The Federal Act on International Insolvency Law (Federal Law
Gazette 2003/36) implemented Directive 2001/24/EC on the
reorganization and winding up of credit institutions (Directive
2001/24/EC). Several provisions were inserted in the Austrian
Bankruptcy Code (Konkursordnung-KO) and the Austrian Banking Act
(Bankwesengesetz-BWG).
These provisions entered into force on May 5 2004.
Jurisdiction
The new provisions regarding bankruptcy proceedings will be
applicable to credit institutions that are authorised in a
contracting state of the European Economic Area (EEA) and will also
be applicable to credit institutions domiciled outside the EEA, if
they have at least a branch in an EEA state (§ 243 KO).
§ 244 (1) KO provides that Austrian courts shall have
jurisdiction for the opening of bankruptcy proceedings over the
assets of credit institutions authorised in the EEA only if the
credit institution is authorised in Austria according to § 1 (1)
BWG, meaning it has obtained a licence from the Financial Markets
Supervisory Authority (Finanzmarktaufsichtsbehörde, FMA).
§ 244 (2) KO provides that Austrian courts shall have
jurisdiction for the opening of bankruptcy proceedings over the
assets of credit institutions domiciled outside the EEA, if they
have a branch in Austria.
Under § 250 KO the decision of a court (or other governmental
authority) in an EEA state to open proceedings to liquidate a
credit institution will be recognized in Austria without further
formalities. Such proceedings take effect in Austria as soon as
they become effective in the state in which the proceedings were
opened.
Insolvency proceedings to liquidate a credit institution
domiciled outside the EEA shall be recognized in Austria if (i) the
debtor's centre of main interest is in that other state and (ii)
these insolvency proceedings are comparable to Austrian
proceedings.
Special receivership proceedings and regulatory
measures
Special receivership proceedings under §§81 seq BWG and
regulatory measures under § 70(2) BWG constitute reorganization
measures as defined in Article 2 of Directive 2001/24/EC.
Austrian authories shall have jurisdiction for the opening of
special receivership proceedings and the adoption of regulatory
measures against credit institutions authorized in Austria
according to § 1 (1) BWG as well as against branches of foreign
credit institutions in Austria.
Assets situated abroad
Reorganization measures (bankruptcy proceedings, special
receivership proceedings, regulatory measures) in respect of a
credit institution authorized in Austria will also cover the credit
institution's assets (including its branch offices' assets) located
in the EEA.
Set-off and close-out netting
The Austrian legislator literally adopted Article 23 (Set-off)
and Article 25 (Netting agreements) of Directive 2001/24/EC in §§
223 and 233 KO (with respect to bankruptcy proceedings)
respectively §§ 81c BWG and 81l BWG (with respect to special
receivership proceedings and regulatory measures).
Under § 223 KO and § 81c BWG, the opening of insolvency
proceedings shall not affect the right of creditors to demand the
set-off of their claims against the claims of the debtor, where
such set-off is permitted by the law applicable to the insolvent
debtor's claim.
Close-out netting is, however, more than mere set-off. It is a
process agreed upon in so-called netting agreements involving (i)
the termination of open transactions on the occurrence of an event
of default, (ii) the liquidation of those transactions so as to
attribute to them a value (usually either by reference to their
market value or to the cost of replacing them) and (iii) the
aggregation of the values attributed to those transactions, giving
rise to a single net debt owed by one party to the other.
Art 25 of Directive 2001/24/EC states that netting agreements
shall be governed solely by the law of the contract that governs
such agreements.
Neither the explanatory remarks of the Austrian legislator to §
233 KO and § 81l BWG nor Directive 2001/24/EC in respect of the
underlying provision of Article 25 provide guidance for a
definition of the term netting agreement. In our opinion,
Isda Master Agreements, for example, constitute netting agreements
within the meaning of § 233 KO and §81l BWG.
If § 233 KO and § 81l BWG apply, it is therefore a matter of the
law governing the netting agreement whether close-out netting is
enforceable in insolvency proceedings over the assets of an
Austrian credit institution.
Wolfgang Höller