Driven by regulation, banks are increasingly reluctant to grant senior bridge financings, leading companies to resort to trade credits of major suppliers, such as deferrals or generous payment agreements. But these trade creditors are often unaware of significant third-party liability risks.
Major suppliers often have superior knowledge of the debtor's economic situation and a vested interest in the successful reorganisation of an important buyer. If restructuring efforts fail and the debtor ends up applying for insolvency, other creditors may assert claims against the bridge financing party, arguing that the financing creditor delayed the opening of the insolvency proceedings, resulting in bigger losses for them.
The liability of bridge financing creditors for delaying insolvency in Austria is derived from general legal provisions (tort law) and is based on settled supreme court case law. The legal basis is thus not the contractual relationship between the debtor and the relevant creditor but rather the level of diligence which must be fulfilled by all creditors. Critical cases arise when a creditor uses their superior knowledge to obtain an unfair monetary advantage at the expense of third-party creditors who relied on the debtor's creditworthiness and continued providing services or deliveries. If the financing creditor could have foreseen that the bridge financing would only delay and not prevent insolvency, that creditor's conduct may entail severe liability risks.
Hence, trade creditors must also ensure that bridge financings serve the debtor's reorganisation rather than prolong the distress. To mitigate liability risks, creditors should diligently examine the debtor's overall economic situation, for example by requesting at least the presentation of an independent business review by an auditor.
Another additional risk mitigation measure involves a meeting of all major creditors to ensure an equal level of information and transparency. Debtors often perceive such disclosure as unpleasant, but it is an inevitable step to regain creditors' trust and to reduce liability risks.