Increased Due Diligence Obligations For Shareholder Creditors?

The Austrian Insolvency Code provides for the possibility to challenge certain disadvantageous transactions carried out by the debtor after material insolvency has occurred, especially if the creditor knew or should have known of its debtor's material insolvency. This risk of legal actions being contested is of particularly high relevance for shareholders who are also creditors of the debtor company, as the Austrian Supreme Court recently decided that shareholders' information rights would result in an increased level of due diligence. The decision also imposes an additional risk for start-up equity incentive programmes.

1. Avoidance Claims under the Austrian Insolvency Code

Material insolvency has occurred when an entity is illiquid (zahlungsunfähig) or over-indebted (insolvenzrechtlich überschuldet) in terms of Austrian insolvency law. According to the Austrian Insolvency Code, disadvantageous transactions carried out by the debtor after becoming materially