Insolvency of an Austrian private foundation: board duties and petition

A strained cash position is not necessarily illiquidity. The foundation board must nevertheless create a complete, timely picture: due debts, available funds, assets that can realistically be realised in the short term, recurring expenses, credit lines, security interests and outstanding tax or social-security positions. For a private foundation, recurring distribution commitments, agreements concerning foundation assets and resolutions with payment effects also belong in that picture.

Under section 1 of the Austrian Insolvency Act, insolvency proceedings are opened on application where illiquidity or over-indebtedness exists. Those concepts are assessed under sections 66 and 67. A single balance-sheet figure or the prospect of selling an asset at a later date does not replace an examination of the present ability to meet due obligations.

The foundation board represents the private foundation and has to assess the position as its corporate body. Tax advisers, accounting professionals and asset managers can provide essential information. Responsibility for a timely and documented board decision remains with the board.

Section 69(2) of the Austrian Insolvency Act requires an application without culpable delay, and at the latest 60 days after illiquidity occurs, once the requirements for opening proceedings exist. Section 69(3) places that duty on the corporate representatives of legal persons. For a private foundation, each board member must therefore know the financial position in time and participate in the necessary board decision.

The period is not a waiting period that may be used up without investigation. It is not intended for gathering information only at the end. The statute provides that carefully pursuing the opening of a restructuring proceeding with self-administration can exclude culpable delay. Whether that route is available in a particular case requires sound preparation.

A disagreement between several board members must not block the assessment. Section 69(4) contains rules for situations in which an application is not made by all natural persons subject to the duty. The application route, authority to represent and existing resolutions should therefore be checked against the foundation declaration, commercial register position and current board structure before filing.

During a crisis, the foundation board must address the interests of the foundation and its creditors on a complete factual basis. New distribution resolutions, asset transfers or payments cannot be assessed independently of the present liquidity position. What action is permissible and which records are needed depends on the particular transaction, the foundation’s obligations and the stage reached in proceedings.

Section 35(1) PSG links dissolution of a private foundation, among other events, to the opening of bankruptcy proceedings over its assets and to the final refusal to open insolvency proceedings for lack of assets sufficient to cover costs. Dissolution is therefore not the first step in a mere liquidity crisis. It neither replaces the assessment under the Insolvency Act nor a timely decision on an application.

The issues are separate: the article on dissolution and winding-up of a private foundation explains the foundation-law grounds for dissolution. Where individual founder rights and creditor access are concerned, the article on attachment and avoidance concerning founder rights is the more suitable starting point.