Assignment in Lieu of Payment

Assignment in Lieu of Payment

The court orders the assignment in lieu of payment if certain creditors, upon request, receive the existing assets of an over-indebted estate in order to proportionally settle their claims. The distribution takes place instead of a cash payment, whereby the debts are considered settled to the extent of the assigned assets.

In the assignment in lieu of payment, creditors of an over-indebted estate receive assets from the estate instead of money, thus proportionally settling their claims.

If the estate is over-indebted, the question often arises as to how to avoid court proceedings, additional costs, and lengthy processing times. A proven solution is the assignment in lieu of payment according to § 154 AußStrG.

In this process, the remaining assets of the estate are assigned to the creditors instead of a cash payment. The claims are extinguished to the extent of the value received. The procedure replaces estate insolvency and offers advantages for all parties involved.

Requirements

The court can only order an assignment in lieu of payment if all of the following conditions are met:

• Austrian inheritance law is applicable to the death.
• The estate is over-indebted (liabilities exceed assets).
• No estate insolvency proceedings have been opened.
• No unconditional declaration of acceptance of inheritance has been submitted.
• No application for appropriation by the federal government is pending.
• An application for assignment in lieu of payment has been filed.

Authorized Parties

The right to apply is granted to:

• all potential legal and testamentary heirs (including compulsory, substitute, and subsequent heirs),
• the estate creditors themselves.

A mere creditor application (e.g., by filing a claim) already counts as an application for assignment, except for real estate, as additional legal and tax aspects (e.g., real estate transfer tax) must be considered here.

Procedure

The procedure for assignment in lieu of payment begins with the valuation of the assets as part of the death record. Subsequently, the court commissioner checks whether the estate is over-indebted. If this is the case, authorized persons, in particular heirs or creditors, can submit the application for assignment in lieu of payment to the competent court.

After receipt of the application, the court examines the legal requirements and decides whether the assignment is permissible. Depending on the value of the estate assets, the parties involved are notified to varying extents:

• If the total value is less than € 5,000, no notification and no creditors’ meeting takes place.
• For a value between € 5,000 and € 25,000, only those heirs and creditors who are already on record are notified. A creditors’ meeting is not held.
• If the value exceeds € 25,000, the court is obliged to notify all known parties involved and hold a creditors’ meeting.

Subsequently, a court order is issued, with which the estate assets are assigned in lieu of payment. Then, the distribution of the assets takes place, whereby first the estate costs are covered and then the creditors are satisfied in proportion to their undisputed claims.

Distribution of Estate Assets

The distribution takes place in a legally prescribed order:

1. Estate costs (e.g., court commissioner fees, funeral costs, rent)
2. Costs of any administrator of the deceased
3. Proportional settlement of undisputed claims documented by records

Note: The assets must still exist and be legally realizable. Items with segregation rights (e.g., third-party ownership) are not taken into account.

Content of the Court Order of Assignment

The court must order the assignment in detail. The order must contain:

• the specific object of assignment (including legal situation and realizability),
• the first and last names as well as the address of the recipients,
• precise indication of which claims are settled with it,
• if applicable, information on the book entry implementation, e.g., for real estate.

Advantages Compared to Estate Insolvency

• No additional costs as in insolvency proceedings
• No stay of proceedings. Creditors can sue even after the assignment
• Faster processing
• Individual creditor satisfaction depending on the value situation and claim security

Peter Harlander
Harlander & Partner Rechtsanwälte „Die Überlassung an Zahlungs statt bietet in vielen Fällen einen pragmatischen Weg aus der Überschuldung. Wer rasch handelt, vermeidet langwierige Insolvenzverfahren.“

What Needs to be Considered for Real Estate?

If land or houses are assigned in lieu of payment, parties involved must observe additional formalities:

• Real estate transfer tax liability
• Book entry implementation (entry in the land register)
• Recommendation: Provide liquidity reserves for ancillary costs

Subsequently Discovered Assets

If further assets appear after the assignment, the court must reassess the total value. This can exceed a higher value limit, which makes a subsequent creditors’ meeting necessary.

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