“Overall Reform” of Austrian Enforcement Law

Executive summary:

While not necessarily a profound reform of the entire Austrian Enforcement Code, the reform bill that entered into force on 1 July 2021 should help to simplify and streamline many enforcement proceedings. The new regime allows creditors to opt for “bundles” of enforcement measures.  The court – or a specially appointed administrator for higher-value claims – takes the initiative in pursuing enforcement measures against moveable assets (incl. claims) and other property rights, until either the creditors’ enforceable claims have been fully satisfied or the debtor proves insolvent. Many creditors may find this system beneficial, since it obviates the monitoring and multiple follow-on applications required under the old regime. Sophisticated creditors with high-value claims would do well to rely on the investigative skills and expertise of proven asset tracing and enforcement experts to find the optimal combination of “old” and “new” to most effectively recover their claim.

1. Introduction of the reform bill

As the final step of three decades of modernization of the Austrian enforcement system, the Austrian legislature recently passed a reform bill, entitled the “Overall Reform of the Enforcement Code”. The Bill came into force on 1 July 2021.

2. Enforcement in Austria is court- controlled

Unlike most other European enforcement systems, the Austrian enforcement system is characterized by the strong involvement of the courts and of civil servants (bailiffs).  Enforcement against a debtor’s assets in all cases requires prior approval by a court. The enforcement measures are principally set by court officers (currently bailiffs).

This central concept remains, in principle, unchanged.

3. Need for change

In cases in which the debtor was a salaried employee with stable employment and had realizable movable goods at his/her address, enforcement was often comparatively quick and efficient.

In all other cases, one of the main drawbacks of the Austrian enforcement process in practice became manifest.  Under the rules applicable before the Reform Bill, the creditor had to specify exactly which assets it wished to enforce against. Depending on the type of asset, more or less “insider” knowledge was required.

  • Where information on assets is available from public sources, such as the online Land Registry or Companies Registry, the assets were often quickly attached.
  • However, where no such publicly identified assets were available, finding attachable assets often proved difficult. This was especially true with regard toreceivables and other claims against third parties.
  • For example, while it is not necessary to name the debtor’s employer when attaching his salary, when creditors attempted to attach any claims a self- or unemployed debtor may have had against a third party, they were required to specify and individualize the claim — including at least the name and address of the third-party debtor, the legal grounds and the approximate amount of the claim.  This information is, however, only rarely available to the creditor. Accordingly, creditors often made numerous applications on a “hit or miss” basis, often with more misses than hits.  
  • The same held true for bank accounts.  A creditor was required to name the specific bank if it wished to attach the debtor’s bank account. Accordingly, creditors often simply named the 10 most likely banks as third-party debtors in the enforcement applications.
  • While obtaining an affidavit listing the debtor’s assets is an option, third-party debtors would often have already paid the listed receivables before they could be attached. Similarly, debtors would often have removed any valuable, movable goods, prior to their seizure.
  • Often creditors only became aware after investing significant resources into the enforcement measures that the debtor, ultimately, had insufficient assets.

Another drawback of the Austrian system prior to modification, was that it required intensive efforts and numerous applications by creditors, and often involved hearings, in order to attach/seize and realize attached assets. The costs triggered by this system often proved lost and, where recoverable, served only to further burden the debtor.

4. What does the Reform Bill change?

The Austrian legislature addressed these drawbacks by introducing an “enforcement administrator” (“Verwalter”) as a new player in enforcement proceedings and by bundling certain enforcement measures to increase efficiency.

a) Introduction of “bundles”

While creditors can continue to request individual enforcement measures against specified assets, they now also have the additional option of requesting something called a “small bundle” or an “extended bundle” of enforcement measures:

i) The “Small Bundle” Sec 19 EC

A creditor can file a simple application requesting the so-called “small bundle”.

This small bundle includes

  • enforcement against movable (corporeal) goods and “paper” (i.e. securities),
  • attachment of salary claims and
  • requiring an affidavit list of assets from the debtor. 

This is largely consistent with the existing practice of combining applications for enforcement against corporeal movable goods and against salaries.  Accordingly, the “small bundle” is structured as the default option and is triggered if a creditor does not specify any enforcement measures in the enforcement application.

The main benefit of the creditor’s utilization of a small bundle is that the court begins acting autonomously as soon as the enforcement application has been approved, and continues enforcement efforts until full satisfaction has been achieved (or the debtor is shown to have no assets). Under the old regime, when e.g. insufficient movables were found at one address or the debtor moved jobs, further applications from the creditor were generally necessary to move the enforcement process forward.

The small bundle is expected to become a popular form of enforcement, particularly against salaried employees.

ii) The “Extended Bundle” Sec 20 EC

An option that is likely to be popular when the debtor is a business enterprise is the so-called “extended bundle”. This includes, in addition to the enforcement measures contained in the small bundle, enforcement measures against all other movable assets, including attachment of other claims and receivables the debtor may have against third parties. This option is available when the creditor’s enforceable claim exceeds EUR 10,000, or in cases in which the seizure of movable assets is shown to be insufficient.  In these cases, an enforcement administrator, similar to an insolvency receiver, is to be appointed by the court.

Neither bundle includes enforcement against real property, which remains subject to the “old” regime.  

b) The enforcement administrator

Until the Reform Bill, the Enforcement Code provided for “administrators” (receivers) only in cases of compulsory administration of real estate and of certain property rights. The Reform Bill has introduced the concept of a general administrator for all types of enforcement in order to streamline enforcement proceedings, by concentrating knowledge, specialized skills and specialized powers in one person.

Once appointed by the court, the administrator will first identify the available assets. For this purpose, he can communicate directly with the debtor, who is obliged to provide information to the administrator, including any necessary documents, PIN-Codes, Krypto currency “keys” etc., necessary to realize the assets, and to provide access to his place of business, any storage facilities and, most importantly, to his books and records. The administrator may also request an affidavit on the assets. Failure of the debtor to cooperate can lead to the application of penalties, and even imprisonment.

After drawing up an inventory, the administrator will choose which assets upon which to realize first – i.e. which assets will most quickly and comprehensively satisfy the creditor(s)’ claims.  He will subsequently attach and realize upon the chosen assets until the creditor(s)’ enforceable claims have been satisfied. In this context, the administrator has many of the powers bailiffs currently have, with the exception of unlocking locked residential doors.

Subsequent creditors who request the extended bundle against a debtor, join the pending “bundle” enforcement proceedings at the status quo, with the same administrator acting for all creditors.

Enforcement administrators are registered on a central list, and must have experience in commercial, civil and enforcement law as well as necessary management,  IT and accounting skills together with the necessary organization and office equipment to ensure rapid recovery. The legislature envisaged lawyers, business consultants and auditors serving in this role. (Sec 79 et seq). Administrator’s fees are staggered (generally between 15% and 1% of the amount recovered).  The minimum amount, EUR 500, is to be advanced by the creditor before the administrator can be instructed (Sec 82 EC). Since the creditor no longer needs to file multiple applications, the additional fees for the administrator are not expected to make the proceedings more expensive for creditors.

While the administrator acts relatively autonomously, the court retains control of the enforcement proceedings: The administrator is bound by instructions issued by the court and is subject to the court’s ongoing supervision (Sec 84 EC). If administrators fail to properly discharge their duties, they can be fined by the court and, moreover, be held liable by creditors and Sec 81 a EC).

Creditors can generally waive the appointment of an administrator where they wish to enforce against specific, identified assets. There are exceptions, in particular where the enforcement measures involve the sale or compulsory administration of a business or company or of real property.

c) Measures in the event of “manifest insolvency” (Sec 49a EC)

If any administrator – or bailiff – becomes aware that the debtor has insufficient assets and/or solvency, they will be required to immediately suspend further enforcement efforts. The debtor’s “manifest insolvency” is then established by a court order. The court order is published in the public “Ediktsdatei”, where it remains for 3 years.

This measure is intended to limit unnecessary enforcement efforts and to streamline the transition from (individual) enforcement proceedings to the collective bankruptcy regime. On the one hand, this will encourage creditors to initiate insolvency proceedings, since otherwise, enforcement proceedings remain blocked and attachments rights are lost after 6 months.  At the same time, this should encourage debtors to either disclose information demonstrating that they are solvent,  since otherwise, their manifest insolvency remains in the public domain, or they should initiate insolvency proceedings themselves.

d) Further reform measures:

In order to concentrate enforcement measures in one court, the court in the jurisdiction of which the debtor is domiciled will generally have jurisdiction for all enforcement proceedings against movable assets (Sec 4 et seq. EC). This concentration is intended to more quickly clarify where debtors are “manifestly insolvent”.  Additionally, in the past employers complained about being over-burdened with legal uncertainties in cases where multiple courts approved attachment of the same employee’s salary for different creditors; concentration of jurisdiction at the debtor’s domicile should prevent this.

Certain measures were taken to improve the realization of enforcement upon movable (corporeal) goods  – particularly where an administrator is realizing against them – and in the case of real estate.

The amendments in the Enforcement Code are complemented by a set of modifications in insolvency law.

Provisions on the contestation of debtor transactions by creditors  – in particular transactions designed to make assets unavailable to enforcing creditors – have been moved from a separate act – the Contestation Act – and consolidated into the Enforcement Code. 

5) Outlook

It remains to be seen whether the parallel regimes of the “old” system, which remains in place, and the new, facultative “bundle” system will co-exist harmoniously or whether any friction found between the two systems will outweigh the benefits.

It will be incumbent upon asset tracing and enforcement experts to find the combination of “old” and “new” that will lead to the most effective recovery.

For more details contact Katrin Hanschitz or your customary relationship professional at KNOETZL.