Review a pledge before insolvency: legal act, creditor prejudice, time period and proof of knowledge under Section 28 IO.
BRANDAUER Rechtsanwälte
Insolvency law, Salzburg and throughout Austria
We review the procedural status, contracts, payment records and security, then explain which legal question needs to be addressed next.
A pledge granted before insolvency is not automatically avoidable. A review under Section 28 IO must connect the specific legal act, possible prejudice to creditors and the other party's knowledge at the time of the transaction.
The file therefore needs more than the pledge agreement. It should show the secured claim, the scope of the security, the act by which it was created or changed, any consideration, the debtor's financial position and the communications surrounding the arrangement.
This article sets out how to organise those facts for the grounds in Section 28 IO. It does not decide whether a particular act is avoidable or which legal consequence applies in an individual case.
The check separates the legal act, the relevant period and the information available at the time. It does not calculate an avoidance risk or replace legal advice.
Discuss the specific matter with the firm.
Separate the agreement, signature, creation, delivery and any registration of the security. Record the origin of the claim, the consideration, the insolvency application and the opening of proceedings with their own evidence.
Keep separate records for a payment, a contract amendment and a security. A payment record does not by itself show when a pledge was created or whether new consideration was connected with the security.
Compare the relevant act with the date on which proceedings opened. If the act falls outside the periods named in Section 28 IO, that specific ground is not established by timing alone. Other grounds should also be assessed separately rather than inferred from the proximity of insolvency.
Link the contemporaneous records to the specific act and then ask whether they support the statutory knowledge or constructive-knowledge requirement. The existence of a pledge or the later insolvency does not prove this element on its own.
Mark which facts became known only later. Look for contemporaneous documents, notes and financial information without treating later developments as knowledge that existed when the pledge was granted.
For an act more than two and no more than ten years before the opening of proceedings, explain carefully why Section 28 no. 1 IO is the relevant route. The decisive question remains whether the other party knew of the debtor's intention to prejudice creditors when the act occurred.
Section 28 IO lists several avoidable legal acts based on an intention to prejudice creditors. The provision focuses on the debtor's act, prejudice to creditors and the other party's knowledge. The applicable numbered ground therefore depends on timing, the participants and the evidence.
A pledge must be described as a specific legal act for this purpose. The fact that a pledge was agreed or registered shortly before insolvency does not by itself answer whether creditors were prejudiced or what the other party knew.
The file should identify the secured asset, the secured claim, the maximum amount or other limit, the priority position and the participants. State whether a new pledge was granted, an existing pledge was extended, the collateral was exchanged or a release was agreed.
Agreement and completion may occur at different times. Depending on the type of security, signature, delivery, registration or another completion act may have different significance. The relevant act should therefore be determined from the security and the complete file rather than assumed from the date in the heading of the agreement.
A general description of the crisis is not enough to show prejudice. Compare the debtor's assets and the creditors' access with and without the specific security. Relevant facts may include the value of the collateral, existing priority rights, the scope of the security and the assets left free for other creditors.
Consideration belongs in the comparison as well. Was the claim already outstanding, or was the pledge connected with new financing, delivery, a deferral or another service? Contract labels do not replace an examination of the actual economic sequence.
Section 28 no. 1 IO covers legal acts in the last ten years before the opening of proceedings when the other party knew of the debtor's intention to prejudice creditors. Section 28 no. 2 IO concerns acts in the last two years that prejudice creditors when the other party had to know of that intention. Section 28 no. 3 IO contains a special rule for spouses and other close relatives.
Section 28 no. 4 IO addresses purchase, exchange and supply contracts entered into in the last year where the other party recognised or had to recognise a dissipation of assets prejudicial to creditors. This ground should not be equated with every pledge. The file should identify the applicable numbered ground instead of compressing different acts into one label.
The knowledge record starts with contemporaneous facts. Preserve demands, arrears, requests for a deferral, financial figures, restructuring proposals, meeting notes and communications about the security. For each item, state who received or could access it and when.
The later insolvency, later defaults or a later avoidance claim are important events in the chronology. They should not be used without further reasoning as proof of what the other party knew or had to know when the pledge was granted.
Section 30 IO concerns avoidance for preferential treatment. It can cover security or satisfaction after insolvency, after an application to open proceedings or during the preceding sixty days, subject to the further statutory requirements.
Section 30 IO follows a different approach from Section 28 IO. A pledge should therefore be compared with both time frames and both grounds when the dates justify it. Calling an act security and pointing to its proximity to insolvency does not determine which route applies.
Create a table covering the legal act, date, evidence, secured claim, consideration, scope of the security, financial position and information available at the time. Label assumptions and disputed facts expressly. This keeps proven requirements distinct from allegations.
Also preserve the avoidance demand, service evidence, procedural status and the party's position in the dispute. The article Insolvency avoidance: review lawsuit, defence and restitution addresses that procedural perspective separately.
No. Section 28 no. 2 IO requires the statutory elements to be met in the individual case. These include prejudice to creditors and the other party's knowledge or required knowledge at the relevant time. The date alone is insufficient.
Section 28 no. 1 IO names a period of ten years before the opening of proceedings. The other party must also have known of the debtor's intention to prejudice creditors when the act occurred. The original pledge and the information then available must therefore be traceable.
The answer cannot be taken from the agreement date in every case. Agreement, signature, delivery, registration and another completion act may differ. The relevant act must be identified from the type of security and the complete evidence.
Arrange contemporaneous communications, financial information, arrears, requests for a deferral and meeting notes by recipient and date. Mark later knowledge separately. The later insolvency does not automatically show what was known earlier.
Section 30 IO has its own requirements for security and satisfaction during the crisis and within a sixty-day period. A pledge granted close to the opening of proceedings may therefore require a separate comparison with Section 30 IO.
Topic page on the legal act, prejudice, consideration and information available at the time.
Record documentation gaps for a payment or security in a structured way.
Organise the creation, amendment, consideration and chronology of a security.
Further guidance on the authority to avoid, restitution and court proceedings.
A short explanation of the legal term and its basic framework.
Tell us your role, the business concerned and the procedural status. We respond within one business day.
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BRANDAUER Rechtsanwälte GmbH Giselakai 51 5020 Salzburg
Phone
+43 662 6280000