2014 termination right
A recent change to the Civil Code has taken into account the common practice of shareholder agreements and brought about a further amendment to Section 1209 of the Civil Code.
The 2014 amendment to the Civil Code introduced a mandatory ordinary termination right for each partner of a civil law partnership. This amendment entered into force on July 1 2016 (for civil law partnerships established before January 1 2015).
From the start, it was apparent that the consequences of this change to Austrian corporate law and the legal practice regarding shareholder agreements had not been fully considered. The key issue was that shareholder (syndicate) agreements are generally qualified as civil law partnerships by Austrian legal scholars and case law, and an ordinary termination right of shareholder agreements was seen to contradict their very purpose – that is, to be maintained for as long as a particular shareholder structure was in place. The new rule resulted in noticeable uncertainty.
As such, Austrian legal literature heavily criticised the new termination right.
In the most recent change to the law, the legislature responded to this criticism by, once again, amending Section 1209 of the Civil Code. In accordance with the amendment, ordinary termination rights still cannot be waived, and any agreement to the contrary will be considered invalid. Further, any agreement that makes the enforcement of the ordinary termination right more difficult will be considered invalid. However, the wording Section 1209(2) of the Civil Code now contains an exemption for undisclosed partnerships.
Pursuant to Section 1176 of the Civil Code, undisclosed partnerships govern only the relationships among partners of a civil law partnership and do not act in day-to-day business as such. This is typically the case for shareholder agreements – for instance, where they govern the pooling of votes in general meetings.
The new amendment to Section 1209 of the Civil Code came into force on July 1 2016. In addition, the interim rules for Section 1503(5) of the Civil Code apply to the new wording. Consequently, the new wording of Section 1209 of the Civil Code is treated as if it entered into force together with the previous amendment to the Civil Code. Therefore, for all civil law partnerships established on or after January 1 2015, the new rules apply mandatorily. Civil law partnerships established before January 1 2015 had the option of extending the old rules (until December 31 2021), which allowed the possibility of waiving ordinary termination rights. The deadline for exercising this option was June 30 2016. If no partner of a civil law partnership opted for an extension of the old rules, the new rules (including the new wording of Section 1209(2) of the Civil Code) came into force on July 1 2016.
With the most recent amendment to the Civil Code, the legislature considered the special purpose of shareholder agreements and their qualification as undisclosed partnerships.
As of July 1 2016, all shareholder agreements may once again contain a waiver of ordinary termination rights in line with common practice and the typical goals of these agreements.
Nevertheless, the permissible duration of any termination waiver must be assessed on a case-by-case basis – in particular, in light of Section 879 of the Civil Code.
For further information on this topic please contact Julia Wasserburger at Schoenherr by telephone (+43 1 5343 70) or email ([email protected]). The Schoenherr website can be accessed at www.schoenherr.eu.