The effects of opening insolvency proceedings on real estate purchase agreements in Austria

Under Austrian law, the acquisition of ownership of property requires the new owner to be entered into the land register. Section 13 of the Insolvency Code (IO) states, in this respect, that entries in the land register may only be made if the relevant application is received by the land registry court before the insolvency proceedings are opened; after the opening of the insolvency proceedings, a comprehensive “land register-block” applies, thus preventing the risk of a reduction of the debtor’s assets.

Whether the buyer acquires ownership despite the opening of insolvency proceedings against the seller, depends primarily on the stage of the execution of the purchase contract. Section 21 IO states that a contract not yet fully performed by both parties entitles the insolvency administrator to either perform the contract or to withdraw from performance entirely. If the buyer has already paid the purchase price, his claim for restitution of the purchase price becomes an insolvency claim. Generally, he will only be reimbursed with a fraction of the purchase price.

The interposition of a trustee protects the buyer. After both parties have signed the purchase contract, the buyer transfers the purchase price to the trustee’s account. The trustee can successfully arrange for an entry after the opening of the insolvency proceedings if a notarially certified purchase agreement is signed before the opening of the insolvency proceedings.

Conclusion

The fiduciary execution of a property purchase contract protects the buyer even in the event of insolvency. If both parties have fulfilled their obligation with regard to the trustee as stated in the purchase contract, the insolvency administrator cannot prevent the sale of the property.

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