SIGNA Insolvency
Navigating the maze amid claims and investment opportunities
Much has happened since the SIGNA group, a major international real estate and retail group and the largest insolvency case in Austrian economic history, has filed for bankruptcy in December 2023. However, instead of bringing (at least some) order into the chaos left behind, the insolvency proceedings continue to hold surprises for all stakeholders involved.
In particular, on 8 July 2024, the Vienna Court of Appeals disapproved the restructuring plan of the most eminent insolvent SIGNA corporation (SIGNA Prime Selection AG). As a consequence, much is left unclear and many questions, as to how the liquidation of the assets will be realized, remain unanswered. In all likelihood, the Austrian Supreme Court will have the final say on this in the upcoming months.
Until then, both creditors and potential investors alike are confronted with the delicate question of how they can best protect their rights and investment opportunities in this state of flux and, after clarification by the Austrian Supreme Court, how they can move forward as quickly as possible.
This newsletter aims to shed some light on these matters in the dark and addresses some of the highly complex legal and factual issues surrounding the insolvency of the SIGNA group.
Table of contents
- Introduction
- Development of insolvency proceedings
SIGNA Holding GmbH
SIGNA Prime Selection AG
SIGNA Development Selection AG - Safeguarding creditor rights: insolvency claims
Asserting claims
Scrutiny of insolvency claims
Claw-back: challenge of previous transactions and secrutiy interests
Potential subordination of loans
Liability of directors and investors - Investment opportunities
Assets
Sales process
Legal intricacies for purchasers
Introduction
SIGNA was founded in 2000 by the Austrian entrepreneur René Benko. Over the years, it became Austria's largest privately owned real estate company and the biggest owner of malls in Central Europe. Besides high-profile real estate assets, the group also comprised significant retail companies, such as the German KaDeWe Group and Karstadt.
SIGNA's insolvency was triggered by a sharp increase in interest rates, which made it difficult for the highly leveraged company to continue servicing its debts. Together with the increased construction costs for its development projects, this created severe liquidity problems for the SGINA group and ultimately lead to one group member after another declaring insolvency.
The following chart shows the current status of the most significant insolvent SIGNA companies:
*This is a simplified representation of the highly complex situation and group structure
Development of insolvency proceedings
SIGNA Holding GmbH
Signa Holding GmbH initially filed for insolvency on 29 November 2023 by proposing a restructuring plan offering repayment of 30 % of its overall debts payable within two years. It later withdrew this plan and applied for bankruptcy proceedings, leading to the liquidation of all assets by the insolvency administrator.
Insolvency administrator: Dr. Christof Stapf
SIGNA Development Selection AG
Signa Development Selection AG initially filed for insolvency in the form of restructuring proceedings under self-administration on 29 December 2023 by proposing a restructuring plan offering repayment of 30 % of its overall debts payable within two years. The restructuring plan foresees that the company's assets are liquidated by the restructuring administrator as trustee.
The offered restructuring plan was approved by the insolvency court on 15 April 2024, but is currently pending in appeal proceedings, because the Republic of Austria as creditor has filed an appeal against the restructuring plan. It is to be expected that the Vienna Court of Appeals will disapprove the restructuring plan in this case as well (as done with Signa Prime Selection AG).
Restructuring administrator (trustee): Dr. Andrea Fruhstorfer
SIGNA Prime Selection AG
Signa Prime Selection AG initially filed for insolvency in the form of restructuring proceedings under self-administration on 28 December 2023 by proposing a restructuring plan offering repayment of 30 % of its overall debts payable within two years. The restructuring plan foresees that the company's assets are liquidated by the restructuring administrator as trustee.
The offered restructuring plan was approved by the insolvency court on 26 April 2024, but the Republic of Austria, as creditor, has successfully filed an appeal against the restructuring plan. The Vienna Higher Regional Court rejected the restructuring plan on 8 July 2024. The appeal decision of July 8 2024 is not yet final, as the administrator has filed an appeal with the Supreme Court. As a final instance, the Supreme Court will therefore decide on the admissibility of the restructuring plan in the coming months.
In the meantime, the restructuring administrator remains in office in the restructuring proceedings. This means that the company's operations will (for now) be continued (as foreseen in cases of restructuring proceedings under self-administration), however, the originally envisaged liquidation of the company's assets under trusteeship of the restructuring administrator will be on hold for the time being. Thus, in particular any judicial reservations of consent for sales of assets in this intermediate phase (until a final decision by the Austrian Supreme Court is issued) should be adhered to in order to avoid any unpleasant surprises in the aftermath.
Restructuring Administrator (trustee): Mag. Norbert Abel
Wahrung der Gläubigerrechte: Insolvenzforderungen
Asserting claims
- Creditors of insolvent SIGNA companies need to register their claims in the Austrian insolvency proceedings to receive funds from the envisaged sale of assets. The pursuit of legal actions against the insolvency estate outside the insolvency proceedings is not possible in Austria.
- Registering insolvency claims, is, in principle, possible at any time in the ongoing proceedings. As long as claims are not registered, they are not taken into account when distributing proceeds from the sale of assets of the insolvency estate. Therefore, registrations should be made as soon as possible.
- Certain creditors may be entitled to preferred treatment, e.g. if they reserved title to property supplied or otherwise obtained securities.
- Creditors may set-off their unreduced claims (i.e., no insolvency quota applied) against SIGNA companies with any opposing claims of that SIGNA company against the respective creditor. To benefit from this, the set-off must generally be validly declared before a restructuring plan is confirmed by the insolvency court.
- Insolvency proceedings are not public. Creditors with registered claims have the right to participate in all hearings and receive information/communications from the restructuring administrators.
Scrutiny of insolvency claims
- Any registered insolvency claims will be scrutinized by the insolvency administrator and, if found justified, approved and consequently taken into account for the distribution of the quota (proceeds from the sale of assets).
- Rejected claims must be asserted in court (or arbitration as the case may be) in so-called examination proceedings.
Claw-back: challenge of previous transactions and secrutiy interests
- Transactions concluded with an insolvent SIGNA company prior to the opening of insolvency proceedings or security interests (such as real estate pledges) granted by such company (especially within the last two years) may be challenged by the insolvency administrator or creditors and subsequently declared void. angefochten and für nichtig erklärt werden.
- Furthermore, Austrian security law contains very strict form requirements compromising the valid creation or continuity of security interests, which especially foreign parties are often unaware of.
Potential subordination of loans
- Loans that shareholders have granted to SIGNA companies during a "crisis" would be recharacterized as equity (under the Austrian Equity Substitution Act) and are as a consequence subordinated to the claims of all other creditors. A "crisis" may be present in case of illiquidity, overindebtedness or thin capitalization of the company receiving the loan.
Liability of directors and investors
- Many members of the SIGNA group have granted intercompany loans or security interests to other group members. In case such transactions are considered not to be at arm's length, the relevant directors could be held liable under civil and criminal law (e.g., for breach of trust). There is also a potential liability of directors for delaying the filing for the opening of insolvency proceedings.
- Active investors who permanently and distinctively took on the role of a factual managing director may be qualified as de-facto directors with the corresponding liability exposure.
- Investors of insolvent SIGNA companies may also be obliged to make additional capital contributions pursuant to the respective articles of associations.
- On the other hand, investors of the SIGNA group may have claims against members of corporate bodies of the various SIGNA companies for any damages caused by misconduct.
Investment opportunities
Assets
In the course of the insolvency and the envisaged restructuring, the sale of high-end real estate assets and development projects of the respective SIGNA entities is envisaged. These include:
Furthermore, Signa Holding GmbH indirectly owns further assets, e.g., regarding the Chrysler Building in New York (via Signa RFR US Selection AG).
Sales process
The sale process is carried out by the insolvency administrator and the restructuring administrators, respectively, who are supervised by the insolvency court and the creditors' committee (which consists of 3-7 creditors appointed by the insolvency court).
Derzeit gibt es weder eine allgemeine Website oder eine sonstige Informationsquelle, noch wurde ein Makler beauftragt. Daher müssen alle relevanten Informationen direkt beim Insolvenzverwalter (für die SIGNA Holding GmbH) oder den Sanierungsverwaltern (für die SIGNA Prime Selection AG und die SIGNA Development Selection AG) eingeholt werden.
Until there is clarity on the form of the insolvency proceedings (see above for details on the Court of Appeals' decision disapproving the restructuring plan for SIGNA Prime Selection AG and the expected future developments), potential advisers are well advised to seek legal advice when making investments (in particular on any judicial reservations of consent for sales of assets or other limitations in the current phase).
Legal intricacies for purchasers
There are certain intricacies when purchasing assets of an insolvent company:
One (buyer friendly) rule is that there is no mandatory statutory liability of the buyer for existing debts pertaining to the sold assets, even if the buyer should have known about these (Section 1409a Austrian Civil Code). However, buyers should be aware that – in order to reflect the statutory exclusion of warranty rights of the buyer applicable to court-administered asset sales – the insolvency administrator or the trustees might seek to include a similar, far-reaching exclusion of warranty. Under Austrian law, this is only permissible to a certain extent.
As long as the restructuring plans of SIGNA Prime Selection AG and SIGNA Development Selection AG are not final and binding (due to pending appeal proceedings; see above for details), the sale of assets requires an approval by the insolvency court. It is not possible to acquire these assets in good faith without such court approval.
The sale process is generally structured as follows:
Pitkowitz & Partners can assist all stakeholders in pursuing their interests:
- Pitkowitz & Partners has extensive experience with the intricacies of the insolvency process as well as real estate transactions, and is thus excellently positioned to assist investors in pursuing investment opportunities.
- For creditors of SIGNA companies, our team stands available to provide its substantial expertise with the safeguarding of creditor rights and, if necessary, the efficient conduct of examination proceedings. It may also be prudent for creditors to make a risk assessment regarding the potential challenge of previous transactions and existing security interests, which our experienced team at Pitkowitz & Partners is happy to carry out in an efficient manner.
- Für Geschäftsführer und Investoren kann unser Team mit seiner langjährigen Erfahrung bei der Analyse, Durchsetzung und Abwehr von Haftungsansprüchen behilflich sein.
For any further information, our contact partners will remain at your disposal:
Dr. Martin Foerster
Partner
Peter Machherndl
Partner
This newsletter is provided for information purposes only and does not constitute legal advice. Pitkowitz & Partners assumes no liability for its content and no obligation to update this newsletter.