Debt Collection in Austria

• In Austria, the payment conduct of local companies is in order. Also, EU legal framework offers effective mechanisms for late payment issues.

• Generally, the court system is efficient and reliable, but the most effective method of debt collection is the implementation of pre-legal actions.

• The aim of Austrian insolvency legislation is to save businesses and increase the chances of debt recovery. This provides a legal requirement to provide a fixed allocation of 20 percent over 2 years for reorganization proposals. Where reorganization stalls or bankruptcy proceedings are begun from the outset, though, it is unusual for unsecured creditors to recover substantially.

1. Summary

1.1. General financial information

1.1.1. The level of transparency in Austria is of very high importance financial information is highly reliable and equally accessible to specialist providers. Corporations shall file their previous year's annual financial statements with the Commercial Register (Firmenbuch) no later than nine months from the current business year. The value of Corporate Governance and its application is also growing.

1.2. Key legal structures

1.2.1. Business debt liability is determined by legal structures, which are described as follows:

• Sole ownership is commonly relied on for small-scale operations because it is based on the personal qualities of the sole proprietor who owns the business assets personally. The proprietor is therefore fully liable for the expenses and obligations of the company.

• General partnerships (Offene Gesellschaft, OG) and limited partnerships (Kommanditgesellschaft, KG) allow partners to jointly conduct business but offer different thresholds of liability. Indeed, unless a Limited Partnership is established, the partners ' liability for liabilities established under the partnership's firm name is joint and unlimited, even if one partner generates business debts without the knowledge or consent of the other partners. In a specific' partnership agreement' the partners establish their mutual liabilities and rights but do not create a separate legal entity.

• Limited Liability Companies (Gesellschaft mit beschränkter Haftung, GmbH) are the most common corporate frameworks since they may be formed by one or more owners whose responsibility is limited to their capital investment. The minimum capital requirement for start-ups is EUR 35,000 although for the first ten years it has been reduced to EUR 10,000. 50 per cent of the specifications have to be paid in cash.

• Joint-Stock Corporations provide a more complex structure (Aktiengesellschaft, AG) that allows the trading of shares on the stock exchange. There is a minimum requirement for debt of EUR 70,000, a supervisory board is necessary and the meetings of shareholders are subject to strict procedural criteria.

• Foreign companies willing to settle in Austria that create a branch office (Zweigniederlassung) but such arrangements remain reliant on the parent company and do not give any restriction of liability. Additionally, independent companies appear to be formed through Limited Liability Companies.

• Joint ventures are also traditional instruments of industry or expenditure in large-scale construction or infrastructure projects. These often take the form of joint ventures (Arbeitsgemeinschaft) and focus on a Joint Venture arrangement to establish each participant's specific role and responsibility, but no incorporation is required.

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1.3. Regulatory framework

1.3.1. Austria has an effective federal judicial structure consisting of local courts with general authority (Ordinary courts) divided into various national courts (Landesgerichte) and district courts (Bezirksgerichte) of first instance, each competent with specific subject matter (for example, trade issues are dealt with by the Kartellgericht, commercial matters in Vienna fell unde).

1.3.2. Also in constitutional (Verfassungsgericht), administrative (Verwaltungsgerichtshof), civil and criminal cases (Oberste Gerichtshof), there are four Appellate Courts (Oberlandesgerichte) and three Supreme Courts with specific jurisdictions. Austria does not have a Case Law mechanism and therefore the judges are not bound by precedent rulings when reaching their decisions. Nevertheless it is customary to consider the supreme court jurisdiction.

1.3.3. Subject matter authority relies either on the essence of the argument (Eigenzuständigkeit) or on the importance of the disagreement (Wertzuständigkeit). Business cases affecting amounts not reaching EUR 15,000 come into District Court control. Commercial cases beyond that sum would rather come within the expertise of the Local Courts. Representation by an Austrian attorney-at-law is necessary for cases approaching EUR 5,000 and in federal courts or superior courts.

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2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Austrian firms have a very good payment conduct. According to a study carried out in 2016 by KSV, the largest shareholder rights security group, 76 percent of Austrian businesses are operating within the stipulated terms of payment. In 2016 the total DSO was 44 days.

2.2. Late interests

2.2.1. The interest on late payment may be charged from the day after the due date. In addition, the Late Payment Act which came into force on 1 March 2013 transposed the Recast Directive on Late Payment 2011/7/EU which stipulates that payments must be made in the EU within 60 days, thus imposing an Eighth Section on Money Transfers (Achter Abschnitt Zahlungsverzug) in the Fourth Book of the Austrian Commercial Code.

2.2.2. The domestic law is more restrictive than the EU requirements: No payment terms will surpass 60 days of business-to-business transactions. However, interest on late payment is to be measured by adding at least 9.2 per cent above the Oesterreichische National Bank's base lending rate. The effective base lending rate for each half-year is fixed at 1 January and 1 July and as of 1 January 2017 is -0.62 per cent.

2.3. Costs of debt collection

2.3.1. According to Recast Directive 2011/7/EU and § 458 UGB, borrowers are also allowed to charge EUR 40 flat recovery costs (Inkassokosten), although sums above EUR 40 will depend on the required and successful delays in receiving payment. They are subject to § 1333 ABGB which includes proportionate "Inkassokosten."

2.4. Protecting ownership

2.4.1. Title retention provisions (Eigentumsvorbehalt) are widely used in Austria to expressly state that ownership of traded goods will only be transferred to the purchaser once the payment has been made in full. Failure to pay permits repossession of the goods by the seller. The regulations would often only operate for as long as the items stayed clearly identifiable. Nevertheless, in Austria expanded Retention of Title laws (verlängerter Eigentumsvorbehalt) require possession to be retained during the manufacturing process. The point is particularly relevant in cases where the debtor has become insolvent and insolvency proceedings are underway.

2.4.1. It should be noted that' All monies clauses' –which normally aim to retain ownership of goods until the purchaser has settled all of his outstanding debts with the creditor–are not valid for Austria. While they are largely used in insolvency proceedings, clauses related to the possession of names may potentially be used as a negotiating tool as a way of either obtaining loans or retrieving property.

2.5. Payments

• Sepa bank transfers are among the most common means of payment, since they are quick, safe and supported internationally and domestically by an increasingly integrated banking network.

• Transfers are usually guaranteed for export transactions through an Export Credit Insurance policy which helps to minimize the risk of sudden or unforeseen insolvency of customers.

• Furthermore, Standby Letters of Credit (a bank guarantees the debtor's credit worthiness and repayment capacity) often represent credible assurances that can be interpreted as a sign of good faith, since they can be enabled as a' payment of last resort' if the borrower fails to fulfill a contractual obligation. Bank guarantees may usually be secured fairly quickly although they may be costly depending on the issuing entity. Often popular are down payments and equity deposits (Pfand).

• Trade bills (Wechsel) and documentation credits are not popular, because they are overly structured. The issuers will easily cancel the checks and thus seldom represent secure methods of payment or enforceable debt identification names.

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3. Collecting payments

3.1. Amicable action

3.1.1. While Austrian courts are competent, it is important to consider amicable mediation options and fast-track trials as effective alternatives to ordinary legal action first. Therefore, before beginning legal proceedings against a debtor, asset appraisal is critical since it requires assurance as to whether the business is still successful and whether the chances of recovery are strong. Therefore, it is important to be mindful of the solvency condition of the debtor: once insolvency proceedings have been launched, the execution of a loan (see below) is indeed unlikely.

3.2. Legal proceedings

3.2.1. Fast-track (Mahnverfahren) proceedings are mandatory if the claimant merely demands reimbursement of a demand which does not surpass EUR 75,000. The claimant requests the local court to grant a settlement order (a conditional payment request) specifying that the debt must be settled within fourteen days, plus penalties and court costs. In the way that charges can be made online at reasonable cost, these lawsuits are streamlined and accelerated. Moreover, there is no need for a lawyer unless the claim exceeds EUR 5,000. If the applicant fails to bring an appeal (Einspruch erheben) within four weeks, a bailiff (Gerichtsvollzieher) shall immediately execute the Order. Otherwise the issue will be dealt with through ordinary legal action on its merits. Likewise, where the allegation reaches EUR 75,000 (see below), ordinary proceedings must be taken before the District Court.

3.2.2. A European Payment Order mechanism which facilitates the recovery of undisputed debts (under Regulation EC No 1896/2006) may also be activated when the debtor has assets in other EU Member States. In this situation, the applicant may order that the Vienna Commercial Court issue an Order to Pay which will then be enforceable in all countries of the European Union (except Denmark) without exequatur.

3.2.3. If the amicable process fails, or if the debtor challenges the argument, there is the right to begin legal proceedings. Generally a final lawsuit (Anwaltsmahnung) is delivered to the claimant but the borrower may file a claim with the court (Klage) instantly. The parties are then asked to share opinions and facts, the judge arranges proceedings to be held by the participants, and provides final judgment. Legal action is relatively fast and effective before Austrian tribunals.

3.2.4. Tribunals may usually grant relief in the form of specific performance (delivery or compliance orders), declaratory decisions (for example, as to the value of a contract), but the courts can not pay punitive damages.

3.2.5. Required documents: Signed Power of Attorney (to be sent in advance via email and initial postal mail), inventory of available products, copies of invoices, shipping notes/CMR, dunning message, correspondence, signed contract documents and general conditions.

3.2.6. Time limits. According to Austrian legislation, most (but not all) legal applications have to be made within three years from the time the duty is due. Legal action will not be granted beyond this, because time limitations are considered a matter of substantive rather than procedural law.

3.2.7. Precautionary measures. Under exceptional circumstances (which are difficult to prove), precautionary measures may be granted in the form of provisional injunctions to preserve the status quo and to secure the facts awaiting a full and enforceable decision. Those judgments may be taken ex parte (without the claimant in attendance) and on the facts, before or during the proceedings.

3.2.8. Appeal lodging. In most situations decisions after the first instance are considered definitive and enforceable. Nonetheless, claims may be brought into appeal on the grounds of procedural irregularities, law errors and factual errors (although courts of appeal would rarely agree to reconsider evidence in practice). The judgement made in the second instance may also be put before the Supreme Court (Revisionsrekurs), which relies exclusively on problems of legal interpretation.

3.2.9. Enforcement of judgements. The compliance of judgement on court decisions is enforceable as soon as it becomes definitive (i.e. when lawsuits no longer exist). If the defendant fails to comply with the order, a lawsuit can be made with the District Court for compliance. Enforcement would then arise by suspension orders, garnishment orders, but also through involuntary enforcement or the acquisition and selling of the debtor's properties.

3.2.10. Duration of legal action. Throughout Austria, the typical trial period is reasonable compared with other European countries. Legal dunning procedures might take eight to twelve weeks, in most cases ordinary legal proceedings could last up to one year, reaching two years for the most complex disputes.

3.2.11. The average enforcement proceedings take 10 to 12 months to complete. Generally, executory titles last for thirty years and within this span can be reactivated multiple times. Normally there is no distinction between the national and international litigation proceedings brought before Austrian courts.

3.2.12. Cost of legal action. As a general rule, Austrian legislation authorizes the successful party to have the losing party pay its legal expenses and payments for attorneys, and may threaten to apply interest and debt collection costs to the outstanding balance of the loan.

3.2.13. Court fees are payable by the plaintiff at the time of initiation of the proceedings against the defendant and depend on the amount in dispute (e.g., for first instance proceedings, the fee is EUR 707 for claims between EUR 7,000 and EUR 35,000; for claims exceeding EUR 350,000 the fee is 1,2% of the claim plus EUR 2,987). The payments are measured at even higher rates for appellate hearings and for Supreme Court trials.

3.2.14. Fees for attorneys are determined under a regulatory structure (Rechtsanwaltstarifgesetz). The cost of the biggest disputes can typically reach 5 to 10 percent of the claim. Contingent payments which allow legal professionals to earn a percentage of the final award are prohibited by law. The ban usually does not apply to companies that support lawsuits.

3.3. Alternatives to legal action

3.3.1. Alternative Dispute Resolution Procedures (ADR). Alternative Dispute Resolution Mechanisms are widely used for the resolution of commercial conflicts in Austria. In fact, arbitration is often seen as more effective than conventional courts, as it provides expeditious private hearings along with a contractual damages decision. Furthermore, arbitrators may provide temporary relief.

3.3.1. To be established, the courts may accept arbitral rewards through an exequatur action (see below). The Austrian Federal Economic Chamber (Wien) International Court of Arbitration is also a recognized location for arbitration.

3.3.2. Foreign forums. A foreign tribunal in Austria is rather unusual for debt-related conflicts, but the nation is a signatory to the Rome I Law on the law relevant to contractual obligations, which stipulates that the parties to a contract may, by mutual agreement, choose the law applicable to that contract and choose the court which will have jurisdiction over disputes.

3.3.3. Nevertheless, it is important that the arrangement be distinguished by a foreign relation (e.g. one party has chosen domicile in another country or the place of execution is placed abroad) and that a jurisdiction provision be drawn up in compliance with European Parliament and Council Regulation (EU) No 1215/2012 of 12 December 2012 on jurisdiction and acceptance

3.3.4. Enforcing international awards. As mentioned previously, it is rather rare to use global mechanisms to secure enforceable rulings against domestic debtors as domestic courts are effective in providing prompt judgments. However, foreign decisions issued against foreign debtors in Austria may be recognized and enforced if the debtor has property or income in that country.

3.3.5. If the judgment applies as an uncontested assertion, it can be strictly implemented (i.e. without registration) through the use of an EEO given the debtor has established properties in the nation. Similarly, a European Small Claims Process (as provided for in Regulation EC 861/2007) aimed at removing intermediate steps can be counted on while applying judgments of up to EUR 2000.

3.3.6. Under Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on authority and the identification and compliance of judgments in civil and commercial matters, a judgment issued in one Member State shall be acknowledged in the other Member States without the need for any special procedure. To begin compliance proceedings, a copy of the judgment must be accessible which satisfies the requirements necessary to establish its validity and a certificate given pursuant to Article 53.

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3.3.7. The process for filing an EU verdict with national courts is relatively simple if the argument is contested. To order for the judgment to be recorded, the judgment holder will appeal to the court involved and provide the court with, among other records, a signed copy of the judgment, a verified transcript of the judgment and, if interest is asserted, a notice stating the amount and interest rate at the time of the application and forwards.

3.3.8. Once the judgment has been published, the judgment may be applied if it has been given by domestic courts (according to Recast Regulation EC 1215/2012, as of January 2015, such an exequatur process is no longer required).

3.3.9. On the other hand, decisions made outside the EU in foreign countries will generally be accepted and applied if the originating country is a party to a bilateral or multilateral arrangement with Austria. In other words, judgments issued abroad with which Austria does not have reciprocity agreements would be unenforceable.

3.3.10. Austria is a signatory of the 1958 New York Convention on the Recognition and Execution of Foreign Arbitral Awards. Domestic courts should therefore therefore accept and execute rulings made in international arbitration proceedings.

4. Managing insolvent debtors

4.1. Insolvency in Austria

4.1.1. In Austria, insolvency is a matter of both cash flow and balance sheet. Nevertheless, the 2010 Insolvency Code Amendment Act (Insolvenzrechtsänderungsgesetz 2010–IRÄG 2010, which established a standard Insolvency Act known as the Insolvenzordnung–IO) declares a debtor to be insolvent when it is illiquid, i.e. when it is indefinitely unable to meet its outstanding debts, but it can also be defined by illiquidity when the debtor's assets can not fulfill all Austrian Insolv creditors. The debtor's failure to file a bankruptcy motion within 60 days after an insolvency situation occurs is a criminal offense seeking personal liability from the owner.

4.1.2. Insolvency proceedings will usually commence once the debtor is left insolvent (at the behest of the lender or the debtor himself) by a court order. Once the hearings have been initiated, the plaintiffs may apply a petition to the court within a time-limit set by the judge.

4.1.3. Insolvency proceedings. Out-of-Court exercises are often a means of obtaining recapitalization funds (in return for a guaranteed borrower status) while preserving secrecy. Nevertheless, creditors in Austria long considered such guaranteed loans to be disadvantageous to the assets of the indebted debtor and thus exercises were seldom used. After 2010, the law has tried to improve the condition by promoting debt restructuring, but Out-of-Court could become more common now.

4.1.4. Debt restructuring. The debtor may apply for a' Sanierungsverfahren ohne Eigenverwaltung' (reorganization procedure with the debtor not in possession) if they can pay at least 20 percent of the debt, payable within two years of the plan's approval. Administrative powers shall be transferred to a recipient appointed by the court (Masseverwalter). Reorganization is also possible under the oversight of a turnaround trustee (Sanierungsverfahren mit Eigenverwaltung) with the debtor in charge if they receive a fixed allocation of 30 per cent. In any event, a plurality of creditors with voting rights present at the hearing and a majority of creditors holding at least 50 per cent of all claims present at the hearing will confirm the proposal. In other terms, all investors (including those who voted against the proposal) will approve a restructuring plan with a potential write-off of up to 80%. If the investors do not approve the restructuring plan or are approved by the judge, the term of the case is simply changed to bankruptcy proceedings (Konkursverfahren) in the Internet Insolvency Gazette. Both forms of trials are always part of a unitary unified process.

4.1.5. Obviously, the 2010 law strongly influenced the legal position of the creditor: for example, there is a ban on the termination of arrangements on which the future of the company rests, which lasts for the first six months. These arrangements can only be broken for severe and weighty reasons; nevertheless, the deteriorating financial situation of the debtor is never such a cause.

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4.1.6. On the other side, the trustee can terminate mutual contracts which neither the debtor nor his contractual partner has fulfilled. Court proceedings pertaining to the insolvent assets shall be halted with the start of the proceedings and may resume only after the filing of the petition and its contestation in the evidence of debts trial. Any compliance proceedings ongoing for the duration of insolvency are inadmissible.

4.1.7. Secured creditors may be prevented from enforcing their collateral (Aussonderung) for a period of six months following the opening of the proceeding if such enforcement endangers the continuation of the debtor. Furthermore, this restriction could be waived if enforcement of the collateral avoids the creditor's personal or economic drawbacks.

4.1.8. Winding up proceedings. In relation to reorganization proceedings, bankruptcy proceedings (Konkursverfahren) seek to equitably recognize the interests of the different creditors, since each borrower will obtain the same amount of their demand. The proceedings are headed by a bankruptcy trustee (Masseverwalter) who is taking control of the business, selling the properties and splitting the profits among the creditors.

4.1.9. As a general rule, unsecured creditors are unlikely to reclaim their loans substantially in the midst of bankruptcy proceedings, so pre-legal action should be deemed the most effective method of recovering for long as the debtor is not declared bankrupt.

4.1.10. Priority rules.  As long as no insolvency proceedings have been launched, unsecured creditors may impose court orders against a debtor. As previously stated, after insolvency proceedings commence, all lawsuits against the debtor are held and compliance is unlikely. The debtors' funds are split by creditors in the event of liquidation, giving priority to secured creditors. For starters, costs arising from the insolvency proceedings and contract obligations are priority statements. The cases of employers are dealt with separately, through a municipal insolvency scheme. Then, lawsuits by unsecured creditors would be regarded.

4.1.11. Cancelation of suspicious transactions. However, the receiver may appeal against different types of transactions completed over the last ten years prior to the liquidation date (e.g. transactions benefiting one borrower over the other, unequal loans, fraudulent transactions, etc.). That would then be null and void.

4.1.12. Duration of insolvency process. Insolvency proceedings (including execution of an agreed reorganization proposal as the reorganization processes conclude with the finality of approval occurring) last on average for two years.

4.1.13. Necessary documents:

• Power of attorney (signed in advance and sent by email, while the initial must be sent by post later), invoices, terms and conditions, and updated payment summary, indicating the total amount owed.