The Revision of the Liechtenstein Bankruptcy Code

The Liechtenstein Bankruptcy Code (Konkursordnung, or "KO") has now been in force, with only minor changes, for almost 50 years. In an effort to substantially revise and modernise the Bankruptcy Code, the Liechtenstein Government is striving to realign it with the Austrian Insolvency Act, which has been revised by the Austrian Insolvency Law Amendment Act of 2010 (IRÄG). With the exception of the new provisions upon the bankruptcy of private individuals and the timely filing of an insolvency motion, which do not enter into force until 1st January 2022, the new and reformed Bankruptcy Code shall be applicable as the Insolvency Act" from 1st January 2021.

Besides the unification of insolvency proceedings in general, the amendment of the Bankruptcy Code facilitates various restructuring options, not only in terms of preserving the company itself, but also aims for the associated preservation of jobs, the continuation of contractual relationships and the (at least) partial satisfaction of creditors.

In addition to the new terminology, the implementation of the restructuring plan and the reduction of the minimum quota from 40% to 20% are of particular interest. In Austria this minima quota has led to a successful outcome and restructuring in approximately one third of insolvency proceedings. The Austrian model was praised as "best practice" by the EU expert group on "Restructuring, Bankruptcy and Fresh Start" and shall now replace the composition agreement (Nachlassvertrag) in Liechtenstein's legislation. The amendment further reduces the requirement for the approval of the restructuring plan from two thirds of all creditors to a simple majority of the creditors present in the restructuring plan hearing. This makes it easier for a debtor who is willing to restructure to save the firm. An important prerequisite for the successful continuation of a company is the perpetuation of existing contracts. Therefore, the dissolution of contracts and agreements via automatic termination or the right to withdraw in the event of insolvency are restricted if the termination of the contract could jeopardize the continuation of the enterprise. This is complemented by provisions on postponing eviction from business premises due to the non-payment of interest and a limitation upon the right to separate satisfaction for the first six months. As any costs incurred after the opening of insolvency proceedings qualify as claims against the bankrupt estate, which must be paid in full, these provisions are considered to be reasonable for the creditors.

The revision abolishes the four bankruptcy classes (Art. 48 – 51 KO) and henceforth only distinguishes between claims in insolvency and claims against the bankrupt estate.

In the event of particularly extensive insolvencies or complex insolvencies, as well as in the event of an intended sale or lease, a creditors' committee shall be appointed by the court, serving to disencumber the court and the trustee in bankruptcy and supervising the latter (Art. 4b IO).

Significant changes are not only made at the level of corporate insolvencies. As of 1st January 2022 the new provisions on the bankruptcy of private individuals will come into force. Private individuals’ restructuring plans must reach a minimum quota for the satisfaction of creditors of 10% within five years (or seven years at most). Alternatively, the creditors may opt for a payment plan without any minimum quota. In debt settlement proceedings involving the bankruptcy of private individuals, there will be no minimum quota and the duration is reduced to five instead of seven years.

Time will tell if the revision of the Liechtenstein insolvency law will be the same success story it has been in Austria. The modernization and consolidation of provisions is, in any case, overdue.

For further information, please contact Ortrun Reisch