Kaiser Law Leaves A-Tec Bondholders Out in Cold in Insolvency

Bondholders owed 309 million euros ($403 million) by insolvent Austrian industrial company A-Tec Industries AG are being penalized by an 1874 law that was designed to protect them.

Austria’s Bond Curator Law, enacted under Kaiser Franz Joseph, rules that bondholders are represented exclusively by court-appointed “curators,” or trustees, in insolvencies. Created to offer investors a swift settlement of claims after the 1873 stock market crash that spread from Vienna to financial centers around the world, the law is now denying bondholders a say in A-Tec’s restructuring and direct access to information about the process.

A-Tec’s case shines a spotlight on the deficiencies of the seldom used law in a country where insolvencies involving corporate bonds are rare. Austria missed a chance to amend the rules when it revamped its insolvency procedures this year, according to Susanne Kalss, a law professor at the Vienna University of Economics and Business.

“It is obvious that this law doesn’t really fit into modern-day legal practice,” she said in a Nov. 25 interview. The reform “would have been an opportunity to also update the Curator Law, but it simply wasn’t on anyone’s radar because it’s so rarely invoked.” Since the 1990s, there have been no more than eight cases involving the law, she said.


A-Tec, whose holdings range from copper producers to builders of power plants, filed for insolvency Oct. 20 after efforts by the Vienna-based company to refinance a bond failed. Its biggest unit, AE&E, followed on Nov. 24. The insolvency is Austria’s third-biggest in post-war history.

“Our clients are clearly frustrated and disappointed,” said Louise Verrill of law firm Brown Rudnick LLP, which represents a majority of holders of the two convertible bonds A-Tec has sold. “If the current situation is any guide, the treatment of bondholders in an insolvency in Austria places debt investors at a significant disadvantage compared to other international markets.”

Holders of A-Tec’s two convertible bonds, which mature in May and October 2014, and of a bond that matured on Nov. 2 and wasn’t redeemed because of the insolvency filing, are the company’s biggest creditors, with 309 million euros in liabilities between them, including accrued interest on coupon payments, according to court filings by the bond trustees.


A-Tec also owes about 50 million euros to creditors including suppliers and tax authorities, according to Hans-Georg Kantner, a representative of credit protection association Kreditschutzverband von 1870, who is also the spokesman of A-Tec’s creditor committee.

As much as 300 million euros would come due if guarantees to its subsidiaries were drawn, said Kantner, whose creditor committee is advising the restructuring administrator.

Calls and an e-mail to Claudia Mueller-Stralz, a spokeswoman for A-Tec, weren’t returned.

Similarly to other European countries, Austrian firms favor bank loans to debt securities, which were equivalent to 19 percent of the country’s gross domestic product at the end of June, compared with 28 percent in the U.S., according to data from the Bank for International Settlements.

Under Austrian law, A-Tec’s bondholders would salvage at least 30 percent of their claims through the method of debt restructuring under self-administration chosen by the company. Failure to work out a deal would result in straight insolvency proceedings, with the aim of liquidating the company as swiftly as possible for the maximum gain.

Maximum Return

The group of convertible bondholders represented by Brown Rudnick have hired Lazard Ltd. to help them make an independent assessment of what the company’s assets are worth and how best to maximize the returns for debt investors.

They want the investment bank to have access to relevant information on A-Tec, including inter-company loans and a valuation of the company that Deloitte & Touche LLP auditors will be presenting in December, Verrill said.

While the trustees for the bonds have agreed to allow elected bondholder representatives to examine the Deloitte valuation, there is no legal basis for this and it is merely a gesture of good will, Verrill said. Bondholders also aren’t involved in drawing up the restructuring plan, she said.

The 1874 law was deemed “progressive” at the time of its inception, said Kalss, who specializes in capital markets. “It created a quick and efficient way to settle bondholder claims,” she said. During the period of economic expansion known as the Gruenderzeit, “infrastructure investments, in particular railroad construction, were largely financed via bonds,” she said.


The rise of the rail system fuelled the growth as businesses flourished and their founders became rich overnight. The expansion ended abruptly with the Vienna stock market crash, spreading panic through global financial markets.

After the crash “the focus of the Curator Law clearly was on what we today would call retail investors,” said Kalss. “It certainly was a very paternalistic law, aiming at asserting claims for the bondholder and not by the bondholder.”

A-Tec’s management has until Jan. 20 to win creditor approval for its debt restructuring. If it fails, an insolvency administrator takes over the process. A creditor meeting to vote on the restructuring plan is scheduled for Dec. 29.

At the creditor meeting, the bondholders will be represented by the trustees appointed by Vienna’s Commercial Court: Georg Freimueller, Ulla Reisch and Susi Pariasek.

The trustees have been liaising closely with elected bondholder representatives and the cooperation is working very smoothly, said Pariasek, who has been put in charge of the October 2014 convertible bond.

In addition, the trustees will hold a meeting on Dec. 22 to gauge bondholder sentiment on the restructuring plan. Any decision they make will require approval from the curator court, said Pariasek. The nomination of trustees makes sense as the bonds are still being traded and the bondholder structure is constantly changing, she said.

“The law may be old, but it is not obsolete,” she said.

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