interest rates may trigger a wave of insolvencies. In particular, real estate projects might suffer from an increase in interest rates given that they have not only benefited from the low costs of credits but also from historically high purchase prices. It remains to be seen what influence an interest rate-increase will have on business overall but, for now, things are not looking so badly in Austria – in spite of the negative headlines.

By Miriam Simsa, Partner, Schoenherr

Our Latest Issue