This country-specific Q&A provides an overview to Lending & Secured Finance laws and regulations that may occur in Austria.
Do foreign lenders require a licence/regulatory approval to lend into your jurisdiction or take the benefit of security over assets located in your jurisdiction?
In general, the Austrian Banking Act (BWG) contains a list of banking businesses, which require a banking licence, if carried out commercially in Austria. This list also includes the lending business defined as “the conclusion of loan agreements and the granting of loans“.
However, the Austrian BWG is only applicable if the banking business in question has an Austrian nexus. It has to be decided on a case-by-case basis whether an Austrian nexus actually exists based on criteria such as place of conclusion of the underlying agreement, whether there is a targeted approach to the Austrian market or if the relevant banking services were especially designed for the Austrian market. If there is no Austrian nexus at all, a foreign lender does not need a licence under Austrian law.
Under Austrian Law there are no general rules regarding the possibility of foreign lenders to take benefit of security over assets located in Austria; however, certain restrictions may apply, e.g. the acquisition and pledge of real property is restricted in some Austrian territories (e.g. Vorarlberg), meaning that a permit from the representative authority is required.
Are there any laws or regulations limiting the amount of interest that can be charged by lenders?
There are no regulatory limitations regarding the interest charged by lenders (under the Austrian Banking Act). However, there are certain regulations under Austrian civil law limiting the amount of interest that can be charged by lenders. For example the Austrian civil law prohibits immoral agreements (sittenwidrige Veträge), in particular “usurious practices” (Wucher), meaning interest rates that are clearly disproportionate to market terms and conditions and which were only agreed upon due to the weakness, predicament or inexperience of the borrower.
Further, Austrian law distinguishes between consumers and entrepreneurs, providing in general stricter information duties and formal requirements when dealing with consumers. This also applies to interest rates.
Are there any laws or regulations relating to the disbursement of foreign currency loan proceeds into, or the repayment of principal, interest or fees in foreign currency from, your jurisdiction?
There are no restrictions or regulations under Austrian law with respect to foreign currency exchange that deviate from the rules that would apply to an Austrian creditor. The Austrian Financial Market Authority released Minimum Standards with respect to foreign currency loans and expects credit institutions to comply with these Minimum Standards.
Can a company that is incorporated in your jurisdiction grant security over its future assets or for future obligations?
In principle the granting of security over future assets of a company is not possible under Austrian law. Due to the principles of granting securities under Austrian law (i.e. principle of specialty and accessoriness), security arrangements must be made specifically with respect to each asset including provisions for the requisite perfection. However, it is also possible to assign future receivables, if the future receivables are properly described in the assignment agreement.
The same principles (i.e. principle of specialty and accessoriness) apply to the question whether or not a company can grant security for future obligations. Therefore, the collateralisation of a future obligation must be determinable (i.e. properly described in the respective agreement), meaning it needs to contain information on creditor and debtor as well as the underlying legal basis of the obligation.
Can a single security agreement be used to take security over all of a company’s assets or are separate agreements required in relation to each type of asset?
A single security agreement cannot be used to take security over all of a company´s assets, because under Austrian law a pledge can only be established on individually determined objects (principle of specialty) – see also answer to question 5. Due to the various perfection requirements for the different types of securities, it is common market practice in Austria to have separate security agreements for each type of asset.
Are there any notarisation or legalisation requirements in your jurisdiction? If so, what is the process for execution?
In Austria the principle of freedom of form applies. Therefore, it is in general up to the parties in which form they chose to enter into an agreement and execute a transaction. However, for some transactions, Austrian law provides for certain formal requirements: (i) simple written form (einfache Schriftform), in this case the validity of the legal transaction requires the written drafting of the essential points of the agreement and the signature of the party(s) (e.g. surety, Bürgschaft); or (ii) public form (öffentliche Form), where a notary public or the court have to participate in the transaction (by way of establishing a notarial deed or legalisation by a notary public or authentication of the signatures by the court.
A notarial deed needs to be established by a notary public, with the notary public proving the identity of the parties, their personal ability and entitlement to enter into the agreement. Further, the notary public must record their statements in writing with full clarity and determination and, after reading the statements out loud, the notary public must personally question the parties to ensure that they are willing to enter into the agreement, before the signing of the agreement.
It is also possible to set up foreign-language notarial deeds if the notary public or his substitute is a court-sworn or court-certified interpreter or has passed the diploma examination for translators. If one of the parties is not familiar with the language in which the notarial deed was drawn up, a court-certified or certified interpreter must be consulted.
In case of a legalisation (certification of a signature), the notary public or the court certifies that a signature (company signature) on a paper document or an electronic signature (company signature) on an electronically created document is genuine, i.e. the signature was executed personally by a specific person.
Are there any security registration requirements in your jurisdiction?
Under Austrian law, only the pledging of real property (including plants) and intellectual property requires a registration. The registration requirements depend on the type of securities:
Real property (land) and plants need to be registered in the Austrian land register (Grundbuch). As mentioned under point 4.1. real property (land) and plants can serve as security, whereby this form of security is called mortgage (Hypothek). Besides the requirement of a valid title, the mortgage needs to be registered with the encumbrance sheet (Lastenblatt) of the relevant land register body to become effective. The registration is only permitted, if the respective mortgage agreement states either (i) a fixed amount of money as consideration (Festbetragshypothek) or (ii) a maximum amount of money (Höchstbetragshypothek).
Intellectual Property Rights
If a patent or a trademark is pledged, it has to be registered in the respective register, i.e. patent register (Patentregister) or trademark register (Markenregister) to become effective.
Can a company guarantee or secure the obligations of another group company; are there limitations in this regard?
In general, a company can guarantee or secure the obligations of another group company. However, due to the strict Austrian capital maintenance rules, a company guarantee or security of another group company may violate capital maintenance rules (Verbot der Einlagenrückgewähr). The capital maintenance rules apply to limited liability companies and joint stock companies as well as to certain kind of partnerships, where the only unlimited partner is a limited liability company or joint stock company.
Capital maintenance rules are violated if the company´s assets are distributed to the shareholders or third parties in contrary to the relevant provisions of the articles of association. Distributions to shareholders can be made (i) by dividend distributions regarding the profits of the company based on a shareholder’s resolution or (ii) by way of capital decrease of the company based on a shareholder’s resolution.
In any other case, the company must ensure that the transaction is in line with the “arms-length principle” when entering into a transaction with its shareholders or group companies on the same or on an upper level, otherwise such transaction could violate the Austrian capital maintenance rules. However, there is one exemption to this rule, i.e. the transaction needs to be operationally justified (betriebliche Rechtfertigung), meaning the transaction needs to be clearly in the benefit of the company.
If a transaction does not comply with the “arms-length principle” and is not operationally justified (betriebliche Rechtfertigung), such a transaction could be void, whereas the company may claim back the respective assets. Further, the management might become personally liable to the company for any damage resulting thereof.
A downstream guarantee or any other security to a subsidiary company is not restricted under Austrian law. Due to the above mentioned strict capital maintenance rules guarantees or any other securities provided as upstream or side-stream guarantees may violate these rules. Therefore, an upstream or side-stream guarantee must particularly comply with the “arms-length principle”.
Can lenders in a syndicate appoint a trustee or agent to (i) hold security on the syndicate’s behalf, (ii) enforce the syndicate’s rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate?
In general, a syndicated loan structure is entered into between the borrower and several lenders (mainly banks) including a separate consortial agreement arranging the internal and external relations of the syndicate. The lenders appoint a trustee or agent (Konsortialführer), who administers the syndicate and pool their securities in one pool in order to manage and realize the securities in a more efficient way.
The structure of such a security pool concept depends on the type of security, whether it is an (i) accessory or (ii) non-accessory security:
1. accessory securities (akzessorische Sicherheiten), e.g. pledge or surety cannot exist without the underlying secured claim. Therefore, it is not possible to arrange a security structure regarding accessory securities with only one agent, which is not at the same time a lender in respect of all obligations being secured by the accessory securities. A possible solution is to establish a “parallel debt” structure, where all lenders agree that the security agent is the joint and several creditor of all claims and the borrower enters into a separate obligation (in the amount of the total loan amounts of all lenders) towards the security agent (the parallel debt). This parallel debt will be collateralised (the security is accessory towards the parallel debt) and the security agent acts as trustee for the other lenders.
The concept of parallel debt structure is not yet officially recognised by Austrian courts decision in this regard. However, it is common market practice in Austria to establish a parallel debt structure and appoint an agent.
2. non-accessory securities (nicht akzessorische Sicherheiten) may exist even, if the borrower has repaid the outstanding and secured claim (for instance a guarantee). Therefore, it is possible under Austrian law that one trustee or agent holds collateral on the syndicate´s behalf and enforces the snydicate´s rights under the loan documentation.
In case of an appointment of a security agent, the lenders usually agree that only the security agent shall have the right to enforce the securities and will then distribute the proceeds from such enforcement among all lenders.
Another concept in the course of the restructuring of a company has become increasingly popular in Austria recently, i.e. the restructuring trust (Sanierungstreuhand). In case of a restructuring trust, the shares of the company are transferred to a trustee who then shall manage the company and if it is not possible to end the “crisis” of the company to initiate a selling process. There are different reasons for the establishment of a restructuring trust and installing a trustee as shareholder and managing director of the company, e.g. the financing banks have lost faith in the previous management or the existing shareholders (Altgesellschafter) did not participate in the restructuring of the company.
The main benefit of this concept is that it enables creditors through the trustee to restructure the company and, if the restructuring fails, the trustee can perform a well-structured sales process generating high revenues for the financing banks and existing shareholders. This would not be possible, if the shares are merely pledged. As there is no uniform model for the restructuring trust, it can be structured differently for each individual case.
Even though the restructuring trust is already used as restructuring method in Austria, the Austrian Supreme Court has not yet approved this concept so far.
If your jurisdiction does not recognise the role of an agent or trustee, are there any other ways to achieve the same effect and avoid individual lenders having to enforce their security separately?
As described above under question 13, Austria recognizes the role of an agent and trustee. For further information, please see above, question 13.
Does withholding tax arise on (i) payments of interest to domestic or foreign lenders, or (ii) the proceeds of enforcing security or claiming under a guarantee?
In general, payments of interest made by Austrian residents to non-resident individuals and corporations are only subject to withholding tax of 25% / 27,5%, if the recipient either does not provide a certificate of tax residence or is resident in a non-EU country with which Austria has not concluded an agreement on the automatic exchange of information. Where the interest paid is not subject to income tax in Austria, withholding tax levied at source is refunded. If the tax rate is reduced under a tax treaty, exemption at source is possible.
If payments of interest to foreign lenders are generally subject to withholding tax, what is the standard rate and what is the minimum rate possible under double taxation treaties?
Please see question 15.
Are there any tax incentives available for foreign lenders lending into your jurisdiction?
Foreign direct investment that involves a substantial transfer of important technology and leads to job creation may be eligible for investment incentives and R&D subsidies, although these must conform to EU policies on regional investment and state aid. Austria largely relies on its low corporate tax rate to attract foreign investors but also offers a tax incentive for R&D. Taxpayers may claim a subsidy in the form of a cash tax premium equal to 12% of qualifying R&D expenses. Social security costs may be reduced or training funds may be available for certain categories of workers who find it difficult to obtain employment or need to improve their skills.
Is there a history in your jurisdiction of financing structures being challenged by tax authorities, and if so, can you give examples.
There is a general anti-avoidance rule in Austrian law, which is used by tax authorities in order to challenge all kinds of structures designed for tax avoidance purposes.
Do the courts in your jurisdiction generally give effect to the choice of other laws (in particular, English law) to govern the terms of any agreement entered into by a company incorporated in your jurisdiction?
In general, under Austrian law it is possible to choose foreign law (including English law) as the governing law of an agreement (choice of law, freie Rechtswahl).
However, there is an exception regarding the choice of law in relation to consumers. According to Article 6 of the Regulation (EC) 593/2008 of June 2008 on the Law applicable to Contractual Obligations (Rom I Verordnung), an agreement entered into between a consumer and an entrepreneur shall be governed by the law of the country in which the consumer has his habitual residence, provided that the entrepreneur (i) pursues his commercial or professional activities in the country where the consumer has his habitual residence, or (ii) by any means, directs such activities to the home country of the consumer. Further, the choice-of-law clause must not violate European law and the Austrian ordre public (i.e. general principles of law) or mandatory provisions protecting e.g. workers or consumers.
Please also see point 4.6. with respect to the applicable law of security agreements.
What (briefly) is the insolvency process in your jurisdiction?
According to the Austrian Insolvency Act (Insolvenzordnung) the insolvency proceedings can either be executed as (i) reorganisation proceedings (Sanierungsverfahren) or (ii) bankruptcy proceedings (Konkursverfahren). Reorganisation proceedings aim to help the debtor to continue the business of the company, whereas bankruptcy proceedings aim to end the company and liquidate all remaining assets.
Reorganisation proceedings can be administered by the debtor itself (Sanierungsverfahren mit Eigenverwaltung) or administered by a court appointed liquidator (Sanierungsverfahren ohne Eigenverwaltung). Only the debtor can initiate the proceedings.
As requirement for the reorganisation proceedings the debtor has to provide to the court a restructuring plan with a minimum debt repayment quota of at least 20 per cent or, if the debtor wants to administer the reorganisation himself (Eigenverwaltung), a quota of at least 30 per cent payable within two years upon the approval of the restructuring plan. If this requirement cannot be achieved bankruptcy proceedings will start.
The effects of the opening of reorganisation proceedings take effect at the beginning of the day following the public announcement (in the Austrian “Ediktsdatei”) of the contents of the reorganisations proceedings. After the public announcement, the insolvency court convenes the first creditor’s meeting. Within a specified period, the creditors of the reorganisations proceedings are requested to file their claims. The time for filing claims ends 14 days before the general creditor´s meeting (allgemeine Prüfungstagsatzung). The general creditor´s meeting itself takes place 60 to 90 days after the opening of the reorganisations proceedings and serves to examine whether and to what extent filed claims are to be taken into account in the reorganisations proceedings. The creditor´s meeting has to approve the restructuring plan. If the creditors do not approve the restructuring plan the reorganisation proceedings will be transformed to bankruptcy proceedings (please see below).
The restructuring proceedings formally end with the approval of the restructuring plan. The debtor then hast to fulfil the restructuring plan and provide the payments to the creditors according to the restructuring plan otherwise the insolvency proceedings will be reopened.
(ii) Bankruptcy proceedings (Konkursverfahren)
Bankruptcy proceedings apply if the restructuring of the company is not possible, i.e. the required quota can not be achieved. The bankruptcy proceedings are initiated by either the debtor or a creditor. The effects of the opening of insolvency proceedings take effect at the beginning of the day following the public announcement (in the Austrian “Ediktsdatei”) of the contents of the bankruptcy proceedings. The insolvency court always appoints a liquidator when the proceedings are opened. One of the most important tasks of the liquidator is the administration and realisation of the assets involved in the insolvency proceedings.
Regarding the time schedule for the bankruptcy proceedings (for filing the claims etc) the rules for the reorganisation proceedings apply (see above). If the liquidator has obtained sufficient proceeds from the liquidation of the assets involved in the bankruptcy proceedings, he may distribute such proceeds between the creditors of the bankruptcy proceedings. If all the assets are distributed among the creditors, the bankruptcy proceedings have ended.
What impact does the insolvency process have on the ability of a lender to enforce its rights as a secured party over the security?
All creditors have to be treated equally and receive a quote of their claim in the insolvency process under the Austrian Insolvency Act (Insolvenzordnung). However, secured creditors have priority in the settlement of their claims regarding the assets in which they hold a security right. Such secured creditors are entitled to enforce their right of separation (Absonderung) – meaning the right of an e.g. pledgee to be satisfied preferentially from the realization of the pledge – in the course of the insolvency proceedings.
According to the Austrian Insolvency Act, this right of separation is not affected by the opening of insolvency proceedings. However, secured creditors are barred from exercising their rights for a maximum period of 6 months after the opening of insolvency proceedings if the exercise of such rights would endanger the continuation of the debtor´s business. Further, separation rights, acquired within 60 days before the opening of insolvency proceedings by way of execution for indemnification or settlement, expire upon the opening of insolvency proceedings, but may be revived after the suspension of insolvency proceedings.
In the course of the insolvency proceeding the assets of the insolvency estate (Insolvenzmasse) will be sold and any proceeds which remain after settlement of the secured creditor´s claims will be distributed among the creditors. The insolvency liquidator is responsible for the liquidation of the insolvency estate.
Please comment on transactions voidable upon insolvency.
The provisions regarding possible voidable transactions upon insolvency are set out in sec. 27 ff of the Austrian Insolvency Act (Insolvenzordnung). In general, transactions are voidable, if there is a probability that the chances of satisfaction of the creditors will be improved by the avoidance. Under the Insolvency Act transactions are voidable upon insolvency if:
they are performed prior to the opening of the insolvency proceedings;
they affect the debtor’s assets;
they discriminate creditors; and
an event of avoidance as listed in the Austrian Insolvency Act occurs (see below).
The events of avoidance pursuant to the Austrian Insolvency Act are:
avoidance on grounds of intention to discriminate (Anfechtung wegen Benachteiligungsabsicht)
avoidance due to waste of assets (Anfechtung wegen Vermögensverschleuderung)
avoidance due to free transactions (Anfechtung wegen unentgeltlicher Verfügungen)
avoidance due to preferential treatment (Anfechtung wegen Begünstigung)
avoidance due to knowledge of insolvency (Anfechtung wegen Kenntnis der Zahlungsunfähigkeit)
The most common event of avoidance is an avoidance on grounds of intention to discriminate. Those transactions are voidable, if they are entered into during the last year before the opening of insolvency proceedings and if the avoidance opponent knows or should have known the underestimation of the transaction value and the intent of the debtor to discriminate against the insolvency creditors.
The action for avoidance must be filed within one year upon the opening of the insolvency proceedings.
Is set off recognised on insolvency?
In general, a set-off is possible in the course of insolvency proceedings. The general offsetting requirements of the Austrian General Civil Code – modified by specific provisions of the insolvency act – apply.
According to the Austrian Insolvency Act a set off is not admissible in case a creditor has become debtor after the opening of insolvency proceedings or acquired the claim against the debtor after the opening of the proceedings. Further, a set-off is not admissible in case a third party acquired his claim in the last 6 months prior to the opening of the insolvency proceedings and if the third party knew or should have known that the debtor is insolvent.
On the other hand, a set-off is admissible even if the claim of the debtor or creditor is either conditional or payable at a future date or the creditor’s claim is not for legal tender (on the date of the opening of the insolvency proceedings will be converted into cash receivables).
Can you comment generally on the success of foreign creditors in enforcing their security and successfully recovering their outstandings on insolvency?
Foreign and domestic creditor are treated equally with respect to the possibility to enforce their security and successfully recovering their outstandings on insolvency. Due to the right of separation and the consequent preferential satisfaction, foreign creditors (as well as domestic creditors) have a high success rate in enforcing their securities (please refer to question 23 with respect to the right of separation).
Are there any impending reforms in your jurisdiction which will make lending into your jurisdiction easier or harder for foreign lenders?
There are no impending reforms which will make lending into Austria easier or harder for foreign lenders.
What proportion of the lending provided to companies consists of traditional bank debt versus alternative credit providers (including credit funds) and/or capital markets, and do you see any trends emerging in your jurisdiction?
According to a recent survey, the biggest part of the lending provided to companies in Austria is still the traditional bank debt, whereas only a minor proportion of the lending consists of alternative financing options. The most important alternative financing options in Austria are venture capital, crowdfunding, private equity and business angels. The rest of the total lending provided to companies in Austria consists of subsidies, cash flow and equity capital.
The trend shows that companies are holding their proportion on bank finance, while the demand for alternative financing options is declining during the past two years.