No Penalty If the Insolvency Administrator Withdraws

Aug 8, 2025 Benn-Ibler Rechtsanwälte

In a recent decision, the Austrian Supreme Court (Oberster Gerichtshof, hereinafter OGH) examined the permissibility of enforcing a contractual penalty clause in a case where an insolvency administrator elected to withdraw from a contract.

In main insolvency proceedings under the European Regulation on Insolvency Proceedings, the plaintiff had filed a claim against an Austrian limited liability company (GmbH) for a contractual penalty related to two construction projects in Poland.

Contract withdrawal by the plaintiff and insolvency administrator

Following the commencement of insolvency proceedings, the plaintiff provided written notice of contract termination on 21 June 2013. Subsequently, the special administrator, appointed to oversee the debtor’s foreign branches, also withdrew from their contract on 1 July 2013 pursuant to Section 21 of the Austrian Insolvency Code (Insolvenzordnung, hereinafter IO). The special administrator did not become aware of the plaintiff’s prior termination until 11 July 2013.

In accordance with Section 110 of the IO, it was necessary during the examination process to determine the effectiveness of the plaintiff’s withdrawal from the contract and whether the insolvency administrator’s withdrawal resulted in the imposition of a contractual penalty.

The OGH determined that, although Polish law was applicable to the substantive construction contracts, Austrian law—being the jurisdiction in which the insolvency proceedings were initiated—governed the impact of those proceedings on existing contracts, pursuant to the EU Insolvency Regulation.

Insolvency administrator resignation does not incur a penalty

The OGH has determined that a penalty clause triggered by the resignation of the insolvency administrator is not permitted under Section 25b of the IO, as it restricts the insolvency administrator’s legal right to resign under Section 21 IO. The court also clarified that, differing from previous rulings, when a penalty clause has been agreed upon, there is no requirement for the insolvency administrator to demonstrate that the creditor’s actual loss is less than the contractual penalty. Instead, even with an agreed contractual penalty, it is the responsibility of the creditor to prove any actual damage incurred (Section 21 (2) sentence 3 IO).

The OGH conducted a thorough examination of the validity of the plaintiff's withdrawal from the contract under Polish law, ultimately determining that this did not apply.

OGH 17 Ob 6/25v (26 June 2025)