OGH: Criminally Obtained Assets and Insolvency

Nov 24, 2023 Benn-Ibler Rechtsanwälte

The Austrian Supreme Court (Oberster Gerichtshof, hereinafter OGH) has recently clarified that payments which a debtor has obtained through criminal acts are legal acts to the detriment of the creditors and can therefore be subject to contesting under insolvency law.

The original case was based on VAT fraud. The managing director and the defendant had used the now insolvent GmbH to obtain input VAT tax-credits totalling millions of euros from the tax authorities by creating fictitious expenses and income. With the managing director’s knowledge and will, the defendant transferred approximately EUR 625,000 from the company account to their private account. The subsequent insolvency administrator of the GmbH demanded the funds back from the defendant, claiming insolvency avoidance pursuant to Sections 27 et seq. of the Austrian Insolvency Code (Insolvenzordnung, hereinafter IO), as well as the prohibition of repayment of capital contributions, Section 83 GmbH-Gesetz), and damages and unjust enrichment.

The defendant argued that profits made from the illegal activities were not suitable for satisfaction and were therefore not subject to the avoidance procedure.

The OGH disagreed, stating:

The elements of avoidance under the IO contain unwritten constituent elements of creditor harming of the contested act and their suitability for satisfaction.

The OGH has previously ruled that unlawful acts can be acts to the detriment of creditors. Whether their avoidance is also suitable for satisfaction has not yet been decided. However, this applies here, because if the unlawfully transferred assets were returned to the bankruptcy estate, the creditors’ prospects of satisfaction would undoubtedly increase. A different view would lead to the result that the negative consequences of the fact that the funds were obtained from a criminal offence would be imposed on the other creditors of the insolvency proceedings although they did not contribute to the criminal offence and had no reason to doubt the solidity of the debtor’s liability fund.

OGH 17 Ob 17/23h (25 September 2023)