Banking & Finance 2021 Comparisons

Last Updated October 06, 2021

Law and Practice


Fellner Wratzfeld & Partners (fwp) has a team of more than 120 highly qualified legal personnel. The firm’s major fields of specialisation include banking and finance, corporate/M&A, real estate, infrastructure and procurement law, changes of legal form, reorganisation and restructuring. Fwp advises renowned credit institutions and financial services providers on financing projects, representing mainly Austrian and international private companies, but also has clients from the public sector. The firm’s expertise has proven its worth repeatedly, not only in connection with project and acquisition financing, but also in regard to financing company reorganisations; fwp is also able to draw upon substantial experience gained in the financing of complex consortia in the last few years.

As everywhere in Europe, the regulatory framework (in particular, the determination of risk-weighted assets and of own funds) has had a significant impact on overall strategy in the banking sector, which increasingly aim at deleveraging banks' balance sheets (in particular, by way of disposal of non-core assets).

With regard to the handling of “negative interest rates”, several banks implemented a “zero floor” (ie, minimum rate at 0%) for reference interest rates in (existing) corporate and retail loan agreements and charged the full margin, which triggered law suits initiated by the Austrian Consumer Protection Association and by borrowers demanding the refund of the charged higher interest. The Supreme Court decided in several decisions regarding consumer loans that it is permissible to floor the overall interest rate at zero since a borrower may not expect the creditor to pay (negative) interest to the borrower. However, the creditor may not charge the borrower the full margin when the agreed reference interest rate is negative. Hence, the interest rate to be paid by a borrower who is a consumer may drop below the margin or even to zero. With regard to corporate borrowers, the Supreme Court most recently stated that an agreement on a minimum interest rate (without a cap) is permissible.

Overall, the current economic developments, in particular those caused by the COVID-19 pandemic, seem not to have had a significant negative impact on the Austrian lending market, which has generally remained solid. However, it remains to be seen what the full effect of the pandemic will be.

As a result of the COVID-19 pandemic, the financial situation of many borrowers deteriorated. The Austrian legislature therefore decided to provide relief for borrowers, in particular to consumers and micro-entrepreneurs (ie, entrepreneurs who employed fewer than ten persons in the last financial year and whose annual turnover and/or annual balance sheet total did not exceed EUR2 million). Consumers and micro-entrepreneurs who concluded a loan agreement before 15 March 2020 have the right to demand a deferral with regard to liabilities (repayments, interest or principal payments) that become due between 1 April 2020 and 31 January 2021, if the consequences of the COVID-19 pandemic make it unreasonable for them to pay the amounts owed. The duration of the deferment is ten months from the due date of the individual liability.

A further form of relief for borrowers is that contractual penalties agreed before 1 April 2020 are not applicable until 30 June 2022 if the obliged party is either significantly impaired in its economic performance or is unable to perform its contractual duties due to restrictions on working life due to the COVID 19 pandemic.

In addition, a COFAG bridging guarantee is available until the end of 2021.The bridging guarantees are handled by COFAG in co-operation with Oesterreichische Kontrollbank AG and Austria Wirtschaftsservice Gesellschaft mbH (AWS). Large companies and small and medium-sized entities (SMEs) with their registered office or permanent establishment and significant operational activity in Austria are eligible to apply for bridging guarantees in the amount of up to 100% of the credit amount (90% proportional liability for large companies or 100% liability for loans up to EUR500,000 in the case of small entities). In order to be eligible for support, there must not be any reason for insolvency and there must not have been a loss of half of the share capital/common stock. Large companies must also have complied with the following core financial ratios: gearing (ratio of debt to equity) below 7.5 and interest cover ratio (ratio of EBITDA to interest expense above 1.0).

Despite these government measures, it can be assumed that in the medium term a number of companies will become insolvent as a result of the pandemic and thus that banks will experience an increase in loan defaults. The extent of this increase in loan defaults will depend in part on whether further pandemic waves lead to further restrictions on economic activity (eg, a further lockdown) and what further measures are taken by the government to support the Austrian economy.

The Austrian marketplace (Vienna Stock Exchange) has not developed a high yield market as active as those in other jurisdictions.

Predominantly, new issues of bonds admitted to trading on the Vienna Stock Exchange comprise issuance programmes of credit institutions. There is also a limited number of mid-cap issuers and numerous foreign issuers, largely aiming at admission of their instruments to the (non-regulated) multilateral trading facility (Vienna MTF), which does not require the approval and publication of a prospectus in line with the Prospectus Regulation.

There is, nevertheless, a solid share of classic corporate bonds which are largely issued by listed blue chip companies, but which do not constitute a true alternative to bank loans for the larger market.

Traditionally, the Austrian lending market has been dominated by credit institutions licensed in Austria. In terms of "alternative“ credit providers, institutions (such as insurance companies) are not regularly seen as original lenders in transactions, but rather rely on acquiring existing exposure from credit institutions which handle the origination.

Austria is a strongly regulated banking market where a banking licence is required both for commercial lending as well as the commercial acquisition of receivables (factoring), the latter will only be fully exempted from that licence requirement if, and to the extent effected for, the purpose of that acquisition is securitisation to special purpose securitisation vehicles (ie, companies specialising in acquiring loan exposure and transferring it to its financing providers, frequently in the form of bond issues).

Limited exceptions apply in the context of small-category financings such as crowdfunding. In addition, the Austrian regulator (Finanzmarktaufsicht or FMA) has developed a practice according to which the offering of certain very limited alternative structures to classic loan agreements (subordinated loans, sale and lease-back structures, etc) does not require a banking licence.

Non-bank Lenders

Other than that, Austrian banking legislation will (with only a few exceptions, for example, where applicable with regards to banking secrecy) not apply to certain companies rendering banking services if and to the extent that these pertain to their original and permitted operations; these include insurance companies, pension funds, non-profit organisations, societies, certain non-EU securities firms as well as alternative investment funds.

In market practice, these exceptions have not led to significant competition for banks. Rather, in specific areas (eg, where insurance companies wish to act as lenders for investment purposes), credit institutions are involved for purposes of origination and pass on loan portfolios.

In terms of banking and finance techniques, Austrian borrowers rely primarily on local banks (to a significant degree on their respective “house bank”) for their financing. In those cases, the complexity of the loan and security documentation as well as reporting obligations and (financial) governance are fairly limited (and frequently rely on in-house standard documentation).

In addition, the Austrian lending market has seen an influx of both foreign lenders and Austrian banks seeking to provide financing as a syndicate in a club deal, or aiming at syndication of their relevant loans to international banks; in those scenarios, significantly more complex and voluminous loan documentation (based on the standards made available by the Loan Market Association adapted for Austrian needs) has become more common.

The new legislation passed to combat the COVID-19 pandemic (see 1.2 Impact of the COVID-19 Pandemic) mainly aims at mitigating the economic consequences of the COVID-19 pandemic and maintaining the solvency of borrowers. However, all measures are temporary.

The most significant tax development (dating back to 2011), which has strongly facilitated lending to Austrian borrowers, was the abolition of Austrian stamp duty which was imposed on loans with certain connections to Austria.

Other than that, the current regulatory developments concerning capital requirements and risk management may have a significant impact on the loan market in Austria. Since there is still a fair share of non-performing loans in the Austrian lending market, banks will have to reduce these loans in order to be able to comply with the European risk management requirements (minimum coverage). This may lead to more restricted lending and a quick realisation of non-performing loans, which in turn may impact the Austrian economy. In addition, the most recent European regulatory initiatives (Basel IV), which are planned to be implemented by the end of 2022, are also expected to have repercussions for the Austrian loan market, especially for major banks (as their minimum capital requirement would increase considerably).

Internationally, in the EU and in Austria, the fight against climate change began several years ago. The result so far has been a multi-layered, constantly amended legal structure of agreements and commitments under international law (primarily the Kyoto Protocol and the Paris Agreement), requirements under EU law and national laws.

The EU has decided to restructure the entire financial system to further sustainable finance.

The term “sustainable finance” usually refers to the consideration of environmental and social issues (so-called ESG factors) in investment decisions, leading to more investment in long-term, sustainable activities.

In this context, four core regulations are to be observed.

  • Under Regulation (EU) No 573/2013 (Capital Requirements Regulation (CRR)), large institutions that have issued securities admitted to trading on a regulated market of an EU member state are required to disclose information on sustainability risks from mid-2022. In addition, far-reaching requirements for the inclusion of sustainability risks in the risk management and supervision of institutions have already come into force.
  • Regulation (EU) 2019/2088 (Disclosure Regulation) obliges financial market participants to disclose, on the one hand, their concepts for integrating sustainability risks into their investment decision-making process and, on the other hand, the adverse effects of investment decisions on certain sustainability factors. These extended information and transparency obligations thus also provide for an expansion of sustainability-relevant accounting. Some of the requirements are already to be implemented from March 2021.
  • Regulation (EU) 2016/1011 (Benchmark Regulation) ensures better information on the "carbon footprint" of an investment portfolio. In addition to developing minimum standards for low-carbon investments, two new categories of benchmarks have been introduced. Some of the requirements have already been applicable since April 2020.
  • Regulation (EU) 2020/852 (Taxonomy Regulation), which was adopted in April 2020, undoubtedly forms the "core" of the EU’s Sustainable Financing Action Plan and further expands on and defines the concept of "sustainability".

The Taxonomy Regulation identifies, among others, (i) climate change mitigation, (ii) adaptation to climate change, (iii) sustainable use and protection of water and marine resources, (iv) transition to a circular economy waste prevention and recycling, (v) pollution prevention and control, and (vi) protection of healthy ecosystems as environmental objectives.

In order to be considered a sustainable company in the sense of the Taxonomy Regulation, at least one of these environmental objectives must be achieved and no other must be substantially violated ("do not substantially harm").

With regard to disclosure obligations in Austria, the Sustainability and Diversity Improvement Act is of particular relevance. It obliges large companies that are of public interest and have more than 500 employees to report (in the management report or in a separate report) on environmental, social and labour issues as well as on measures to respect human rights and to fight corruption and bribery (ie, the ESG factors). In addition, it is necessary to describe the concepts pursued and to indicate the results, the risks as well as the most important non-financial indicators.

Although this would appear to cover only a very small number of companies, the "level down" effect – according to which a company can only fulfil its disclosure obligations itself if, among other things, it can rely on corresponding reliable information from its suppliers – means that many smaller companies will also be affected.

There are three basic routes for banks to be authorised to provide loan financing on a commercial basis to companies domiciled in Austria:

  • application for an Austrian banking licence; this option is certainly not viable for one-off transactions and obtaining an Austrian banking licence typically involves meticulous and in-depth preparation over an extended period, in particular in preparation of fulfilling legal requirements for credit institutions and preparing an appropriate business plan (which is subject to review by the regulator);
  • establishment of a branch (Zweigstelle) by a credit institution from another EU member states (by way of so-called “passporting”, ie, having the competent regulator from the home member state notifying the requisite banking licence to the Austrian regulator); or
  • direct rendering of services under the EU freedom of services, the most common approach for non-Austrian banks who wish to commercially engage in the lending business in Austria without establishing a permanent presence.

Non-banks may generally only engage in the lending business in Austria if and to the extent that such activity would be exempted from a banking licence for an Austrian entity, eg, by way of the acquisition of loan portfolios by special securitisation purpose entities.

In terms of absolute restrictions on granting loans, subject to the fulfilment of the regulatory criteria (see 2.1 Authorisation to Provide Financing to a Company), there are no specific restrictions on foreign lenders intending to provide debt financing to Austrian borrowers.

There are no legal impediments or restrictions for the granting of securities or guarantees which would deviate from the rules that would apply to an Austrian creditor.

There are no restrictions, controls or other concerns on and regarding foreign currency exchange which would deviate from the rules that would apply to an Austrian creditor.

There are no restrictions on the borrower’s use of proceeds from loans or debt securities.

Austrian civil law recognises the necessary concepts in order to implement agent and trust structures in Austria in the form of an agency agreement (Auftragsvertrag), which may be combined with the granting of a power of attorney (Stellvertretung), as well as the possibility of certain rights being held by a trustee in its own name but for the account of a third party (trustor).

As a consequence, agency and trust concepts are frequently used in the documentation of Austrian law-governed loans in the form of customary security agency agreements.

A certain degree of complexity (and potential insecurity) is entailed by these structures since Austrian civil law differentiates between so-called "accessory securities“ (akzessorische Sicherheiten) and "non-accessory securities“ (nicht-akzessorische Sicherheiten), whereby the former provide for a stringent link between the existence/validity of the security and the underlying (secured) claim. By way of example, pledge (and mortgage) agreements are strictly accessory so that any defect of the underlying legal relationship (such as the invalidity of the loan claim) as well as the (full) redemption of the claim would automatically result in the lapse of the relevant security right. While structures providing for accessory security rights (such as pledges) being granted to a security agent (which typically hold parts of, but not the entire, loan claim) are customary in Austria these have not been tested (or expressly accepted) by the courts.

This risk does not apply to so-called non-accessory security, which includes (inter alia), the transfer of property for security purposes (Sicherungsübereignung).

These uncertainties are known by domestic, and widely accepted by foreign, participants in the Austrian lending market and the relevant qualifications are customarily included in (enforceability) legal opinions as a standard market practice.

Austrian civil law recognises the concept of assignment, pursuant to which lenders’ rights (but not obligations) may generally be unilaterally transferred from the original or former creditor (assignor) to a new creditor (assignee). However, there are regulatory limitations to this procedure stemming from the fact that Austrian banking secrecy (Bankgeheimnis) prohibits the disclosure of customer data by banks to third parties; exceptions apply (eg, for the conduct of legal disputes with a borrower or for the purposes of certain investigations by authorities) but these will generally not apply to performing loans. Waiver and consent language – inter alia, permitting disclosure of information on a loan and lender to a potential syndicate partners or assignee – is therefore frequently used in non-consumer loans and is standard market practice for loans designed for syndication.

Since this is not a satisfactory structure in practice (in particular, with respect to performing loans), the entirety of any rights and obligations arising from a loan agreement may be transferred by way of transfer of contract (Vertragsübernahme); such transfer requires the consent of all parties involved. It is customary, however, that the loan documentation contain the relevant in-advance consent of the borrower, which is permissible under certain circumstances.

Austrian law-governed security rights will typically transfer alongside the underlying legal relationships (and statuary law provides for a claim of the new lender to have any such security rights transferred from the former lender).

Specific to Austrian law is the possibility of a new creditor, with the consent of the borrower, redeeming outstanding debt with the former creditor thereby causing (against payment) an ex lege transfer of any related security rights. This would, however, require that any such outstanding payments are due, as a result this redemption (Einlösung) structure would typically not be a viable option in relation to performing loans. The method is frequently used in restructuring scenarios because it permits the swift and secure transfer of security rights.

By way of an alternative, Austrian law would also permit risk transfer structures not resulting in a transfer of the position of the lender of record (such as sub-participations) which would, however, not imply a technical transfer of a claim or security right.

Debt buy-back by a borrower or a sponsor is generally permitted under Austrian law provided that either a repayment is due or voluntary early prepayments are permitted on a contractual basis. In addition, consumer borrowers have (as a general rule) a mandatory right of early repayment.

Austrian law does not recognise or regulate the concept of ”certain funds“.

However, public take-over transactions (subject to the Austrian Takeover Code (Übernahmegesetz), which implements the European Take-Over Directive) require debt or equity funding for the acquisition of the target shares (under the hypothesis of a full acceptance of an offer) to be available and to be certified by an independent expert and for that certificate to be included in the published offer documentation.

Other than that, in particular, in private transactions, “certain funds” provisions are not mandatory, but may be used by way of contractual arrangement on a case-by-case basis.

In terms of documentation, there is a divide in the Austrian lending market. On the one hand, local (also major) Austrian banks frequently provide debt financing to their (existing or new) customers on the basis of in-house standard documentation (in conjunction with their general terms and conditions), which may be considered “short form”. On the other, international banks targeting the Austrian market, as well as Austrian banks aiming at the syndication of their lending engagements, increasingly refer to “long form” documentation that is frequently structured and drafted along the lines of the standard provided by the Loan Markets Association (LMA).

In the context of public M&A (take-over) transactions, no public filing or other disclosure of the underlying financial documentation is required; the attestation/confirmation on the available funding of the independent expert to be included in the offer document will suffice as a matter of law.

Repayments of principal under loan transactions are not subject to withholding tax.

Interest payments made to lenders are not subject to withholding tax as a general rule. Rather, such payments will have to be taken into account for the purposes of the (corporate) income tax of the lender.

There are certain types of security arrangements – such as suretyships (Bürgschaften) and assignments (Zessionen) – which, on a stand-alone basis, would be subject to stamp duty; there is an exception, however, when these transactions are entered into for purposes of securing loan obligations (which are, themselves, exempted from stamp duty).

If debt funding is structured by way of the acquisition of loan receivables (on a commercial basis), which Austrian banking law qualifies as “factoring”, then such assignment may also be subject to Austrian stamp duty (applied at a rate of 0.8 % to be calculated on the basis of the consideration for the acquisition of such loan).

There are no regulatory limitations on interest charged to customers (borrowers).

However, there are certain basic limitations under Austrian civil law prohibiting “usury” (Wucher). There is a requirement, however, that such interest (agreements) may only then be considered prohibited and unenforceable if and to the extent that the agreed interest rate is clearly disproportionate to market terms and conditions and an agreement to that effect could only be reached (on record) due to the weakness, predicament or inexperience of the borrower. In the retail segment (consumer loans), various information duties and formal requirements apply.

In commercial lending, relevant examples are almost non-existent.


Security rights over shares are the most common security instrument in certain types of financing transactions under Austrian law. Perfection and enforcement vary among the different types of legal forms, of which the limited liability company (Gesellschaft mit beschränkter Haftung or GmbH) is by far the most common.


Security rights over GmbH shares are typically created in the form of a pledge. While the (full title) transfer in a GmbH share requires the form of (an Austrian) notarial deed, this does not apply to a share pledge which is therefore done only in written form. In order to facilitate enforcement, alongside the GmbH share pledge agreement, the pledgor typically grants a (notarised) power of attorney authorising the pledgee to sell and transfer the shares on their behalf and a (written) voting power of attorney (which will normally only be used in case of default). The perfection of a GmbH share pledge requires the notification of the company; while separate confirmation letters (counter-signed or with confirmation of receipt) were common in the past, in intra-group scenarios, the company frequently co-signs the share pledge agreement proper in order to document proper notification (and perfection).


Since shares in joint stock corporations (Aktiengesellschaft or AG) are typically certificated as securities (which is legally prohibited regarding GmbH shares), the major difference between a GmbH and an AG share pledge are the perfection requirements. The AG share pledge agreement (as is the case with the GmbH) requires no specific form and is therefore customarily drawn up in simple written form.

As a basic rule, the perfection of in rem security over movables (such as certificated securities) requires that the pledgee obtains direct or indirect possession (which may be mediated by a third party, such as an account bank, but not the pledgor). Only shares in stock-exchange listed companies (or companies envisaging such admission) and shares traded on a multilateral trading facility (MTF) may be certificated in bearer form; this is effected through a global share certificate and the shares then being introduced into an electronic clearing system. In that case, a pledge may be created by transferring the shares to the pledgee’s securities deposit account or blocking the pledgor’s account in the pledgee’s favour. Registered shares which are certificated (in physical form) must be transferred to the pledge; shares that are not certificated may only be pledged in accordance with the rules on assignments (ie, notification of the company).


Pledges over shares in partnerships – both limited partnerships (Kommanditgesellschaft or KG) and unlimited partnerships (Offene Gesellschaft or OG) – do not require a specific form and are therefore commonly drawn up in writing and perfected through notification of the company.

Transfer restrictions

Companies' articles of association frequently provide for transfer restrictions that may include a shareholder consent/resolution requirement for the pledge or a transfer of shares/interest in those companies. In order to avoid risks (such as unenforceability or delays during enforcement) it is advisable to have such requirements removed from the articles or to obtain the requisite consent in advance.


Austrian law provides for court-conducted enforcement proceedings unless there is a specific contractual enforcement arrangement in place between the security holder and the security provider that, inter alia, requires a valuation of the asset prior to its commercialisation (unless there is a defined market or stock exchange price). The requisite rules aiming at preserving the pledgor’s interest during enforcement must be followed meticulously when drafting security agreements. Overall, direct enforcement by the pledgee is standard market practice in financing transactions in Austria.


Security rights over receivables may be effected either by pledge or full transfer (assignment) of rights (for security purposes); while both forms occur in practice, security assignments are more common as they provide full title to the secured party.

The transfer of receivables requires an (assignment) agreement between the assignor and the assignee (unless the assignor and the obligor have agreed on a valid assignment restriction). However, if an assignment is effected for security purposes, the same requirements as for pledges will apply and disclosure of the pledge/transfer will be required. In the case of receivables not recorded in the creditor’s/assignor’s books and records (which is rare in business practice), the notification of the obligor is considered sufficient. In the case of receivables being so recorded, Austrian case law has developed an increasingly stringent approach requiring that the pledge/assignment be annotated both in the list of obligors of the assignor as well as in the list of open accounts.

Given the requisite legal restrictions, the notification of the obligor of an assignment/pledge is mostly withheld until an enforcement event occurs.

Pledges and security transfers are not restricted to present receivables of the assignor but may extend also to future receivables or certain classes thereof, if and to the extent that such receivables are properly described in the security agreement.


Cash collateral is most commonly granted in the form of account pledges, which are not subject to specific formal requirements and are therefore typically drawn up in written form. Perfection requires the notification of the account bank. The standard business terms and conditions of Austrian banks contain a pledge arrangement over any and all assets of the customer transferred to the bank’s custody, including accounts with a positive balance. In order to create an effective third-party pledge (to a pledgee other than the account bank), this standard pledge agreement is customarily waived or subordinated.

Real Property

Real property can be provided as security in the form of a pledge (Hypothek) under Austrian law. In addition to a pledge agreement, which does not require a specific form, the registration of the pledge in the land registry is required. For this purpose, the pledgor/owner of the property needs to provide a specific consent declaration regarding the registration, which must be notarised.

Multiple pledges over one individual property are possible and will rank towards each other in terms of priority (as per registration in the land register).

The registration of a pledge over real property in the land register is subject to a significant registration fee (1.2% of the secured amount), which is typically borne by the pledgor. Under certain circumstances (abundant other security or impeccable financial standing), lenders may temporarily refrain from the registration while having readily executed pledge documentation in place for immediate registration at their discretion.


While security arrangements relating to moveable goods (such as equipment or inventory) are not subject to specific formal requirements, Austrian law imposes stringent standards on perfection which either require the physical transfer of the pledged goods or equivalent measures (in the case that a physical transfer is too onerous, transfer “by way of token” will be considered sufficient).

A full title transfer in such goods for security purposes will be possible but is subject to the identical perfection requirements (to avoid circumvention).

Given these requirements, pledge over moveable assets is not common, in particular in relation to such assets as are required for the daily operations of the pledger.

In individual cases, lenders and borrowers agree on pledges on the contents of warehouses. These are, however, subject to strict requirements under case law entailing, inter alia, signage of the goods affected and the engagement of a special guardian, which will be bound by instructions solely of the pledgee and assure that no goods are removed from a warehouse in the absence of the pledgee’s consent or in the case of direct replacement.

Intellectual Property Rights

Trademarks pledges do not require a specific form. In terms of perfection, a registration of the pledge (which, however, require notarisation of the pledgor’s consent declaration) is considered necessary and standard.

Patents pledges require a registration in the patents registers.

Copyrights as such may not be pledged or transferred. However, licences may be established or be the subject matter of security rights to achieve an equivalent economic result.

The concept of a “floating charge”, or other universal or similar security interest over all present and future assets of a company, is not recognised by Austrian law. Rather, security arrangements must be made specifically with respect to each and every asset and type of asset and take into account observation of the requisite perfection requirements, which vary significantly.

Austrian law does not restrict downstream guarantees (or other security). However, there are stringent limitations on upstream and cross-stream security.

Distributions to (direct or indirect) shareholders may only be effected by corporations (eg, an AG, a GmbH or a GmbH & Co KG (ie, a limited partnership in which the only unlimited partner is a GmbH)) in the form of formal dividend distributions (based on a balance sheet and appropriate shareholders’ resolution), in the case of a capital decrease (which also requires a shareholders’ resolution) or in the form of a potential liquidation surplus.

In addition, a company and its shareholders or affiliates may enter into transactions with each other on arm’s length terms and conditions. This requirement entails that the company will only enter into such transactions with its shareholder or affiliates if and to the extent that it would equally (but hypothetically) enter into the transaction on identical terms and conditions with any unrelated third party.

Austrian case law on these restrictions is based on a case-by-case evaluation and has become increasingly stringent over the last twenty years. In practice, it is advisable to have the management of the company assess the proposed transaction under the business judgement rule, in particular the risks involved, in accordance with the above criteria. The entering into of such a transaction may not, in any event, threaten the existence of the company. A breach of the capital maintenance rules would lead to personal liability of the management and nullity of the transaction.

In order to mitigate the relevant risks, limitation language restricting the (potential) enforcement of upstream or cross-stream security arrangements is common in Austria. Since there are no clear guidelines on the admissibility of upstream or cross-stream guarantees (such as the limitation to certain financial criteria), any type of proposed limitation language is necessarily ambiguous to some extent and decreases the commercial value of upstream or cross-stream security significantly.

For joint stock corporations (AG), there is an outright prohibition on providing financial assistance in relation to the acquisition of their own shares (including in the form of granting advance payments, loans or providing security to a third party in order to provide such assistance); exceptions only exist for transactions in the ordinary course of business of credit institutions.

Austrian legislation on other corporations (GmbH) does not contain comparable restrictions. As to substance, however, these are similar to those for the AG in view of the Austrian capital maintenance rules as per Austrian case law.

The most relevant risks in relation to the grant of security guarantees are valuations of the principles of accessoriness and capital maintenance rules.

In addition to that, Austrian insolvency law provides for an elaborate set of provisions permitting an insolvency administrator to challenge and void certain transactions entered into prior to the opening of the insolvency proceedings of a security provider. The insolvency administrator is entitled to rescind acts of the bankrupt company if:

  • such acts have been completed prior to the opening of insolvency proceedings;
  • affect the assets of the estate;
  • are detrimental to the estate’s creditors; and
  • if a specific rule (subject to additional criteria) on such rescission applies.

In Austria, there are no significant costs associated with the grant of security or guarantees for credit or loan agreements. Besides, no specific prior consent by authorities or statutory interest representation (eg, works council) is required.

Formalities on the release of security depend on the type of security that has been granted.

Accessory security (such as pledges or suretyships) will automatically lapse in the event of a full satisfaction of the secured liabilities. In these cases, no specific formal requirements would apply to the “release” of security; nevertheless, release agreements or confirmations on repayment (which may take the form of pay-off letters issued in advance of such payment) are customary.

In the case of non-accessory securities, depending on the type of security, a formal re-transfer or similar act may be required in order to reverse the original creation of a security right.

In case of securities recorded in registers (such as mortgages, trademarks pledges, etc), even if the pledges are accessory securities, certain formal requirements may apply to the deletion of the relevant security right. For instance, the deletion of a mortgage from the land register will only be possible on the basis of a consent to the release issued by the pledgee (executed in an authenticated form).

These requirements and documentary deliverables may cause significant complexity in refinancing transactions where an outgoing lender/security holder would only agree to a release of security (or the issuance of confirmations) upon full repayment and a new lender/security holder insists on the creation/perfection of the security as a condition precedent to draw-down. In these scenarios, escrow arrangements are common market practice.

As a general rule, Austrian rules on the creation of securities follow the principle of priority when it comes to the in rem perfection of security rights.

Contractual arrangements varying this principle are permissible among creditors (eg, in intercreditor agreements in syndicated loan transactions). This, however, would not have to be observed by an insolvency administrator and/or court in the case of enforcement and/or insolvency proceedings.

In syndicated financing transactions, the appointment of a joint agent/security agent constitutes significant mitigation for larger groups of creditors against this legal concept because the proceeds from an enforcement, or in the course of insolvency proceedings, would be disbursed to the agent/security agent for the account of a larger group of creditors so that internal distribution could be effected as per the agreed terms (and outside of the insolvency proceedings).

The enforcement of (contractual) security rights varies significantly depending on the type of specific securities (and any contractual arrangements in place); while statutory law provides for enforcement of security rights through the courts as a general principle, deviations by way of contractual arrangements between the parties are permissible.

Regarding the most relevant types of security, the following statutory rules and market practice observations apply.

Share Pledges

In the case of shares in a GmbH, it is common market practice to agree on out-of-court enforcement, which entails information to the pledgor, a valuation of the shares and subsequent disposal to the best bidder. In principle, the same applies to shares in an AG; however, if these have a market or stock exchange price, they must be sold at such price without public auction.


In principle, mortgages must be enforced through court enforcement proceedings, which require a public auction of real property, and the involvement of the court is prone to cause delays with the enforcement procedure.


In the case of receivables, there is no specific enforcement procedure; rather, the pledgee will be entitled to directly claim payment from the debtor.


For this type of “personal security”, there is no specific type of enforcement procedure. Rather, depending on the terms and conditions agreed in the relevant security arrangement (eg, “first demand guarantees”), payment may be requested directly from the security provider (guarantor).

Movable Property

It is common market practice that the court enforcement procedure provided for under statutory law is modified to permit out-of-court enforcement. Movable goods may be sold after a notification to the pledgor, a cooling-off period of one month and by way of public auction. Disposal without such auction is permissible and, in the case of securities, mandatory (see the information about share pledges above) if a stock exchange or market price exists.

The same principles would apply to the enforcement into security rights over intellectual property rights.

As a general rule, Austrian law and conflicts of laws rules permit the choice of a foreign law as the governing law of a contract, even if that contract is to be enforced in Austria; in terms of market practice this would frequently apply to loan agreements governed by German or English law.

Restrictions apply, however, to the granting and perfection of security rights, which, depending on the type of security, is in most instances governed by local (Austrian) law. By way of example, this would apply to pledges over the shares in Austrian companies, pledges over or security assignments of Austrian law governed receivables, the creation of pledges/mortgages over Austrian real properties, etc.

Therefore, it is common market practice that security rights over assets located in Austria and/or provided by Austrian domiciled transferors/pledgors are documented in Austrian law governed security documentation.

A waiver of immunity would basically be upheld in Austria.

As regards the enforcement of non-Austrian judgments or awards, there are three basic categories.

Court Judgments from EU Member States

Due to the Brussels Ia Regulation, which applies in Austria, judgments from other member states of the European Union are generally recognised and enforced in Austria without any additional procedures or retrial of the merits of the case. Limited exceptions may apply in the case of substantial deviations from Austrian law (ie, those that contravene the Austrian ordre public).

Court Judgments from Non-EU Member States

Outside the scope of applicability of the Brussels Ia Regulation, enforceability of a foreign court judgment depends on whether there is a bilateral treaty between the home state of a lender/security holder and Austria. As a substantive criterion, Austrian law (on the enforcement of court judgments) requires reciprocity to be ensured under bilateral treaties or regulations. In addition, it is required that the defendant in the enforcement proceedings had the opportunity to participate in the original proceedings before the foreign court and that the relevant judgment may no longer be challenged before the courts and/or authorities of the foreign state.

Enforcement of a foreign (non-EU) court judgment may nevertheless be denied if and to the extent that the enforcement is aimed at an action which may not be enforced or is not permissible under the laws of Austria or if the ordre public would be violated.

Arbitral Awards

Austria has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Arbitral proceedings and the enforcement of arbitral awards are common in Austria, which maintains a leading international arbitral institution (the Vienna International Arbitral Centre or VIAC).

Impediments for a foreign lender enforcing security in Austria are largely technical and administrative. In civil law court proceedings, competent courts may request cost advances (unless the relevant claimant is domiciled in the EU or in a state that is a party to the Hague Convention on Civil Procedure of 1 March 1954); in addition, translation requirements will apply for non-German language transaction documentation.

While the Austrian legislator introduced “reorganisation proceedings”, which should be initiated if a “need for reorganisation” (Reorganisationsbedarf) is identified, in 1997, this regime was and continues to be without any practical relevance.


Therefore, other than insolvency proceedings, out-of-court restructuring efforts constitute the prevailing market procedure in Austria. Unless there are specific lending arrangements (such as syndicated loans with market standard majority rules), effective out-of-court restructuring efforts (if a uniform pro rata debt reduction is sought) require, in principle, the consent of all lenders to (i) a definitive settlement (typically requiring a hair-cut), or (ii) organised contractual arrangements with a view to the implementation of a restructuring under stand-still and restructuring contractual provisions. If such a settlement and/or regime is established with (only) majority consent, the dissenting lenders will fully retain their legal position (and remain entitled to full repayment, subject only to a quota reduction in insolvency proceedings).

The same considerations apply to liabilities incurred under bonds. Unlike other (European) jurisdictions, Austrian legislation has not (yet) adopted collective action clauses so that, in principle, the restructuring of a bond (eg, by way of a, possibly temporary, moratorium or hair-cut) would require the consent of all bondholders. Recent Austrian practice has seen individual cases where a special joint representative (Kurator) has been appointed in order to represent bond creditors if and to the extent that their joint interests are affected.

In any structuring of such out of court settlements/restructuring, the potential risks of an ensuing insolvency and related legal action (such as a challenge or a voidance of pre-insolvency contractual arrangements by an insolvency administrator) must be considered.

Restructuring within Insolvency Proceedings

Other than typical insolvency proceedings aiming at the full liquidation of a company’s assets, Austrian law provides for restructuring proceedings in the course of insolvency proceedings based on a so called “restructuring plan” (Sanierungsplan). These proceedings provide for a certain minimum of the debtor’s liabilities (at least 20%) to be repaid during a maximum period (of two years). As an additional differentiation, these proceedings may be opened by an insolvency court providing for self-administration (in this case 30% of the debtor’s liabilities have to be repaid) of the debtor (where the management bodies would retain their operational responsibility) as opposed to the withdrawal of self-administration (where a restructuring administrator, similar to an insolvency administrator, would take over day-to-day management). While such insolvency court restructuring proceedings can and are frequently initiated without a prior agreement among the creditors of the debtor, it is common in Austrian restructuring practice that the key terms and conditions of such a restructuring settlement before the court are pre-agreed among the majority of creditors of the debtor.

As a general rule, any and all claims against a debtor will immediately become due upon the opening of insolvency proceedings. Therefore, there is no requirement for separately terminating, for instance, a loan agreement. Also, under Austrian insolvency law, any agreement on rescission or termination rights, which would apply in the case of the opening of insolvency proceedings, are generally null and void.

In relation to assets that are within the possession of the obligor in an insolvency but subject to in rem rights of third parties (such as pledged assets), Austrian insolvency law provides for specific rights of segregation which will permit that, following enforcement of security, the relevant proceeds will be passed on to secured creditors. If this segregation right is asserted, but disputed by the insolvency administrator (on behalf of the estate), the administrator has the option of redeeming the outstanding debt or initiating separate enforcement proceedings. In cases where turning over an asset to a secured creditor would put the continuation of the debtor’s business at risk, the claim for the returning of the asset is suspended for period of six months from the opening of the insolvency proceedings unless such moratorium would cause an undue hardship to the party holding the security interest.

On a separate note, it must be considered that security rights may be challenged or voided by the insolvency administrator if and to the extent that they have been created within certain time limits applied to the opening of insolvency proceedings, and subject to additional criteria.

There are two basic categories of creditors: senior creditors (ranking pari passu) and junior creditors. A junior ranking of debt may be agreed in lending documentation (on junior/hybrid financial instruments or subordinated loans) as well as by way of retroactive subordination waiver (Rangrücktritt), which would result in the relevant creditor not being repaid in the course of insolvency or liquidation proceedings until and unless any and all non-junior creditors have been repaid. Other than that, statutory law may order mandatory subordination in the case of certain shareholder loans deemed to qualify as equity financing (equitable subordination); this will apply if and to the extent that financing is provided by a qualified shareholder to an Austrian company during a “crisis” (which is assumed if certain financial ratios are fulfilled).

“Quotas” (ie, proceeds obtained in the course of insolvency proceedings) obtained by unsecured senior creditors are typically fairly low; junior debtors (alongside equity holders) do not typically receive proceeds from insolvency proceedings.

The Act on Substitution of Equity Capital (Eigenkapitalersatzgesetz) governs the treatment of shareholder loans (other than short-term ones) to companies in financial distress. In brief, if the lender has a significant stake or influence over the borrower and the shareholder loan is granted whilst the borrower is in a “financial crisis” (over-indebted or illiquid or meeting certain financial indicators), the loan will be treated as equity capital of the company for as long as the financial crisis persists. Neither the principal amount nor the interest may be paid to the shareholder. The same applies on collateral granted by the shareholder for loans granted by third party.

Whereas the Act on Substitution of Equity Capital automatically (re)qualifies the loan as equity, creditors may also, within the meaning of Section 67(3) of the Insolvency Act, subordinate their claims in rank in such a way that the claims must be honoured in case of the debtor's insolvency or its liquidation only if all non-subordinated creditors have been satisfied. In both cases the claim may be disregarded when assessing the (over)indebtedness status of a debtor.

The key risk or impact of the insolvency proceedings over the assets of a borrower is the fact that the competence for the enforcement of any contractual rights and/or securities is no longer with the creditor or ordinary courts but with the insolvency administrator; while this may not in all instances be a detriment as to substance, it typically causes significant delays.

Other than that, as per their specific set of duties under the insolvency legislation, the insolvency administrator will typically closely scrutinise any and all contractual and, in particular, security arrangements entered into by the borrower for the benefit of a creditor prior to the opening of insolvency proceedings. This may not only result in delays in enforcement, but also in (alleged) claw-back of claims (on the grounds of the nullity/avoidance of contractual arrangements, including the creation of security rights).

On a general note, there is no specific legal framework for project financing in Austria so that the applicable laws and regulations relevant for a specific transaction will largely depend on the type (and industry sector) of that project.

If special purpose vehicles are engaged in a project finance transaction, these are largely in the legal form of a GmbH. In terms of practical application, project finance transactions are employed in the fields of infrastructure, energy and real estate. As an additional specific, public-private partnership (PPP) transactions are increasingly common in Austria.

It is a matter of the individual circumstances and negotiations among the parties involved whether a transaction is agreed on a recourse or non-recourse basis (ie, whether the shareholders of the SPV/sponsors will assume personal liability and/or provide security for liabilities incurred in connection with the project).

The relevant legislation for the implementation of public-private partnership transactions in Austria involves numerous areas of law (both at the Austrian federal level as well as provincial laws and municipal regulations). Areas of interest involve corporate law (regarding the structuring of a project), general civil law, public procurement, subsidies, zoning and permissions, administrative law in all its variations (environmental, health, other industry-specific laws), etc.

The legal structure of public-private partnerships will largely depend on the type and sector of the project implemented. Possible structures include all standard models, in variations, attributing the property and legal title in the project, the operation and funding to be provided by either the private investor, the public sector or both of these functions jointly; as is commonly recognised in the field of public-private partnership, these forms of co-operation could take the form of the operating model, the co-operation model, the concession model, the contracting model or the leasing model.

In terms of market practice, public private partnership models are applied for a variety of transactions which extend to areas such as roads, logistics, education and, most recently and increasingly, health care. Prior to structuring a project finance transaction in Austria, a full analysis of any and all risks involved would be required, including operational risks, design, development and construction risks and political risks. In addition, from a commercial perspective, the repayment and/or credit risks need to be taken into account.

In the absence of any specific legal provisions on project finance transactions, there are equally no requirements, government approvals, taxes, fees or charges. The requisite requirements would, instead, follow the regime for other financing transactions.

Depending on the type of projects funded under such transactions, specific regulatory approvals (such as environmental, building, planning/zoning, antitrust, competition, environmental and health permits) may be required.

In addition, depending on the identity of the co-sponsor/co-investor, laws and regulations on public procurement and subsidies may apply.

Regarding the financing documentation for public private partnerships, there is no general requirement for a public filing and/or publication.

In terms of governing law, there are no specific rules as compared to “normal” financing transactions. Therefore, there is a certain degree of flexibility as to the governing law for the lending arrangement proper. For security arrangements, it is customary to agree on the applicability of Austrian law.

Regulatory approvals are generally subject to the laws of Austria.

With regard to the oil and mining sector the Federal Minister of Sustainability and Tourism is the competent authority. The primary legislation for the oil and mining sector is the Federal Mineral Raw Materials Act (MinroG).

For the gas sector the competent regulators are Energie-Control Austria (E-Control) and the Federal Minister of Sustainability and Tourism. The main legislation for the gas sector is the Federal Gas Industry Act 2011 (GWG).

For the generation, transmission, distribution and supply of electricity the competent regulators are E-Control and the Federal Minister of Sustainability and Tourism. The Federal Electricity Industry and Organisation Act 2010 (ElWOG) together with provincial electricity statutes set out the principal regulatory framework.

The main issues to be considered when structuring a project finance transaction include both legal and non-legal considerations comprising:

  • the technical design, development and construction of the project;
  • risks involved in its (factual) operation;
  • any political risks (which, apart from surprising changes of legislation, are largely absent in Austria);
  • the risk of disputes; as well as
  • the overall credit and repayment risk from a commercial perspective.

Risk mitigation is typically effected by way of conducting due diligence covering the requisite areas (legal, financial, technical, environmental, etc).

The legal forms of preference for project companies in Austria are the GmbH or the GmbH & Co KG the principal difference between these is the direct attribution of profits and losses to limited partners (ie, tax transparency of the GmbH & Co KG). Also, it must be noted that a GmbH provides great flexibility from a corporate law perspective in that majority requirements and composition of corporate bodies are largely flexible and rights of direction to the management of a project company are statutory.

In Austria, the classic bank or savings bank loan is the most widely used form of financing. In the case of a loan, a distinction must be made between an investment loan and an operating resource loan. The investment loan is granted to finance property, plant and equipment (eg, buildings, machinery, vehicles and office furniture), the working capital loan to pre-finance the purchase of raw materials, goods or suppliers.

For the refinancing of exports, Austrian companies can resort to a number of instruments. Flexible mechanisms are available (eg, commercial financing with the principal bank, framework credit or export financing procedure by the Oesterreichische Kontrollbank (OeKB), or soft loans for selected markets).

Further sources of financing are equity investments or participation in companies as well as (subordinated) shareholder loans. Private business angels or professional venture capital providers can also be considered as investors.

The issuance of bonds constitutes another alternative to bank debt financing for projects; in Austrian practice, however, this has been rare, likely in view of the typically (small) size of projects (by international standards) and capital markets financing being normally taken out by sponsors/operators on a corporate (but not project) level.

Austrian law does not provide for general restrictions on the export or import of natural resources to or from Austria. Exceptions may apply, however, in specific areas, such as under environmental protection laws (in particular, if such resources qualify as waste), arms control, restrictions on the export of products qualifying for “dual use” or, if applicable, sanctions with respect to specific jurisdictions (eg, currently Iran and Russia).

Environmental, health and safety laws, which may apply to projects are not governed by a uniform set of rules or supervised by one specific authority. Rather, given the federal structure of the Republic of Austria and its membership in the EU, the relevant provisions may be found in federal and provincial laws, regulations, technical directives or EU legislation.

The competence for the enforcement of the relevant provision lies with numerous authorities at federal or provincial level (including municipalities).

Fellner Wratzfeld & Partners

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+43 1 537 70 351

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Law and Practice in Austria


Fellner Wratzfeld & Partners (fwp) has a team of more than 120 highly qualified legal personnel. The firm’s major fields of specialisation include banking and finance, corporate/M&A, real estate, infrastructure and procurement law, changes of legal form, reorganisation and restructuring. Fwp advises renowned credit institutions and financial services providers on financing projects, representing mainly Austrian and international private companies, but also has clients from the public sector. The firm’s expertise has proven its worth repeatedly, not only in connection with project and acquisition financing, but also in regard to financing company reorganisations; fwp is also able to draw upon substantial experience gained in the financing of complex consortia in the last few years.