OGH: Absorption Proceedings and More Debt

Jan 26, 2024 Benn-Ibler Rechtsanwälte

The Austrian Supreme Court (Oberster Gerichtshof, hereinafter OGH) has ruled: If, as agreed, a loan does not become due until the end of the absorption proceedings (Abschöpfungsverfahren[1]), there is no breach of obligation within the meaning of Section 210 (1) (8) of the Austrian Insolvency Act (Insolvenzordnung, hereinafter IO).

In the case at hand, the debtor’s assets were subject to absorption proceedings. The debtor’s ex-wife, who was a creditor of the insolvency proceedings due to outstanding alimony payments by her ex-husband, filed a motion for early termination of the absorption proceedings and reopening of the insolvency proceedings on the basis of breach of duty pursuant to Sections 210 in conjunction with 211 of the IO. The breach of obligation supposedly was that the debtor had financed a car with an interest-free loan from a friend which, according to the agreement, was to be repaid at the end of the absorption proceedings. By incurring a new debt, he had thus violated Section 210 (1) (8) of the IO. His ex-wife also charged with him with failing to claim a lump-sum allowance of EUR 375 in his tax return.

According to the lower courts, there is no tax optimisation obligation in the context of absorption proceedings. However, as to whether the repayment terms of the gratuitous loan justified the cancellation of the absorption procedure, the court of first instance and the court of appeal disagreed.

The OGH ruled in favour of the debtor:

According to Section 210 (1) (8) of the IO, debtors are not allowed to incur new debts that they are not able to repay when due. The due date is determined on the basis of Section 904 of the Austrian General Civil Code (Allgemeines Bürgerliches Gesetzbuch, ABGB). If the promise of performance by the debtor is given only ‘as far as possible or feasible’, the creditor can have the date of performance set by a judge on the basis of reasonableness. However, debtors cannot be put into a situation where they would have to make payments that are beyond their means.

Where, as in this case, a loan is granted despite awareness of the absorption proceedings and the advanced age of the debtor, the repayment is due ‘as soon as possible and practicable.’ However, by taking out a loan, the debtor does not enter into a repayment obligation which the debtor will not be able to meet. Therefore, there is no failure to comply with the obligation defined in Section 210 (1) (8) of the IO.

OGH 8 Ob 83/23y (19 October 2023)

[1] Under Austrian Insolvency Law, if the disposable assets of a debtor have been realised and the payment plan has not been accepted, the insolvency court may initiate absorption proceedings, where the debtor must assign a large portion of their income to a trustee for several years.