Security shortly before insolvency: document the grant and changes

Security granted shortly before insolvency is not the same as a payment. A payment transfers money to a recipient. Granting or changing security gives a claim an additional right or changes an existing secured position.

The review therefore requires more than bank records. It needs the origin of the claim, the security agreement, the actual act granting or changing the security, the consideration and the information available to the parties at that time.

This article structures those facts for a review under section 31 IO. It does not determine whether a particular security is avoidable, valid or enforceable.

The focus is the right intended to support a claim. Describe the security as precisely as the documents permit, including the contractual designation, secured asset, parties and agreed scope. Whether the right was validly created may require further evidence depending on the type of security.

A transfer, part payment or set off is not the subject of this article. Payment records may still evidence the amount of the secured claim or performance connected with the grant. The separate payment perspective is explained in the detailed article Insolvency avoidance in Austria.

Record at least four points separately: when the claim arose or changed, when security was agreed, when it was actually granted or changed and when the later insolvency events occurred. Contract date, signature, delivery, registration or another completion act may differ and should not be collapsed into one line.

For each date, identify the primary record and the persons involved. Timing alone does not answer the avoidance question. It provides the basis for examining the statutory period and the information available at the relevant time.

Match the security to the secured claim. Did the claim already exist, or did it arise with a new advance, delivery or other performance? Was forbearance, continued supply, a credit line or a contract change agreed? Contract, invoice and ledger entry may not be sufficient where actual performance is disputed.

Preserve disbursement records, delivery notes, acceptances, work records and dated correspondence. Describe neutrally what was promised and what was performed. Calling something consideration does not predetermine its legal assessment.

An extension, replacement or other change requires both versions in the file. Record which claims or assets were covered before and what the amendment added, released or sought to alter in priority.

Relevant records include the original agreement, amendment, releases, registry extracts, delivery records and communications about the reason for the change. Without that comparison, it remains unclear whether an existing arrangement was merely completed or new security was intended.

Knowledge based grounds require attention to the information available at the time. Match reminders, requests for instalments or extensions, returned payments, financial information, meeting notes and internal approvals to the specific date of grant or change.

Record who received each message and which attachments were included. Facts discovered later belong in a separate column. This prevents later knowledge from being projected backwards onto the earlier decision.

Section 31 IO covers specified legal acts performed after insolvency occurred or after an application to open insolvency proceedings. Subject to its requirements, it includes acts by which an insolvency creditor obtains security. The precise ground, persons involved, actual or constructive knowledge and any required prejudice must be assessed for the individual transaction.

Under section 31(2) IO, avoidance under that provision is excluded where the relevant act occurred earlier than six months before the opening of insolvency proceedings. The legally relevant act granting or changing security should not be guessed from the date on a single document.