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Researcher of the Month Georg Kodek

Video Georg Kodek

Georg Kodek

Researcher of the Month

It is rare, but not un­heard of for mu­ni­cip­al­it­ies or even provinces of fed­eral re­pub­lics like Aus­tria to file for bank­ruptcy. Only very re­cently, for example, the Aus­trian province of Car­inthia came to the brink of bank­ruptcy. At WU, Georg Kodek, pro­fessor at the In­sti­tute for Civil and Busi­ness Law and a judge at Aus­tria’s Su­preme Court of Justice, in­vestig­ates the po­ten­tial con­sequences of such bank­ruptcies from a legal per­spect­ive. His con­clu­sion is that un­der Aus­trian law, mu­ni­cip­al­it­ies or provinces would have to im­ple­ment cuts if they slipped into bank­ruptcy, but basic pub­lic ser­vices would have to be main­tained non­ethe­less.

His­tory provides nu­mer­ous examples of mu­ni­cip­al­it­ies or provinces go­ing bust, even though such bank­ruptcies are few and far between in Aus­trian his­tory. One of the most fam­ous in­solv­ency cases was closed only a few years ago, in 2014: The city of De­troit had lodged the biggest mu­ni­cipal bank­ruptcy fil­ing in US his­tory, which led to dis­astrous con­di­tions in the city: 40% of De­troit’s streets re­mained un­lit at night, crime levels hit an all-­time high, and the health care sys­tem broke down. WU Pro­fessor Georg Kodek has been work­ing on bank­ruptcy law for many years. The case of Car­inthia clearly shows just how rel­ev­ant this work is to the lives of reg­u­lar cit­izens: Pro­fessor Kodek in­vestig­ated which con­crete ef­fects a po­ten­tial bank­ruptcy would have on the province and its people. In 2015, the Car­inthian gov­ern­ment and its hold­ing com­pany, Kärntner Landeshold­ing, com­mis­sioned Pro­fessor Kodek to draw up a legal assess­ment to evalu­ate the province’s situ­ation.

Con­sti­tu­tional law as a de­cis­ive factor

In Aus­tria, the con­sequences of a mu­ni­cip­al­ity or province go­ing bank­rupt would be nowhere near as dire as those seen in the US, as Pro­fessor Kodek points out. On the na­tional level, Aus­trian con­sti­tu­tional law provides the legal basis for hand­ling such cases. “De­troit was a par­tic­u­larly dra­matic example: A city that used to have a strong economy en­ded up fil­ing for bank­ruptcy – an ex­tremely in­ter­est­ing case from a legal per­spect­ive. In Aus­tria, there is more legal cer­tainty in such cases,” Pro­fessor Kodek ex­plains. “The Aus­trian con­sti­tu­tion assigns spe­cific func­tions and re­spons­ib­il­it­ies to provinces and mu­ni­cip­al­it­ies, and these func­tions and re­spons­ib­il­it­ies must be ful­filled. This in­cludes for in­stance safe­guard­ing the pro­vin­cial con­sti­tu­tions, provid­ing ad­equate so­cial se­cur­ity and health care in­fra­struc­tures, main­tain­ing pub­lic safety, and much more.”

Little money for cred­it­ors, small lee­way for mu­ni­cip­al­it­ies

This means that in­di­vidual cit­izens do not ac­tu­ally have all that much to fear. However, bank­ruptcies could nev­er­the­less force mu­ni­cip­al­it­ies to im­ple­ment pain­ful cuts. At the end of the day, it is bank­ruptcy law which de­termines how much weight ob­lig­a­tions un­der private law and the claims of cred­it­ors still carry in such cases. “Our re­search shows that cred­it­ors get only little of their money back in such bank­ruptcy cases, but on the other hand, the debts of a province or mu­ni­cip­al­ity are not dis­charged either. This means that such a bank­ruptcy would sig­ni­fic­antly restrict a mu­ni­cip­al­ity’s or a province’s freedom to make budget­ary de­cisions for many years to come. That would be the most im­port­ant con­sequence for mu­ni­cip­al­it­ies or provinces, as these restric­tions would elim­in­ate their ab­il­ity to im­ple­ment act­ive policies,” Pro­fessor Kodek points out. However, cit­izens would not have to worry too much about basic pub­lic ser­vices such as waste dis­posal, pub­lic kinder­gartens, hos­pit­als, po­lice, and key ad­min­is­trat­ive in­fra­struc­tures.