Judicial/out-of-court restructuring versus preventive restructuring procedures in Austria

Based on European Union legal requirements, Austria has been implementing procedures for preventive reorganisation or restructuring for years – most recently with the Restructuring Regulation (ReO). The aim is to promote corporate restructuring in the EU and harmonise insolvency law within the EU. 

In Austrian practice, however, even after the introduction of new legal institutions, existing debt relief mechanisms dominate, namely the conclusion of a restructuring plan as part of judicial insolvency proceedings according to the Insolvency Code or out-of-court restructuring. 

Judicial/extrajudicial restructuring 

There are two central restructuring instruments (before/in status cridae):

1. Out-of-court restructuring (comparison): This is an agreement between debtors and creditors without the involvement of a court. It is a type of contract under private law. Out-of-court restructuring is not regulated by law; however, it is still very important in insolvency practice. Studies show that 70% of out-of-court restructuring attempts in Austria are successful.
   
   
2. Restructuring plan: The completion of a restructuring plan is essentially debt relief subject to the consent of creditors as part of judicial insolvency proceedings. The basic requirement is to offer a quota of 20% (or 30% in the case of self-administration) to all insolvency creditors, whereby the claims of secured creditors remain unchanged. The restructuring process can be carried out with or without the debtor's self-administration, i.e. under the control of an insolvency administrator. The restructuring plan instrument is flexible and may also be used during insolvency proceedings (even if requested by a creditor). Around a fifth of the insolvencies of Austrian companies end with a restructuring plan.

Preventive restructuring procedures 

There are two mainly restructuring procedures that intend to avoid insolvency in the first place:

1. Corporate reorganisation according to the Corporate Reorganisation Act (URG): This law was introduced in 1998 and since then there have only been around six proceedings under this law. The biggest output of the URG is not the procedure, but rather the crisis indicators created by the law (e.g. equity ratio below 8%, fictitious debt term of over 15 years), which generally play a central role in ​​reorganisation, restructuring, and insolvency.
   
   
2. Restructuring plan according to the Restructuring regulations (ReO): This law was introduced in 2021 and provides economically distressed companies with an instrument upstream of judicial insolvency proceedings as an alternative to the previous practice of out-of-court restructuring. Companies get the opportunity to avert insolvency and ensure their viability. The procedure must be initiated exclusively by the debtor and is, unlike an out-of-court restructuring, “accompanied” by the courts. In contrast to an out-of-court restructuring, in which the unanimity of all affected creditors is required, an encroachment on the rights of affected creditors is already permissible by a majority of creditors in each creditor class. In cases where the corresponding majorities are not available in each creditor class, there is also the possibility of judicial confirmation by way of a cross-class cram-down. In contrast to judicial restructuring proceedings, which provide for interference with the rights of all unsecured creditors, in restructuring proceedings the debtor decides which creditors and creditor classes are covered by the effects of this procedure.

Practical example: Insolvency of KTM AG

KTM AG is Europe's largest manufacturer of motorcycles and employs around 4,300 people worldwide, including 3,600 in Austria. Its products are represented by over 2,000 dealers and importers worldwide. In November 2024, KTM AG initiated restructuring proceedings with self-administration in order to stabilise its financial situation. Total liabilities amount to around EUR 2.9 billion. Subsidiaries are also affected.

The parent company of KTM AG, Pierer Mobility AG, is currently not over-indebted or insolvent and now wants to restructure itself using proceedings under the ReO. This preventive procedure is being used for the first time in Austria. The insolvency of KTM AG, which is being processed in accordance with the provisions of the Insolvency Code (IO), must be considered separately.

Ongoing developments of this case are being watched with close interest. The case shows that in Austria judicial/extrajudicial debt relief mechanisms no longer dominate, as preventive restructuring procedures become increasingly important.

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Mario Kapp was the sole founder of the law firm in 2006. He is also the Managing Partner and specialises in bankruptcy law, corporate law, and business restructuring.

Raffaela Lödl-Klein is a partner of KAPP & PARTNER Rechtsanwälte GmbH, and specialises in real estate and corporate law.