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Asset classes used as collateral for security
Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?
A mortgage is the only form of security over real estate. A ‘mortgage’ is the right granted to a creditor concerning a debt to obtain preferential satisfaction from real estate if the debtor does not meet its payment obligations. The existence of a mortgage depends on the actual existence of the underlying debt that the mortgage secures.
To create a mortgage, the mortgagor and the mortgagee must enter into a mortgage deed. In order to be admissible for registration in the Land Register, the signatures on the deed must be notarised. For the mortgage to be effected, it must be registered in Schedule C of the relevant entry in the Land Register. The security right comes into existence on the date of registration. More than one mortgage can be registered over a real estate, but priority is determined by the date of the filings for registration in the Land Register.
A mortgage can be registered for a fixed amount as a ‘regular mortgage’, including a percentage of the interest, an interest on default and a fixed amount of ancillary costs. Alternatively, a mortgage can be registered with a maximum amount for loans granted, warranties or damages as a ‘maximum amount mortgage’. The secured obligations under a maximum amount mortgage can vary over the lifetime of the mortgage, with the amount actually secured being the outstanding amount owed by the debtor from time to time.
In addition, a ‘simultaneous mortgage’ (ie, a mortgage that extends to more than one piece of land) may be granted for certain transactions.
Machinery and equipment
Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
The granting of security over machinery and equipment is admissible in Austria and extremely common. As Austrian law follows the dead pledge principle, court rulings are strict on the requirements for forms of delivery other than physical. However, if it is inappropriate to physically deliver the assets, the pledge can be perfected through a symbolic delivery. In such cases, attaching plates, marks or other signs to the assets to publicly evidence the pledge is permissible.
Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Security granted over receivables is common for consumer loans (eg, security over an employee’s salary). These receivables may be secured by a pledge or an assignment. In order to be enforceable, assignments and pledges are subject to:
- annotation of the assignment or pledge in the pledger or assignor’s accounting books; and/or
- notification of the third-party debtor.
Annotation must be made in both the customer account and outstanding receivables lists. Typically, no notice is required in respect of non-affiliated debtors unless an event of default has occurred.
Financial instruments and cash
Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Security can be granted only over financial instruments. Financial instruments are tradable assets negotiable in capital markets, such as:
- a cash instrument;
- a derivative instrument;
- evidence of an ownership interest in an entity; and
- a contractual right to receive or deliver cash or another financial instrument.
Securities can be pledged by physical delivery or by notification and instruction to the depository bank to hold the securities as pledged property of the pledge.
The required form to pledge shares of a stock corporation in Austria depends on the type of share in question and how the pledge is evidenced. As a general rule, the shares must be delivered to the pledgee. If the shares are held in a securities account, the depositor will be notified and will hold the shares as pledged property. The company will also be notified of the pledge, which will be evidenced in its shareholder register.
Although shares in a limited liability company are not considered ‘financial instruments’ under Section 1(6) of the Securities Supervision Act, they may still be subject to a security interest (eg, a pledge). Such a pledge will typically be effected by giving notice to the company’s managing directors.
Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Cash deposits may be subject to a pledge, provided that the cash is deposited in a bank account when pledged. The following must occur in order for such pledges to be enforceable:
- an annotation of the pledge must be made in the pledger or assignor’s accounting books; and
- the third party holding the deposit must be notified.
Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Intellectual property can be subject to a security interest, the most common form of which is an IP pledge or assignment. For patents, trademarks and protected designs, a pledge or assignment is created through registration in the Austrian Patent Office’s Patent, Trademark or Protected Design Registers. However, a certain level of risk remains as registration in the respective register has only a declaratory effect.
Further, copyrights cannot be subject to security interests as they are non-transferable. However, exploitation rights of a copyright may be subject to a pledge or assignment. In such cases, the agreement will create the pledge or assignment; no further perfection is necessary.
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