Debt Finance 2024 Comparisons

Loans are commonly arranged, provided and underwritten by international and national credit institutions. Austrian banks are active in bilateral financings for small and medium-sized enterprises, which are often family-owned. For high-volume financings and major Austrian companies, an international financing syndicate consisting of renowned international credit institutions is usually active.

Given the requirement to hold a banking licence for commercial lending in Austria (see 9.2 Regulatory Considerations), structures must be in line with the licensing requirements but must also give non-banks, such as debt funds, access to the Austrian financing market as lenders. This includes, for example, the use of bonds and initial lending by credit institutions, which are transferred to new lenders outside of Austria after the loan has initially been granted. Due to the strict regulatory requirements in Austria, a case-by-case analysis is essential.

See 1.1 Debt Finance Market Performance. Most transactions are still driven by national and international banks.

Since 2002, unexpected and significant increases of interest rates have led to a halt in real estate financings. As long as interest rates remain at high levels, the uncertainty in the real estate market and, hence, in relation to real estate financings can be expected to persist.

On the corporate side, sudden interest rate movements and the uncertainty caused by the Russian invasion of Ukraine initially caused uncertainty and a slowdown in financings. However, large acquisition financings completed in 2023 and in the first months of 2024, as well as numerous large corporate lending activities (including green and sustainability linked loans), show that credit markets still work, not only in Austria but throughout the CEE region. In the past 12–18 months, the aftermaths of COVID-19 have not resulted in any significant effects on the market.

The most important type of financing structures are senior facilities, either bilaterally or via syndicated loans. Multi-tranche senior facilities provide different maturity profiles. Senior facilities usually vary in line with international standards.

On top of senior loans, other financing products can be used – eg, mezzanine debt and hybrid instruments. Mezzanine financing is typically seen in real estate finance transactions. Bridge loans are customarily used in Austria for various scenarios, including bridge-to-bond or bridge-to-equity scenarios. Where the timeline for a transaction is unclear or does not allow for full syndication of the loan before closing, the banks involved may underwrite the loan and complete the syndication after the acquisition has been completed. Bridge loans with short maturities are often repaid from the final loan proceeds or from a combination of financings such as loans, bonds, bonded loans (Schuldscheindarlehen) and/or equity. By way of example, bond issuances are regularly used for acquisition finance and LBO transactions involving Austrian companies, due to strict banking licence requirements in Austria (see 9.2 Regulatory Considerations).

Bonded loans (Schuldscheindarlehen) are popular instruments for Austrian corporate borrowers. They are typically governed by German law and assumed in line with German market standards. Other forms include private placements of bonds. In these cases, a private notes placement may be a useful option to allow the participation of specialised debt funds that do not have an Austrian banking licence or a banking licence to be passported from another EU member state.

Asset-based financing, especially for all classes of real estate, had increased significantly in recent years, driven by a real estate boom up until 2022, buoyed by low interest rates. Since inflation kicked in and interest rates rose significantly, the asset-based financing market has seen a drastic decrease. Generally, the lending market for real estate financings has become dominated by domestic and German mortgage lenders capable of issuing covered bonds. Other players often cannot compete with the margins offered by these players.

Despite real estate debt transactions, the financing of renewable energy assets (particularly solar and wind power), rolling stock and natural gas stored in some of the larger Austrian gas storage facilities plays a more significant role in the market.

See 2.1 Debt Finance Transactions.

The instrument will depend on the nature of the financing need as well as the lender's licence status. In the case of licensed credit institutions, direct or syndicated lending will be the general option. If non-licensed lenders such as debt funds are involved, workarounds need to be explored.

International high-volume financing transactions are usually governed by English law transaction documents. In view of Brexit, German law (which also played a significant role before Brexit) took on increasing importance in transactions involving Austrian targets and may increasingly establish itself as a second market standard. Small financing transactions are usually governed by Austrian law, based on market standard local or house-style credit agreements as used by the respective banks. Security interests in Austrian assets are usually governed by Austrian law.

The finance documentation used for Austrian finance transactions varies significantly depending on the type of transaction and the parties involved. Whereas internal lending syndicates or high-volume transactions by domestic syndicates are usually documented based on the recommended forms published by the Loan Market Association, smaller domestic transactions are still based on rather short-form or “LMA-lite” documentation. Even large mortgage-based asset financings are still implemented on a purely bilateral basis, based on short in-house documentation.

While domestic transactions with local borrowers are predominantly documented in German, there is a consistent trend among domestic lenders to opt for the English language to enhance syndication flexibility. English continues to be the primary language used in cross-border transactions.

Opinion roles in Austria follow international standards. Lender counsel usually issues enforceability opinions, while borrower counsel typically opines on capacity.

There are no special Austrian particularities, aside from the strict banking licence requirements. Given the requirement to hold a banking licence for commercial lending in Austria, structures must be in line with the licensing requirements but also give non-banks (eg, debt funds) access to the Austrian financing market as lenders. This includes, for example, the use of bonds and initial lending by credit institutions, which are transferred to new lenders outside of Austria after the loan has initially been granted. Due to the strict regulatory requirements in Austria, a case-by-case analysis is essential.

See 5.1 Guarantee and Security Packages on Austrian law considerations related to securities, and 9.1 Tax Considerations on tax-driven stamp duty risk mitigation measures.

Lenders commonly expect to receive collateral over shares in the main group entities; asset collateral from all relevant entities over their core assets, such as accounts and receivables, is also expected. In certain cases, additional security over machinery, inventory, real estate or intellectual property rights is also expected. A case-by-case approach needs to be adopted when agreeing on collateral packages.

The security packages depend on the type of financings and may be limited to financial collateral and account pledges in syndicated loan financings, but may comprise additional security, for example, in case of LBO structures. Nevertheless, in all cases, strict Austrian capital maintenance rules might limit or even prevent side-stream or upstream securities being provided by group companies – see 5.2 Key Considerations for Security and Guarantees (Restrictions on Upstream Security) for further information.

Austrian Law Particularities

Under Austrian law, most securities (including pledges, mortgages, security assignments and sureties) are strictly accessory (akzessorisch) and therefore depend on the validity of the underlying secured obligations. The beneficiary of the security must always have an independent claim over the secured obligations.

The concepts of security trustee and agent are regularly used. In view of the accessory nature of many securities, appropriate contractual arrangements (eg, via a joint creditorship or parallel debt) are required in the main finance documents to ensure that all secured obligations vest (also) in an appointed security trustee. It is not yet court-tested practice to create an independent claim of the security agent (so-called parallel debt), so parallel debt structures governed by non-Austrian laws are regularly used, for which there is court-tested practice in relation to parallel debt. The parallel debt claim is then secured by the pledge, and the lenders/bondholders take benefit from the pledge through the security agent. The security interest ceases to exist upon the discharge of the secured obligation (ie, no release is necessary, but is customary).

Secured obligations can secure existing as well as future credit claims, as long as they are sufficiently determined or determinable (ie, reference needs to be made to the creditor, the debtor and the legal basis of a claim).

In general, existing and future assets can serve as collateral as long as each asset can be individually specified or is at least specifiable. However, the in rem security interest will only come into existence once the asset is acquired by the security provider.

Overview of Common Securities

Security packages typically include guarantees, receivable pledges, share pledges and account pledges.

Shares

Security over shares is taken by way of a pledge (Pfandrecht). Statutory transfer restrictions (vinkulierte Geschäftsanteile) may limit or prohibit the creation of security. In addition, care must be taken in determining the appropriate perfections modus for the pledge, depending on the respective legal form of the company concerned. Pledges of shares in an Austrian limited liability company (Gesellschaft mit beschränkter Haftung) require a different transfer than pledges of bearer shares (Inhaberaktien) or of registered shares (Namensaktien) in joint stock companies (Aktiengesellschaft).

Inventory

Security over inventory is taken by way of a pledge (Pfandrecht) or, less commonly, a security transfer (Sicherungsübereignung) of the assets. As a matter of practice, creation and perfection may be difficult.

Bank accounts

Security over cash deposits in bank accounts is taken by way of a pledge (Pfandrecht) or a financial collateral arrangement (Finanzsicherheit) under the Austrian law implementation of the Financial Collateral Directive, which will be either a security financial collateral arrangement or a title transfer financial collateral arrangement.

Receivables

Security over receivables is taken by way of a pledge (Pfandrecht) or a security assignment (Sicherungszession) of the contractual rights. For credit claims, a financial collateral arrangement (Finanzsicherheit) will also be an option. A typical security package includes trade receivables, insurance receivables, intra-group receivables and receivables under transaction documents. For receivables and rights under insurance policies, restriction on pay-out to the insured (Vinkulierung) is a common form of quasi-security.

IP rights

Security over IP is taken by way of a pledge (Pfandrecht) or, less commonly, a security transfer (Sicherungsübereignung) of the IP rights.

Real estate

Security over real estate is taken by way of a mortgage (Hypothek), which can secure either a specific loan receivable (Festbetragshypothek) or aggregate receivables, typically resulting from an ongoing relationship with the borrower (Höchstbetragshypothek). Mortgages often do not serve as collateral in a standard corporate secured lending due to the significant ad valorem registration costs (1.2%) that are triggered in the course of perfection.

Movable assets

Security over movable assets such as trucks, trains, ships, aircraft, machinery, etc, is taken by way of a pledge (Pfandrecht) or, less commonly, a security transfer (Sicherungsübereignung) of the assets. As a matter of practice, creation and perfection may be difficult.

Quasi-security

Guarantees and comfort letters, set-off and netting arrangements, as well as title retention arrangements and, specifically with respect to rights under insurance policies, restriction on pay-out to the insured (Vinkulierung) are commonly used as quasi-security in Austria.

Form Requirements for Security Perfection

Depending on the asset type, the form requirements are as follows:

• shares: legalisation of voting proxy and transfer power of attorney (particularly regarding Austrian limited liability companies – GmbH); no registration or translation required;
• inventory: no legalisation, registration or translation required;
• bank accounts: no legalisation, registration or translation required;
• receivables: no legalisation, registration or translation required;
• IP rights: legalisation, registration with the respective register and translation required;
• real estate: legalisation, registration of the mortgage with the Austrian land register (Grundbuch) and translation into German required; and
• movable assets: no legalisation, registration or translation required.

Registration and Perfection of Securities

Under Austrian law, both a pledge (Pfandrecht) and a security assignment (Sicherungszession) are possessory interests. Except for real estate and certain IP rights, such interests cannot be registered.

Perfection steps depend, inter alia, on whether the asset is qualified as movable or immovable. If perfection steps are not properly effected, no valid security interest will be created and the lender will be an unsecured creditor.

Perfection Steps

Shares

Security interests in shares in limited liability companies (Gesellschaften mit beschränkter Haftung) and partnership interests are perfected by notice to the pledged company/partnership; no acknowledgement of the notification is legally required. Perfection by entry in the commercial/accounting books (Buchvermerk) of the security provider is also possible.

Inventory

Delivery of inventory to the secured party is usually not practicable or feasible, and certain alternative methods are implemented, such as the appointing of a custodian, restricting the pledgor's access to the inventory or the affixing of placards identifying the secured party. As a matter of practice, these often prove difficult to achieve or can be easily compromised by the conduct of the parties, so security over inventory often does not provide a robust security interest.

Bank accounts

Security interests in bank accounts are perfected by notification to the account bank. No acknowledgement of the notification is legally required, but rather is contractually needed for the waiver of bank liens of the account bank. Perfection by entry in the commercial/accounting books and in every list of outstanding receivables (Buchvermerk) – ie, the debtor accounts (Debitorenbuchhaltung) and the open accounts (offene Posten Liste) of the security provider – is also possible.

Receivables

Security interests in receivables are perfected by notification to third-party debtors. No acknowledgement of the notification is legally required. Perfection by entry in the commercial/accounting books and in every list of outstanding receivables (Buchvermerk) – ie, the debtor accounts (Debitorenbuchhaltung) and the open accounts (offene Posten Liste) of the security provider – is also possible.

IP rights

Pledges over patents are perfected upon entry of the pledge into the patent register (Patentregister). For other registered IP rights (such as trade marks), registration in the respective register is usually pursued. There is, however, no established practice and no case law available regarding perfection steps for IP rights other than patents.

Real estate

Registration of the mortgage with the competent Austrian land register (Grundbuch) is required.

Movable assets

In general, perfection requires delivery to the pledgee or its custodian. Alternative methods are available in certain instances, like affixing placards identifying the secured party.

Agent and Security Trustee, and Parallel Debt

See 5.1 Guarantee and Security Packages and 6.1 Role of Intercreditor Arrangements on the security trustee concepts as well as parallel debt. The involvement of security agents and other agent roles is common in larger financing transactions.

Restrictions on Upstream Security

Austrian capital maintenance rules/financial assistance

Under the Austrian capital maintenance rules, the granting of upstream/side-stream loans, facilities, financings, guarantees (including the assumption of joint and several liability) or security interests is subject to limitations. Section 82 of the Austrian Act on Limited Liability Companies (GmbH-Gesetz – GmbHG) and Sections 52 and 65 et seq of the Austrian Stock Corporation Act (Aktiengesetz) provide for a prohibition on the direct or indirect repayment of share capital to shareholders. All assets are protected; it is not just the registered share capital that must be maintained. This prohibition also applies to partnerships with no natural person as general partner, such as a limited partnership in the form of a GmbH & Co KG.

As a general rule (and subject to some further exemptions), shareholders must not claim more than the net profit (Bilanzgewinn) as evidenced in the latest annual financial statements of the corporation. Any transfer of assets (in the broadest sense, including benefits such as the granting of guarantees or security interests) that exceeds such net profit (as shown in the approved financial statements) and is not based on a proper shareholders' resolution approving such distribution is null and void.

This nullity may also affect a third-party lender if it knew or should have known (gross negligence) that the respective transaction is not permitted pursuant to the Austrian capital maintenance rules. In view of the ample jurisprudence of the Austrian Supreme Court in this respect, any lender should be aware of those limitations and that the standard of care is high.

Third-party test, operational needs/corporate benefit

The Austrian Supreme Court has held that the issuance of a guarantee or the granting of a security interest for a (direct or indirect) shareholder's or sister company's obligation constitutes a violation of the prohibition on the repayment of share capital and would therefore be null and void, unless:

• the guarantee/security interest would have been granted to a third party under the same terms and conditions (the third-party test – Fremdvergleich); or
• the granting of the guarantee or security interest is clearly justified by the operational needs of the company providing such guarantee/security interest (betrieblich gerechtfertigt).

In addition, the risk related to the issuance of such a guarantee or the granting of such a security interest must be justifiable (das Risiko muss vertretbar sein) for the guarantor/grantor of the security interest. This means that the obligor(s) for which the guarantee or security interest was provided must be in the position to generate sufficient funds to repay the obligations secured by the guarantee or security interest, in the reasonable opinion of the management of the guarantor or security provider and at all times for as long as the guarantee or security interest is outstanding. However, the assumption of liabilities for a (direct or indirect) shareholder's or sister company's obligation that endangers the guarantor's or security provider's existence (existenzgefährdende Haftungsübernahmen) would never be permitted.

Limitation language

Guarantees and security agreements often stipulate that, in the case of a violation of the Austrian capital maintenance rules, the guaranteed and/or secured obligations shall be deemed substituted by obligations of a reduced amount, which are in accordance with the Austrian capital maintenance rules (so-called limitation language). The effect of these limitations could be that the guaranteed or secured amounts are reduced to zero. As no case law is available to confirm, it is uncertain whether such limitation language would be valid and enforceable under Austrian law and achieve the desired effect of legally preserving the guarantees and security interests to the extent possible, or whether the guarantees and/or security interests could be deemed null and void in their entirety.

Syndicated loans that include an intercreditor agreement are common types of financing in Austria. The respective intercreditor agreements are usually governed by the applicable law of the underlying loan agreement documentation and follow LMA standards in most cases. The LMA standard documentation is widely adapted to reflect Austrian law specifics with regard to the provision of securities and their enforcement. This includes the strict accessoriness principle (Akzessorietät) in Austria, according to which the legal fate of a security is usually directly dependent on that of the secured claim, and is inseparably linked to such claim.

The concept of security trustees is not recognised under Austrian law. Accessory security interests granted under an Austrian law security document can only be validly granted to, and maintained for the benefit of, the creditor of the total of the secured obligations (in its own name and not on behalf of the lenders). There are no provisions under Austrian law or court rulings with respect to parallel debt structures, but it is a common view that foreign law parallel debt should be recognised in Austria. On the contrary, it is uncertain whether an Austrian law-governed parallel debt may validly be established (even if there is legal writing supporting that position).

For both borrowers and lenders, it is important to set out the terms for the repayment of the principal and the payment of interest and fees. To streamline the process, the parties typically appoint a bank as the so-called agent of the syndicate and agree that only payments made to the agent will be considered as fulfilling the borrower's obligations. However, the repayment of the principal, interest payments and the payment of fees are typically regulated not in Austrian intercreditor agreements but in the loan agreement itself.

Under Austrian law, the binding effect of the intercreditor agreement in the case of insolvency proceedings is rather questionable and has not yet been tested by the courts.

Both concepts exist. The use of the subordination instruments will depend on the nature of the transaction.

In mezzanine financings, which are typically seen in real estate finance transactions, the documentation foresees either structural (ie, lending to a holding company which then on-lends) or contractual subordination of the tranches. Furthermore, it is possible to grant second-ranking security for most Austrian law-governed security interests. However, borrowers usually try to avoid second-ranking mortgages due to the unusually high ad valorem registration costs (ie, 1.2% of the debt to be secured).

General Principles of Enforcement

A secured party is entitled to enforce security upon:

• the non-payment of any of the secured obligations when due (Pfandreife), whether at stated maturity or following acceleration (Fälligstellung);
• the dispatch of an enforcement notice by the secured party; and
• the lapse of seven (in the case of entrepreneurs) or 30 (in the case of consumers) calendar days following the receipt of such enforcement notice.

In some instances, the seven-day notice period can be revoked by agreement and, if so agreed, does not apply to financial collateral agreements.

Enforcement Process

Security interests can be enforced in court by way of attachment proceedings and/or sequestration, or out of court by way of private sale or public auction. Except for pledges over movable and tangible assets, out-of-court enforcement usually needs to be contractually stipulated. Unless the market value of the collateral assets is established by a stock exchange price, it will need to be determined by an appraiser before any private sale of the collateral may take place.

Other methods/procedures are permitted for financial collateral within the scope of the Austrian law implementation of the Financial Collateral Directive.

Restrictions to Enforcement

An agreement that the secured party may retain the collateral without an obligation to transfer any excess enforcement proceeds to the security provider is prohibited due to debtor protection. Similarly, the stipulation of a predetermined fixed realisation price and realisation at the discretion of the secured party are prohibited and would result in the invalidity of the respective clause.

Insolvency

A validly perfected security interest should not be affected by the opening of insolvency proceedings. However, the assets of an insolvent debtor that are essential for the continuation of the debtor's business cannot be enforced for six months from the opening of insolvency proceedings. Furthermore, default interest (Verzugszinsen) accruing during a period of six months from the opening of insolvency proceedings will not be effectively secured by the pledges.

Enforcement steps will depend on whether the collateral assets are in the possession of the secured party or the insolvency administrator/insolvent party. If the secured party is already in possession of the collateral assets, the enforcement procedure remains as stated above. If the insolvency administrator is in possession of the collateral assets, enforcement is effected by the insolvency administrator, who commonly enforces in court but could also opt for out-of-court enforcement.

Austrian law provisions related to enforcement in Austria are provided in the Austrian Code of Civil Procedure (Zivilprozessordnung) and the Austrian Enforcement Act (Exekutionsordnung). Regulation (EU) No 1215/2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters also applies. In addition, Austria is party to multilateral and bilateral treaties that deal with the recognition and enforcement of judgments, including:

• the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (2007);
• the Hague Convention on choice of court agreements (2005); and
• the bilateral treaty with the United Kingdom providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters (1961).

As opposed to the enforcement of domestic judgments, the enforcement of foreign judgments requires a declaration of recognition and enforceability of a foreign judgment. Judgments rendered by courts in EU member states and Lugano Convention parties do not require separate recognition proceedings, while judgments rendered by courts in other jurisdictions do require recognition proceedings.

Foreign judgments will only be recognised and declared enforceable if they are enforceable in the jurisdiction where the decision was rendered and if formal reciprocity has been agreed in international treaties or determined by an Austrian regulation. Formal reciprocity requires that Austrian judgments are not treated any differently to judgments of the other jurisdiction. If the respective treaties do not provide for rules on recognition requirements it will further be required that, hypothetically applying Austrian rules on jurisdiction, the court in the other jurisdictions had international jurisdiction, the claim was duly served on the defendant under the laws applying in the other jurisdiction, and there are no grounds for refusal of recognition or enforceability.

In Austria, there are insolvency proceedings and pre-insolvency proceedings. Insolvency proceedings can be opened or conducted as bankruptcy proceedings (Konkursverfahren) or restructuring proceedings (Sanierungsverfahren), with or without self-administration (mit oder ohne Eigenverwaltung). In the case of restructuring proceedings, certain minimum quotas need to be paid to unsecured creditors within two years (either 30% or 20% of the nominal amount of claims).

Pre-insolvency proceedings comprise the reorganisation proceedings pursuant to the Reorganisation Act (Reorganisationsordnung – ReO). The ReO provides for an in-court but in principle non-public restructuring procedure (no publication in the official insolvency database, unless the debtor so requests – eg, if a comprehensive stay of enforcement actions is necessary). Only published proceedings (ie, European restructuring proceedings) will be recognised under the European Insolvency Regulation. In principle, the debtor will remain in possession and continue to run the business in ReO proceedings. The court may also appoint a restructuring expert, which limits the debtor's self-administration right.

The ReO is applicable to all companies and entrepreneurs that are not already illiquid, but are “likely insolvent”. Only the debtor is entitled to initiate ReO proceedings, not the creditors. Within 60 days after the application to initiate ReO proceedings, the debtor must submit the restructuring plan. Over-indebted debtors may apply for ReO proceedings if they submit a positive going-concern attestation (that may be contingent on a successful restructuring).

The implementation of restructuring measures via a restructuring plan does not require the consent of all creditors, but (only) the consent of a qualified majority of creditors (simple majority in numbers and majority of 75% in value) in each creditor class. Under certain circumstances, the court may confirm the restructuring plan, even if the qualified majority is not reached in every class (cross-class cram-down), to remove the disruptive potential of hold-out creditors outside of insolvency proceedings.

Equitable Subordination

Under the Austrian Equity Capital Replacement Act (Eigenkapitalersatz-Gesetz – EKEG), a loan provided by a major shareholder to a borrower during the status of a crisis (Krise) of the borrower is considered as substituting equity. Consequently, the borrower is prohibited from repaying the loan to the lending shareholder as long as the crisis subsists. A major shareholder is not only a direct or indirect shareholder of the borrower, holding 25% or more of the share capital of the borrower, but also a lender having extensive control over the borrower or having entered into any formal or informal arrangement to become a direct or indirect shareholder (in connection with granting a loan) of the borrower. 

A debtor is considered to be in a crisis if it is in a situation of:

• illiquidity (Zahlungsunfähigkeit) within the meaning of Section 66 of the Austrian Insolvency Act (Insolvenzordnung – IO);
• over-indebtedness (Überschuldung) within the meaning of Section 67 of the IO; or
• thin capitalisation (an equity ratio of less than 8% and the fictional debt redemption period longer than 15 years), unless no reorganisation of the debtor is required under the Austrian Reorganisation Act (Unternehmensreorganisationsgesetz).

As a general rule, the provisions of the EKEG only apply if a loan was granted during the borrower's status of a crisis and not if a crisis occurred at a later point in time. Nevertheless, a case-by-case assessment is advisable as certain types of amendments of existing debt might qualify as a new loan, depending on the structure used.

Claw-back Risk

In insolvency proceedings, the insolvency administrator can void and reverse legal actions and legal transactions concerning the debtor's assets that occurred within certain suspect periods prior to the opening of insolvency proceedings.

The general requirements for avoidance under the IO are as follows:

• the avoidance must result in an increase of the insolvent party's estate (Befriedigungstauglichkeit);
• the challenged legal action or transaction must have caused direct or indirect discrimination to the other creditors (Gläubigerbenachteiligung); and
• the avoidance claim must be filed by the insolvency administrator within one year after the opening of the insolvency proceedings, although the insolvency administrator and the relevant creditor may agree to extend this period for three months.

The grounds for avoidance under the IO comprise:

• avoidance due to intent to discriminate (Anfechtung wegen Benachteiligungsabsicht);
• avoidance due to the squandering of assets (Anfechtung wegen Vermögensverschleuderung);
• avoidance of dispositions with no considerations and analogous transactions (Anfechtung unentgeltlicher Verfügungen und ihnen gleichgestellter Verfügungen);
• avoidance due to preferential treatment (Anfechtung wegen Begünstigung); and
• avoidance due to knowledge of insolvency (Anfechtung wegen Kenntnis der Zahlungsunfähigkeit).

Insolvency Considerations

Insolvency in this context means illiquidity (Zahlungsunfähigkeit) or over-indebtedness in terms of insolvency law (insolvenzrechtliche Überschuldung). A debtor is considered to be illiquid (zahlungsunfähig) if it is unable to pay its debts in due time (ie, when they fall due), and is not in a position to acquire the necessary funds to satisfy those due liabilities (ie, liabilities that are due at that very point in time) within a reasonable period of time. The debtor is considered to be over-indebted in terms of insolvency law if its liabilities exceed its assets and the company has a negative prospect (negative Fortbestehensprognose).

If insolvency proceedings are opened, the debtor is no longer entitled to dispose of its assets. Obligations of the debtor that are not due are accelerated and assumed to be due when proceedings are opened.

Following the opening of proceedings, creditors may not initiate or continue enforcement or other legal actions against the debtor, except for:

• proceedings not affecting the debtor;
• proceedings relating to creditors with a right to segregation or to separate satisfaction;
• proceedings relating to claims disputed by the insolvency administrator; and
• proceedings resulting from transactions concluded after the opening of the insolvency proceedings.

The opening of insolvency proceedings does not terminate existing contracts automatically. The administrator may choose whether or not to fulfil contracts that were agreed between the parties prior to the opening of proceedings and were not completely fulfilled by both parties prior to the opening. The other party may request the court to set a deadline for the administrator to resolve on this right. If the administrator does not respond in a timely manner, contracts are deemed terminated. If the administrator chooses to terminate the contract, the other party may file a claim for damage resulting from such termination as a creditor in the insolvency proceedings, in which case that party will receive the respective insolvency quota.

Contractual agreements that grant one contractual party the right to terminate the agreement in the event of insolvency are void.

Contracts that are potentially necessary for the continuation of the debtor's business must not be terminated during a six-month period following the opening of insolvency proceedings, unless there is a compelling reason for doing so; the mere worsening of the debtor's economic situation is not sufficient, and neither is late payment by the debtor of receivables that have become due and payable prior to the opening of insolvency proceedings. An exception is made only if the fulfilment of the contract would be detrimental to the economic situation of the creditor, with respect to employment agreements and credit agreements.

A validly perfected security interest should not be affected by the opening of insolvency proceedings. However, the assets of an insolvent debtor that are essential for the continuation of the debtor's business cannot be enforced for six months from the opening of insolvency proceedings. Furthermore, default interest (Verzugszinsen) accruing during a period of six months from the opening of insolvency proceedings will not be effectively secured by the pledges.

Enforcement steps will depend on whether the collateral assets are in the possession of the secured party or the insolvency administrator or insolvent party. If the secured party is already in possession of the collateral assets, the enforcement procedure remains as stated above. If the insolvency administrator is in possession of the collateral assets, enforcement is effected by the insolvency administrator, who commonly enforces in court but could also opt for out-of-court enforcement.

Stamp Duty

Pursuant to the Austrian Stamp Duty Act (Gebührengesetz), Austrian stamp duty applies to certain transactions (eg, the assignments of receivables, sureties, mortgages) if a document is drawn up evidencing the transaction and an Austrian nexus exists. Care must be taken in relation to several finance documents commonly used in financing transactions.

A facility agreement as such is not subject to stamp duty but it may refer to other agreements that are subject to stamp duty. The document referred to in this case forms part of the facility agreement for stamp duty purposes. As a result, the execution of a finance document within Austria or any other action that establishes an Austrian nexus may trigger Austrian stamp duty (if, for example, the finance document contains a stampable guarantee/surety).

An Austrian nexus exists if finance documents are signed or handed over in Austria, or if a document is signed outside of Austria (documentation abroad) and has a personal or factual domestic reference. A personal domestic reference means that all contracting parties have their domicile, management or place of business in Austria, while a factual domestic reference exists if the legal transaction concerns a domestic object or has a domestic place of performance. References to any finance documents that contain stampable transactions or refer to stampable transactions in another written document (in particular, by naming the parties and the stamp duty sensitive legal transaction) may also trigger the stamp duty (substitute documentation – Ersatzbeurkundung). Referenced legal transactions thus become the content of the written document for stamp duty purposes. A mere reference in any form (eg, letter, paper, e-mail, fax) is sufficient to trigger that risk.

Care must also be taken in relation to abstract guarantees and sureties. An abstract, first-demand guarantee (including a waiver of all defences) is not subject to stamp duty, while a surety or an assumption of debt as co-debtor (accessory personal security), for example, triggers stamp duty.

There are legally permissible avoidance mechanisms to avoid triggering the stamp duty or to at least reduce stamp duty risk. The most important avoidance mechanism regarding finance transactions is to avoid an Austrian nexus by utilising documentation abroad (Auslandsbeurkundung). For this reason, the finance documentation should include a respective stamp duty warning on the cover page, a stamp duty clause that allocates the stamp duty risk to one party, and a place of performance clause.

In relation to guarantees, there are two ways to mitigate the risk of triggering Austrian stamp duty:

• by making sure that the guarantee is an abstract, first-demand guarantee (abstrakter Garantievertrag) pursuant to Section 880a, second case of the Austrian Civil Code; and
• by limiting the guaranteed obligations to obligations and liabilities under the facility agreement (as opposed to all finance documents).

The first alternative is generally preferred by lenders, while the second is preferable for debtors.

If stamp duty is not duly paid, the tax authorities may impose a penalty of up to 100% of the amount of the stamp duty.

Withholding Tax/Qualifying Lender Concepts

Interest paid by an Austrian borrower to an Austrian or foreign lender is generally not subject to withholding tax deduction in Austria, except for interest payments on bank deposits or on other non-securitised receivables against banks, and interest payments on publicly offered debt instruments (bonds). In these cases, the Austrian withholding tax rate is 27.5%, subject to a reduction to 25% for interest paid to corporations. However, no withholding tax applies to interest payments made to:

• foreign resident corporate taxpayers (without a permanent establishment in Austria to which the income is attributable);
• foreign resident individual taxpayers (without a permanent establishment in Austria) if an automatic exchange of information mechanism is in place between Austria and the jurisdiction of residence of the taxpayer, and if they provide a qualifying tax residence certificate; or
• Austrian corporate taxpayers who provide a qualifying declaration of exemption (Befreiungserklärung).

Tax treaties may provide for further exemptions from or reductions on withholding tax on interest. If withholding tax has been withheld, the taxpayer must file a refund application to obtain either a full or partial refund (if only a reduction under a tax treaty is available). Capital gains realised on an alienation of loans or bonds would only be subject to withholding taxation in Austria if an Austrian custodian or paying agent is involved in such alienation. Exemptions apply.

Lending activities (ie, the conclusion of money lending agreements and the extension of monetary loans) are qualified as banking activities pursuant to the Austrian Banking Act (Bankwesengesetz). Secured and unsecured lending is considered a regulated activity in Austria if it is performed commercially, so an Austrian banking licence or a passported banking licence granted by another EU member state is required. Given the strict view taken by the Austrian Financial Market Authority (Finanzmarktaufsichtsbehörde – FMA), even granting a single loan may qualify as commercial activity and, hence, require a banking licence.

It may also be difficult to determine whether a lending business is regarded as being carried out in Austria for the purposes of the Austrian Banking Act. The Austrian Banking Act may already apply if the lending activity is conducted from a place outside of Austria but provides for a certain link to Austria (Austrian debtor, Austrian bank account, contact in Austria, etc). There is a risk of the licence requirement applying as long as there is a certain Austrian nexus, but this risk can be mitigated if bonds (especially bearer bonds) are issued by the borrower and purchased by the lender instead of a loan being granted to the borrower. The issue and purchase of bonds does not require a banking licence, so several matters provide for bond structures to avoid lending-related licence requirements that non-bank lenders may not fulfil.

There are no further Austria-specific issues to highlight.