Creditors Are Disadvantaged by Gratuitous Property Transfer

Feb 7, 2025 Benn-Ibler Rechtsanwälte

The Austrian Supreme Court (Oberster Gerichtshof, hereinafter OGH) has made it clear that certain legal acts can be detrimental to creditors if any such acts reduce previously existing funds for the satisfaction of claims by increasing liabilities or reducing assets.

In the case at hand, the debtor had transferred his property to his mother, the defendant, free of charge, in the form of a notarial deed referred to in Austria as an ‘Aufhebungsvertrag und Aufsandungsurkunde’ (Cancellation Agreement and Declaration of Assignment) [1] in September 2019. Both parties wanted to keep the property from the reach of a pressing creditor and other creditors, and to keep the property in the family. The defendant’s ownership was registered in the land register two months later.

By order of June 2021, debt settlement proceedings were opened in respect of the debtor’s assets, and the plaintiff was appointed as insolvency administrator.

The plaintiff sought to have the debtor’s agreement and declaration of transfer declared invalid and to compel the defendant to consent to the debtor’s registration of the property.

The lower courts were in favour of the claim. The OGH confirmed their rulings.

According to OGH case law, legal acts that are performed in fulfilment of contractual obligations, such as the issuance of a deed for an orally concluded contract or the signing of a document that can be registered in the land register, can be the subject of an action for annulment.

Pursuant to Section 28 (3) of the Austrian Bankruptcy Act (Insolvenzordnung, IO), the counterparty may oppose this by alleging and proving specific facts that justify the conclusion that at the time of the legal act being performed the debtor had no intention of causing any disadvantage whatsoever, or that the counterparty was neither aware of nor should have been aware of any such intention.

A challenge is capable of satisfaction if it is capable of promoting the prospects of satisfaction of the plaintiffs, whereby it suffices to facilitate or accelerate the (at least) partial satisfaction of the plaintiffs. The mere probability of an improvement in the prospects of satisfaction of the creditors is sufficient for this. Therefore, in principle, any extension of the possibility for the creditors to have access to the assets of the debtor is considered as satisfaction of the creditors.

OGH 17 Ob 6/24t (18 December 2024)

[1] In Austrian law, the term Aufsandung is used to describe the consent of a property owner to the encumbrance, restriction, or cancellation of the owner’s rights to a property. Accordingly, such a declaration of assignment (Aufsandungserklärung) from the owner is required for entry in the land register.