Introduction: why illiquidity concerns every management team
Illiquidity (Zahlungsunfähigkeit) is the central ground for opening insolvency proceedings under Austrian law. Those who recognise it too late risk not only the company, but also their personal liability as managing director and criminal law consequences. This article answers the key questions: What does illiquidity mean in legal terms? When does it exist? How does it differ from a mere temporary cash-flow shortfall? And which early warning systems help to identify impending illiquidity in good time? It is based on case law, the Insolvency Code (IO), the Austrian Commercial Code (UGB), the Business Reorganisation Act (URG), the Criminal Code (StGB) and the expert opinion on the assessment of illiquidity (KFS/BW 7) issued by the Chamber of Tax Advisors and Auditors (KSW).
What is illiquidity?
Illiquidity exists if a debtor, for lack of available funds, is unable to pay its liabilities as they fall due and cannot obtain the necessary funds in the near future. It is laid down in § 66 IO: if the debtor is illiquid, insolvency proceedings (bankruptcy or restructuring proceedings) must be opened. The law expressly names one indicator: illiquidity is to be assumed in particular if the debtor ceases to make payments. The law itself does not define when illiquidity is to be assumed, which is why recourse is had to the case law of the Supreme Court (OGH).
Illiquidity concerns all debtors – natural persons, sole traders and companies. For corporations and quasi-corporations (e.g. GmbH & Co KG), over-indebtedness under § 67 IO is an additional ground for opening proceedings.
What role does over-indebtedness play?
Over-indebtedness exists if the assets no longer cover the debts (over-indebtedness on paper) and, in addition, there is no positive going-concern forecast. It must be distinguished from illiquidity: a company can be over-indebted but still solvent.
When does illiquidity exist?
According to the case law of the OGH, illiquidity is generally to be assumed if more than 5 % of the debts due cannot be paid. What matters is therefore not a single outstanding amount, but a comparison, as at a specific reporting date, between the debts due and the available liquid funds.
How is illiquidity assessed?
At its core, the assessment of whether illiquidity exists is based on two instruments:
- Financial status: a comparison, as at a specific reporting date, of the available liquid funds (cash, bank balances, undrawn credit lines) and the liabilities due. If this reveals a liquidity gap, further examination is required.
- Financial plan: a period-based liquidity forecast showing whether the gap can be closed within the relevant period (generally up to three months) – for example through expected incoming payments or secured financing commitments.
Only specific inflows that are highly likely to materialise may be taken into account. Mere hopes of new orders, non-binding talks with creditors and banks or unsecured shareholder contributions are not sufficient. This documentation is also important evidence later on – for example in liability or criminal proceedings.
When must an insolvency petition be filed?
In the event of illiquidity, the insolvency petition must be filed without culpable delay, but at the latest 60 days after illiquidity has occurred (§ 69 (2) IO). The 60-day period is not a grace period: it is only available for serious restructuring efforts with a reasonable prospect of success. In the event of a natural disaster, epidemic or pandemic, the deadline is extended to 120 days. If managing directors breach this obligation, they are personally liable to creditors for the so-called quota damage. In addition, they face, for example, (internal) liability towards the company under § 25 GmbHG (Limited Liability Companies Act) or § 84 AktG (Stock Corporation Act), liability towards the tax office under § 9 BAO (Federal Fiscal Code) and liability towards the social insurance institution under § 67 ASVG (General Social Insurance Act).
What is the difference between illiquidity and a temporary cash-flow shortfall?
A temporary cash-flow shortfall (Zahlungsstockung) is a merely temporary lack of funds that can be remedied within a short period – according to case law, generally within three months at most. It is not a ground for opening insolvency proceedings. Illiquidity, by contrast, is a lasting lack of liquidity that cannot be remedied in the short term.
| Criterion | Temporary cash-flow shortfall | Illiquidity |
| Duration | temporary, approx. three months at most (in exceptional cases up to five months) | cannot be remedied in the foreseeable future |
| Extent | usually minor or bridgeable in the short term | generally more than 5 % of the debts due |
| Ground for insolvency | no | yes (§ 66 IO) |
| Obligation to file | none | without culpable delay, within 60 days at the latest |
Drawing the line is tricky in practice: what initially appears to be a temporary cash-flow shortfall may later turn out to have been illiquidity. Courts and sworn and court-certified experts often assess the point in time at which illiquidity occurred retrospectively – which is why ongoing, documented liquidity planning is indispensable.
What is the relevance of illiquidity in criminal proceedings?
In criminal proceedings, the exact point in time at which illiquidity occurred is often the key question, because many insolvency offences (Krida offences) are linked to illiquidity or to causing it. Relevant offences under the StGB include in particular:
- Preferential treatment of a creditor (§ 158 StGB): favouring individual creditors after illiquidity has occurred.
- Grossly negligent impairment of creditors’ interests (§ 159 StGB): causing illiquidity through gross negligence or preventing it from being established, for example through conduct typical of insolvency offences such as disproportionately high expenditure, unjustifiable business risks or inadequate bookkeeping.
Public prosecutors and courts regularly appoint sworn and court-certified experts who reconstruct the point in time at which illiquidity occurred on the basis of the financial status and the financial plan.
How can I identify illiquidity in good time?
The most reliable way to identify impending illiquidity is ongoing liquidity planning that covers at least the next three months and is regularly reconciled with actual figures. Typical warning signs include:
- credit lines being fully drawn and repeated overdrafts,
- arrears with the tax office, the Austrian Health Insurance Fund (ÖGK) or suppliers,
- an increasing number of instalment agreements and deferral requests,
- enforcement applications, payment reminders and deliveries only against prepayment, and
- postponement of salary payments or payments made “according to urgency”.
If several of these signs occur together, a financial status should be prepared immediately and the situation assessed professionally.
Are there control mechanisms that give timely warning of impending illiquidity?
Yes. Austrian law provides for several statutory early warning mechanisms intended to alert managing directors and shareholders to a crisis.
Which ratios does the URG specify?
Under the Business Reorganisation Act (URG), a need for reorganisation is presumed if the equity ratio is below 8 % and the notional debt repayment period exceeds 15 years (§ 23 and § 24 URG). If management receives an audit report showing these values and fails to initiate reorganisation proceedings, each member may be personally liable for up to € 100,000.00 in the event of insolvency (§ 22 URG).
What warning obligations exist under company law?
If it emerges that half of the share capital has been lost, or if the URG thresholds are not met, managing directors of a GmbH must convene a general meeting without delay (§ 36 (2) GmbHG). The same applies to stock corporations under § 83 AktG. In addition, where insolvency is likely, the Restructuring Code (ReO) provides a procedure for initiating restructuring before illiquidity occurs.
How can KINDL.trusted help?
KINDL.trusted supports companies, managing directors and shareholders in all phases of a liquidity crisis – both preventively and when things become serious. In our practice areas Advisory, Tax Litigation and Legal Defense, we support you in particular with:
- assessing whether illiquidity, a temporary cash-flow shortfall or over-indebtedness exists,
- setting up early warning and documentation systems to avoid liability,
- criminal defence against allegations under §§ 156 to 159 StGB,
- questions of managing director liability, and
- tax law issues and representation before tax authorities.
Conclusion: identify illiquidity early, avoid liability
Illiquidity is a legal concept with far-reaching consequences: it gives rise to an obligation to file for insolvency within 60 days at most and is the trigger for personal liability and criminal liability. Distinguishing it from a temporary cash-flow shortfall, documenting the position by means of a financial status and financial plan, and making use of statutory early warning mechanisms often determine whether a company can be restructured and whether its management remains protected.
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Do you have questions about illiquidity, managing director liability or ongoing criminal proceedings? Contact us – confidentially and promptly.
