The Impact of the COVID-19 Pandemic on Civil Proceedings in Austria¹

At the beginning of 2020, the COVID-19 pandemic hit Austria – like almost the entire world – hard. Over the course of the pandemic, the Austrian legislation had to take various measures to cushion the impact of the crisis on all areas of daily life. Most notably in spring 2020, some drastic regulations were enacted in civil procedure law. This article discusses changes that have reshaped the structure of civil procedural law in the long term (sections 2 to 5). In addition, special “COVID provisions” that are still relevant today in some cases will be presented (sections 6 and 7). ⁽¹⁾ Alongside a general overview of the major changes, the focus is also on a more in-depth examination of individual topics that are or were problematic.

The first rapid amendment to the Insolvency Code (hereinafter: IO) already took place in March 2020; it concerned the obligation of a materially insolvent debtor to file an application within the scope of § 69 (2a) IO. This provision extends the maximum period ⁽²⁾ for filing an insolvency petition from the (generally applicable) 60 days to 120 days if the insolvency (or in some cases over-indebtedness) has occurred because of a natural disaster. It was created in 2002 after a flood disaster in order to protect victims who were to expect compensation payments in a timely manner from nevertheless having to file an insolvency petition within the 60-day period. ⁽³⁾ Article 22 of the 2nd COVID-19 Act then permanently added “epidemic and pandemic” to the demonstrative ⁽⁴⁾ list of natural disasters. However, the majority of the Austrian literature assumes that this inclusion is merely of a clarifying nature, ⁽⁵⁾ which is supported not only by the wording (“or similar disaster of comparable scope”) but also by the above-mentioned genesis of § 69 (2a) IO. A natural disaster situation is comparable to the situation of “healthy” entrepreneurs whose financial troubles arose from the pandemic or the measures taken to cope with it. ⁽⁶⁾ Nevertheless, the legislator’s clarification is sensible because it ensures – especially in times of crisis – an urgently needed legal certainty and clarity. ⁽⁷⁾ The general requirement of the insolvency petition being filed “without undue delay” must also be observed with respect to the extended time limit; ⁽⁸⁾ therefore, the time limit of 120 days is only permissible in conjunction with promising and realistic (judicial or extrajudicial) attempts at reorganisation. ⁽⁹⁾

Article 33 of the 4th COVID-19 Act then amended the Insolvency Code again: the old version of § 78 (2) IO, dating back to the original version of the Insolvency Code of 1914, had provided for an obligation to notify relevant post and telegraph offices, airports, railroad stations and shipping stations of the opening of insolvency proceedings. The obligation to notify airports, railroad stations and shipping stations (which had already been insignificant in practice ⁽¹⁰⁾) was permanently abolished. ⁽¹¹⁾ According to the legislative materials, this measure is aimed at the avoidance of personal interactions in service processes. ⁽¹²⁾ However, the obligation to notify postal and telegraph services still remained in effect. This was considered necessary with regard to the postal block, which only takes effect from the time of the notification. ⁽¹³⁾ The obligation to notify the superior authority of a debtor in public service (old version of § 78 [5] IO) was also deleted due to its lack of practical significance.

A further amendment relates to § 80 (4) IO: The obligation to deliver a certificate of appointment to the insolvency administrator through official channels has been removed because, according to the legislative materials, this is only required in practice if the insolvency administrator acts abroad. ⁽¹⁴⁾ Hence, the insolvency administrator will only receive a certificate of appointment at his request.

Finally, and quite surprisingly, ⁽¹⁵⁾ the obligation to notify credit institutions and depository institutions where the debtor has a deposit, credit balance account or safe deposit box, either alone or jointly with others, which had previously been regulated in § 78 (4) IO, was abolished. According to this provision, the insolvency court had had to notify the relevant bank of the opening of insolvency proceedings with an order to execute dispositions of the debtor’s account only with the court’s consent (so-called “account freeze”). ⁽¹⁶⁾ The legislative materials justify this abolition – in an extremely succinct way – with the fact that credit institutions make a query in the insolvency file anyway, if necessary. ⁽¹⁷⁾ In Hämmerle’s view, ⁽¹⁸⁾ the abolition of § 78 (4) IO eliminated the legal basis for blocking joint accounts and deposits; a block is therefore only possible under the general safeguard provision of § 78 (1) IO. This provision requires the presence of a specific threat ⁽¹⁹⁾ and special care in the examination of the protective measure if it is directed at third parties. ⁽²⁰⁾ According to Hämmerle, after the repeal of § 78 (4) IO, a judicial blocking of an account can, therefore, only be ordered if there are concrete indications that a third party with the sole power of disposal could seize an account balance. ⁽²¹⁾ This argumentation is conclusive: in fact, the legislator seems to have overlooked this “side effect” of removing the notification requirement. ⁽²²⁾ However, the real practical effects have yet to emerge.

Parallel to § 69 (2a) IO, the examples of natural disasters in § 158 (1) Execution Code (hereinafter: EO; old version of § 200b EO) were supplemented by “epidemic and pandemic”, thus clarifying that a postponement of enforcement is also possible if the COVID pandemic affects the debtor. ⁽²³⁾ However, an extension provided by § 158 EO is only permissible in the context of compulsory auctions; ⁽²⁴⁾ therefore, other types of enforcement proceedings cannot be deferred on the basis of this provision. However, for the enforcement of movable goods, § 282a EO orders that sale proceedings have to be postponed if the requirements of § 158 EO are met. ⁽²⁵⁾ While Jenny ⁽²⁶⁾ considers the limitation to certain types of enforcement as a deliberate decision of the legislator and argues that the provision would otherwise probably have been included in § 42 EO, Garber/Neumayr ⁽²⁷⁾ argue in favour of an analogous application of § 158 EO to other enforcement proceedings. In this respect, the legislative materials only state that it should be clarified that epidemics and pandemics fall under the concept of natural disasters. ⁽²⁸⁾ On the website of the Federal Ministry of Justice, however, it is stated that a postponement of enforcement proceedings due to the crisis is only provided for in the case of two types of enforcement, i.e. the compulsory auction of real estate and the enforcement of movable goods. ⁽²⁹⁾ In our opinion, it can, therefore, be assumed that the legislator deliberately intended to cover only these two types of enforcement; ⁽³⁰⁾ hence – for lack of a loophole – there is no room for an analogous application of § 158 EO to other execution proceedings.

In order to ease the burden on companies affected by the measures taken to deal with the COVID crisis (in particular, by bans on entering and restrictions on operations), § 733 of the General Social Insurance Act (hereinafter: ASVG) contains special provisions for the collection of dues in the form of deferrals, partial and instalment payments, and a ban on avoidance. ⁽³¹⁾ This provision has been amended repeatedly over the past two years. In the light of the deferral and instalment provisions, the Austrian Health Insurance Carrier (“Österreichische Gesundheitskasse – ÖGK”) was to be granted a certain degree of protection against avoidance as compensation: In this respect, § 733 (11) ASVG initially provided for a rebuttable ⁽³²⁾ presumption, that the health insurance carrier was not aware or did not have to be aware of the employer’s intention to benefit and the employer’s insolvency at the time the dues were paid. Because of the great uncertainties about interpretation, the provision was then reworded. § 733 (11) ASVG, as amended, now provides for an absolute exclusion of avoidance with regard to payments made during the periods specified in § 733 (7) to (8b) ASVG. In this regard, the question of the period in which the protection against avoidance applies and which payments it relates to is of particular relevance for practice. Derntl argues that, based on the development of the statutory regulation, it can be assumed that comprehensive protection against avoidance existed until September 30, 2022. ⁽³³⁾ The protective effect of this has already begun on 16 March 2020 because at this point in time the earliest payments covered (dues for February 2020, cf. § 733 [1] ASVG) were considered to be overdue within the meaning of § 59 (1) ASVG. ⁽³⁴⁾ Derntl thus assumes a retroactive effect of the protection against avoidance; Rebernig also comes to this conclusion. ⁽³⁵⁾ Numerous details are still questionable, in particular, whether payments made during the protected period but before or without the conclusion of a payment agreement are protected against avoidance and whether the protection against avoidance also covers payments for old periods. On both points, Derntl assumes comprehensive protection against avoidance. ⁽³⁶⁾ However, in this case – esp. in view of the ratio of the provision and its character as an exceptional provision – the focus must be on the existence of concrete payment agreements and on payments on contributions (only) with regard to the deferral periods and partial and instalment payment periods affected by § 733 (11) ASVG. Regrettably, a party application to repeal § 733 (1) ASVG as amended by Federal Law Gazette I 158/2020 has been rejected by the Austrian Constitutional Court. ⁽³⁷⁾

In addition, the COVID measures also provided for tax deferrals and the possibility of instalment payments to ease the burden on taxpayers. ⁽³⁸⁾ Originally, an irrebuttable ⁽³⁹⁾ presumption of the non-existence of the subjective facts for the avoidance of insolvency had been planned. ⁽⁴⁰⁾ This concept was dropped due to severe criticism during the reviewing process. ⁽⁴¹⁾ However, with the introduction of the COVID-19 instalment payment model (§ 323e Federal Tax Code [hereinafter: BAO]) on 1 January 2021, an absolute exclusion of avoidance was anchored in § 323e (2) no. 5 BAO: “Payments made to a tax authority during the instalment payment period cannot be contested under the Insolvency Code [...] or the Avoidance Act [...].” ⁽⁴²⁾ The related legal questions correspond to those regarding § 733 (11) ASVG. Since the instalment payment period pursuant to § 323e (2) no. 3 BAO ended on 30 September 2022, the exclusion of avoidance will continue to have practical significance for some time. With regard to the history of the provision, it should be noted that the instalment payment model was not included in the original version of the COVID-19-StMG ⁽⁴³⁾ but was only introduced subsequently by way of an amendment in the second reading in the National Council. ⁽⁴⁴⁾

The above-mentioned forms of absolute exclusion of avoidance evoked constitutional concerns: Lovrek criticised the proposed irrebuttable presumption by pointing out the resulting unjustified preferential treatment of the Treasury and, moreover, the interference with other insolvency creditors’ property rights. ⁽⁴⁵⁾ Mohr also considered the unequal treatment of creditors to be constitutionally questionable, referring to the principle of par condicio creditorum. ⁽⁴⁶⁾ Trenker ⁽⁴⁷⁾ and Rebernig ⁽⁴⁸⁾ joined in the criticism as well. It remains to be seen whether the concerns regarding § 323e BAO will also be brought to the attention of the Constitutional Court.

Under the impact of the COVID pandemic, the Rules of Procedure for the Courts of First and Second Instance (Geschäftsordnung für die Gerichte I. und II. Instanz, hereinafter: Geo) also had to be amended by decree of the Federal Ministry of Justice ⁽⁴⁹⁾ with effect from 14 March 2020. § 54 (3a) Geo now provides for the possibility of using reservation systems: in the organisation and handling of the public court consultation day, advance notification systems may be used with the proviso that the receipt of non-urgent applications without corresponding timely advance notification may be refused. This enables a reduction or better control of the number of physical contacts. A scheduled expiry of this provision is not envisaged.

§ 24 Geo as amended by Federal Law Gazette II 2020/90 provided that the communication of parties shall be limited to the extent necessary to safeguard the procedural and party rights. ⁽⁵⁰⁾ This provision expired – after several extensions – on 1 July 2020 (see § 645 [2] Geo). ⁽⁵¹⁾

The 2nd COVID-19 Act, ⁽⁵²⁾ promulgated on 21 March 2020, included, among numerous other provisions, the 1st COVID-19 Justice Accompanying Act (hereinafter: 1st COVID-19-JuBG), which provided for various measures to address the crisis in the justice sector. It has been amended eight times and adapted to the ongoing pandemic situation; the provisions finally expired at the end of 30 June 2023 (see § 12 [1] 1st COVID-19-JuBG).

The provisions of the 2nd COVID-19 Justice Accompanying Act (hereinafter: 2nd COVID-19-JuBG) that are directly relevant to civil procedure law have meanwhile expired or have lost their significance (for the most part) and shall therefore only be mentioned for the sake of completeness. However, a reference must be made to § 10 of the 2nd COVID-19-JuBG, which excluded the avoidance of bridging loans for the interim financing of COVID-19 short-time work assistance pursuant to § 37b AMSG (only) pursuant to § 31 IO. ⁽⁹⁶⁾ The protection against avoidance applies to loans granted between 1 March 2020 and 30 June 2021 and may, therefore, still be relevant today. ⁽⁹⁷⁾ Also relevant until recently was § 15 2nd COVID-19-JuBG, which provided for the exemption from fees of certain advance maintenance decisions; ⁽⁹⁸⁾ the provision expired on 30 June 2023. ⁽⁹⁹⁾

§ 6 2nd COVID-19-JuBG contained a special provision allowing a postponement of eviction pursuant to § 349 EO and expired at the end of 29 June 2021 (see § 17 [8] 2nd COVID-19-JuBG). ⁽¹⁰⁰⁾

§ 7 2nd COVID-19-JuBG provided for the possibility of extending procedural deadlines in insolvency proceedings and, at the same time, excluded the applicability of § 1 1st COVID-19-JuBG to insolvency proceedings. Therefore, procedural deadlines, instead of being generally interrupted, could be extended by up to 90 days by the insolvency court upon request or ex officio. ⁽¹⁰¹⁾ § 7 2nd COVID-19-JuBG also expired at the end of 29 June 2021 pursuant to § 17 (8) leg cit.

§ 8 2nd COVID-19-JuBG provided for simplification of service in insolvency proceedings: For the duration of the interruption of the time limit pursuant to § 1 1st COVID-19-JuBG, publication in the insolvency file replaced service on the creditors. ⁽¹⁰²⁾ The provision expired at the end of 31 December 2020 (§ 17 [1] 2nd COVID-19-JuBG).

A key provision of the 2nd COVID-19-JuBG under insolvency law was its § 9: This provision suspended the obligation to file for insolvency in the event of over-indebtedness occurring between 1 March 2020 and 30 June 2021 ⁽¹⁰³⁾ and precluded the opening of insolvency proceedings on the basis of a petition filed by a creditor based solely on over-indebtedness. ⁽¹⁰⁴⁾ This was intended to prevent fundamentally “healthy” entrepreneurs from having to file a petition to open insolvency proceedings solely due to the effects of the COVID pandemic. ⁽¹⁰⁵⁾ How to deal with a creditor’s application that was nevertheless filed was unclear: according to the prevailing opinion, it would have had to be dismissed as (currently) obviously unfounded. ⁽¹⁰⁶⁾ However, the obligation to file a petition was only waived for over-indebtedness as the cause of insolvency. In the case of inability to pay debts, a debtor remained obliged to file a petition to open insolvency proceedings pursuant to § 69 IO; likewise, a creditor could file a petition to open insolvency proceedings on account of the debtor’s inability to pay debts during the entire pandemic. ⁽¹⁰⁷⁾ In practice, however, very few insolvency proceedings were opened during this period because the tax authorities in particular filed almost no bankruptcy petitions at all.

§ 11 2nd COVID-19-JuBG allowed deferral of payment plan instalments due for a period of up to nine months (until its expiration on 30 June 2021) if the debtor’s income and asset situation changed due to measures taken to prevent the spread of COVID-19. ⁽¹⁰⁸⁾

Finally, § 11a leg cit extended the maximum payment periods for the reorganisation plan pursuant to § 141 (1) sentence 1 and § 169 (1) lit a IO from two to three years; this applied to reorganisation plan applications submitted by 31 December 2021. ⁽¹⁰⁹⁾

The majority of the “COVID provisions” in civil procedure law have already expired with only a few remaining in effect. Most of the changes that are still in force after the period of crisis legislation are minor adjustments or cautious modernizations of existing regulations; there have been no major upheavals. An important change, however, was the (permanent) introduction of court hearings by video conference through the ZVN 2023. In the near future, the practice will presumably be occupied with the consequences of the exclusions of avoidance in the ASVG and in the BAO, as these – constitutionally questionable – provisions are likely to continue to cause problems for some time. To summarise, it can be said that the COVID-19-related changes to Austrian civil procedure law were, for the most part, sensible and appropriate measures for challenging times. The fact that most of them have now been repealed is also to be welcomed, as some of them were quite drastic measures – these should be reserved for times when they are needed.