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Austria gears up for insolvency rush
24 April 2009
International Observer: Nick Hood from Begbies Global Network continues his look at insolvency trends abroad
The Irish Pub tucked away behind Vienna’s impressive casino was packed last Friday night but soon it may also be standing room only in Austria’s bankruptcy courts. Local insolvency practitioners are expecting a surge in business and personal bankruptcies after a relatively calm 2008, when just 6,350 companies were declared insolvent.
Last week’s Euro meeting of the Begbies Global Network was treated to a depressing assessment of the situation in this commercial gateway to central and eastern Europe (CEE). The perilous state of a number of economies, notably Hungary, Serbia and Latvia, threatens to cause heavy write-downs for Austrian banks, which have a combined total of €250 billion invested in other CEE states. The default rate on this debt is expected to be at least 10 per cent and probably rather higher.
Austria’s strong connection to the struggling CEE region comes not just from inward investment into these states but through making more than 25 per cent of its exports there. Inevitably, trade with the CEE has slowed even more rapidly than other major markets, pushing Austria’s GDP down into negative territory since the last quarter of 2008.
Fortunately, the Austrian equivalent of the US Federal Reserve has assets of €84 billion and should be able to provide adequate support to the banks. Indeed, some €10 billion has been injected into the economy recently and there are the first tentative signs of a thawing in credit markets, according to Thomas Schaffer of TPA Horwath, one of Austria’s leading accounting firms.
There haven’t been any major insolvencies yet. However, mounting problems at a number of large companies have prompted a group of leading insolvency practitioners to create an informal panel to work together should such an eventuality arise. Dr Ulla Reisch, from law firm Urbanek Lind Schmied Reisch, confirmed that Austria’s insolvency profession lacks any individual firms with the capacity to handle large cases.
As in so many other countries, insolvency experts will be working hard but running into the common problem of finding buyers for distressed assets – or at least anyone with the cash to pay for them. Austrian banks are still lending and investors are certainly alert to potential bargains but extreme caution remains the watchword.
The revellers wreathed in the cigarette smoke of Molly Malone’s may soon be crying into their beer as job losses accelerate and the recession gathers pace. There is no end in sight quite yet.
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