The effects of COVID-19 on the global economy are well-documented and need not be discussed in detail here. Austria's economy was certainly not spared and there is little doubt that corporate insolvencies will increase across most sectors. In light of a recent publication by colleagues at Skadden Arps Slate Meagher & Flom LLP, answering several questions about arbitration and insolvency in Germany, this article seeks to address some of those questions in the Austrian context.

Is an insolvency administrator bound by an arbitration agreement entered into by the insolvent party?

In Austria, insolvency administrators are bound by arbitration agreements that the insolvent party has entered into with third parties prior to the commencement of insolvency proceedings. In recent landmark decisions by the Austrian Supreme Court (Oberste Gerichtshof, OGH) regarding insolvency and arbitration, the Court did not question this but took it for granted in its obiter.1

Exceptions apply if rights of the administrator are affected, which 1) do not arise directly from the contract concluded between the debtor and the creditor, but rather from the Austrian Insolvency Act, or 2) arise from the person of the insolvency administrator.2 The insolvency administrator is also not bound by arbitration agreements entered into concerning the avoidance of legal acts undertaken prior to the opening of insolvency proceedings (Anfechtung), as the insolvency administrator's right to contest legal acts does not derive from the debtor.3

Are arbitration proceedings stayed if a party files for insolvency?

According to section 6(1) of the Austrian Insolvency Act (Österreichische Insolvenzordnung, IO), proceedings intended to enforce or secure claims against the assets belonging to the insolvency estate may neither be brought nor continued after the opening of insolvency proceedings. Section 7(1) IO dictates that all pending litigation proceedings in which the debtor is the Plaintiff or Defendant are automatically stayed by law upon the opening of insolvency proceedings. This also applies to actions to set aside arbitral awards.4 Exceptions to this rule include claims that do not concern assets belonging to the insolvency estate, particularly claims for the debtor's personal performance (section 6(3) IO).

While Austrian statutory law does not contain a corresponding rule regarding arbitration, the OGH has held that sections 6(1) and 7 IO also apply to arbitration proceedings. In three decisions handed down on 17 March 2015,5 the Court suspended proceedings under section 7(1) IO due to the commencement of insolvency proceedings against the Respondent. These suspensions were also held to extend to the proceedings on the appointment of arbitrators.

Importantly, section 7 IO applies only to proceedings that are pending when insolvency proceedings commence. On the question of when an arbitration is considered pending, the Court held that in litigation as in arbitration, the first procedural step that the Claimant takes to pursue their claim is decisive. In arbitral proceedings, this first step is determined by the content of the arbitration agreement, if need be supplemented by the applicable arbitration rules and rules of civil procedure. This first step could be, for instance, the submission of the statement of claims with the arbitral institution or with the agreed-on arbitrator. As the arbitration agreements in the cases at hand provided for ad hoc arbitration, the first step required was the formation of the tribunal. Absent further agreement between the parties, section 587(2)4 Austrian code of Civil Procedure (Zivilprozessordnung, ZPO) provides that the Claimant shall request the Respondent to appoint an arbitrator. This request was considered to be the first procedural step taken by the Claimant in pursuit of their claim.

Can the claim verification procedure be conducted by an arbitral tribunal?

In a landmark November 2018 decision (18 ONc 2/18s), the OGH held that, where there is an arbitration agreement concerning the disputed claim, the claim verification procedure (Prüfungsverfahren) may be conducted by the arbitral tribunal 'in any case' where the claim is disputed only by the insolvency administrator.

In general, an insolvency court has exclusive jurisdiction over a claim verification procedure (section 111(1) IO). An exception to this applies if the claim became pending before another court prior to the commencement of insolvency proceedings and was subsequently stayed under section 7(1) IO. In these cases, proceedings are continued at that respective court as verification processes.

In 18 ONc 2/18s, the insolvency administrator disputed the registration of an arbitration claim after the OGH had stayed the appointment of an arbitrator because of the initiation of insolvency proceedings. The Court sided with the Claimant, stating that in cases where only the insolvency administrator disputed a claim, the claim verification procedure was to be continued by the arbitral tribunal. Its reasoning was largely based on the equivalence of forum selection clauses and arbitration agreements. Given that forum selection clauses presented an exception to the exclusive jurisdiction of the insolvency court, there was no reason not to extend this exception to arbitration agreements.

This ruling focused on a context in which the insolvency administrator disputed a claim. The OGH did, however, address the challenges posed vis-à-vis other insolvency creditors. In its obiter, it stated that the outcome of the case would have been the same if an insolvency creditor had also disputed a claim, as they would fall within the subjective scope of the arbitration agreement and would be entitled to participate in the verification proceedings before the arbitral tribunal.

What steps need be taken if insolvency proceedings are commenced against the counterparty?

Upon the commencement of insolvency proceedings over the assets of a debtor, Claimants, including claimants to pending arbitration proceedings, must lodge their claims with the insolvency court (section 102 ff IO). The insolvency court notifies the insolvency administrator of their existence, who enters claims into a register according to their rank.

If the claim is contested by another insolvency creditor or by the insolvency administrator - which is likely in cases of pending arbitration claims - it is subject to a claim verification procedure (Prüfungsverfahren). As discussed in the question above, this procedure may be conducted by the arbitral tribunal under certain circumstances. In practical terms, this means that the prayers for relief should be amended from a claim for payment to declaratory relief. In case of an arbitral award in a claim verification procedure, the award would take on legally binding effect against insolvency creditors in the meaning of section 112 IO provided they were able to participate in the proceedings.6

Can an arbitration clause in an executory contract be enforced against a debtor?

Under Section 21(1) IO, if a bilateral contract has not yet been performed (entirely) by both parties at the time of the opening of insolvency proceedings, insolvency administrators can choose whether to perform the contract on behalf of the debtor and demand performance from the counterparty, or rescind the contract. If the contract is rescinded, the counterparty can only claim damages and will be treated like an unsecured creditor. If the insolvency administrator chooses to perform, both parties have to perform fully, except where the contract can be divided into severable units.7 Section 21 IO only applies to contracts that had already been concluded when insolvency proceedings commenced.

If a contract is rescinded by the insolvency administrator and legal validity of this rescission is disputed, then the arbitration agreement contained in the contract continues to exist.8 Additionally, if the insolvency administrator chooses to perform the executory contract, he is bound by the arbitration clause.9

What happens if a foreign party to an Austrian-seated arbitration becomes subject to insolvency proceedings in another EU country?

Article 18 of the EU Insolvency Regulation states that "[t]he effects of insolvency proceedings on a pending lawsuit or pending arbitral proceedings concerning an asset or a right which forms part of a debtor's insolvency estate shall be governed solely by the law of the Member State in which that lawsuit is pending or in which the arbitral tribunal has its seat."10

Therefore, if an arbitration is pending in Austria, the effects are governed by Austrian law, even if insolvency proceedings are commenced before the court of another member state. In line with the OGH's ruling from 17 March 2015, pending arbitrations will be stayed under section 7 IO and claims will have to be filed with the insolvency court. However, as discussed above, if contested by the insolvency administrator, the arbitration is continued as a claim verification procedure.

What happens if a foreign party to an Austrian-seated arbitration becomes subject to insolvency proceedings in a non-EU country?

Non-member states are subject to section 240 (1) IO, pursuant to which insolvency proceedings and decisions rendered in another state are recognized in Austria if:

  1. the center of main interests of the debtor is in that other state; and
  2. the insolvency proceeding is comparable to such proceedings in Austria.

Recognition occurs ipso jure, meaning that a separate recognition procedure is only carried out in case of objection by the debtor.11 Austrian courts have thus far not specifically addressed the matter of a foreign party to an Austrian-seated arbitration becoming subject to insolvency proceedings in a non-EU country. Based on the discussion above, it seems highly likely that arbitration proceedings would be stayed.


1 18 ONc 2/18s; 18 ONc 6/14y; 18 ONc 7/14w; 18 ONc 1/15i.

2 Hausmaninger in Fasching/Konecny3 IV/2 § 581 ZPO (Stand 1.10.2016,

Rz 199

3 Schauer in Czernich/Deixler-Hübner/Schauer, Schiedsrecht (Stand 1.5.2018,

Rz 5.73; Weber in Czernich/Deixler-Hübner/Schauer, Schiedsrecht (Stand 1.5.2018, Rz 14.16

4 Lovrek/Musger in Czernich/Deixler-Hübner/Schauer, Schiedsrecht (Stand 1.5.2018, Rz 16.106

5 18 ONc 6/14y; 18 ONc 7/14w; 18 ONc 1/15i

6 18 ONc 2/18s, para 3.4(b)

7 Felix Kernbichler, 'National Report for Austria' in Jason Chuah and Eugenio Vaccari (eds), Executory Contracts in Insolvency Law (Edward Elgar Publishing, 2019) p. 79

8 Widhalm-Budak in Konecny, Insolvenzgesetze § 21 IO (Stand 1.10.2017, Rz 36

9 Weber in Czernich/Deixler-Hübner/Schauer, Schiedsrecht (Stand 1.5.2018, Rz 14.15

10 Regulation (EU) 2015/848 of 20 May 2015 on Insolvency Proceedings (recast)

11 Klauser/Pogacar in Konecny, Insolvenzgesetze Art 23 EuInsVO (Stand 1.11.2013,

Rz 11

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.