Structure and process, legal regulation and consents

Structure

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

Private M&A transactions in Austria are commonly structured as a share deal. Owing to the increased complexity, including the need to precisely define the assets and liabilities to be transferred, and owing to the challenges involved, including the right of third parties to object to the transfer of contracts and statutory successor liabilities, asset deals are less frequent. Asset deals are usually only seen in the context of smaller transactions and where a transfer of parts of a business (unit) involves a limited number of assets.

Sale and transfer of shares are rarely effected by merger or spin-off transactions; however, demergers of businesses or business units may be used to prepare a later sale of shares. Joint ventures are usually achieved by combining assets in an existing or newly established company, including by tax neutral demergers or contributions of those assets from existing businesses or companies.

The number of documents and steps involved depends on the type of sales process.

  • In a private M&A transaction with only one seller and one (potential) buyer involved, the parties will usually only enter into a no-disclosure agreement (NDA) and possibly a letter of intent before negotiating and agreeing the final transaction documentation.
  • In an auction process, the seller will usually provide an information memorandum and sell-side due diligence reports after agreeing the NDA. The bidders will then be invited to one or more rounds of bids before the definitive transaction documents are concluded with the final bidder.

 

While auction processes often take several months, direct seller–buyer transactions in smaller deals may be signed quickly, potentially in four to six weeks, if agreement by the seller and buyer on commercial terms has been reached at the outset, the target business is not complex, and the sell-side makes available to the buyer a well-organised and fully loaded virtual data room with the buyer not identifying major roadblocks during due diligence.

Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

There is no general overriding statute regulating acquisitions and disposals in Austria. The most relevant statutes are the General Civil Code, the Commercial Code, the Act on Limited Liability Companies and the Stock Corporation Act.

Less frequently, the Demerger Act, the Tax Reorganisation Act and the EU Merger Regulation for cross-border mergers may come into play, depending on the specifics of the business combination. For government clearances, the Cartel Act, the EU Merger Regulation, the Investment Control Act (ICA) and, for regulated industries, special laws must be observed.

Acquisitions are generally not required to be governed by Austrian law; however, even if governed by foreign law, certain mandatory provisions of Austrian law may still apply to the acquisition (eg, the notarial deed requirement for a transfer of shares in limited liability companies). Further, Austrian law will mandatorily govern statutory successor liabilities in asset deals or corporate restructurings, such as mergers or demergers.

Cross-border share deals on Austrian targets involving at least one non-Austrian party usually follow the Europeanised form of a US-style share purchase agreement, even if the share purchase agreement is subject to Austrian law.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

The scope of the legal title associated with shares or assets and the required form to effect a valid transfer of title is prescribed by law. It is not possible to modify the legal title or to split the ownership rights to a share (eg, sell voting rights and entitlement to dividends separately). Legal title automatically transfers to the buyer as of closing if the applicable (form) requirements are met.

Title to shares or assets usually includes legal and beneficial title; however, Austrian law acknowledges that legal and beneficial title may be separated. This is the case if a person holds legal title to shares or assets, but only acts as trustee for another person.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

In the case of multiple sellers, in the absence of specific contractual arrangements between the sellers (eg, drag-along rights agreed in the articles of association or under a shareholders’ agreement), each seller must individually agree to sell his or her shares and assets. Statutory law does not provide for a right of the majority shareholder to drag the minority shareholders.

However, Austrian law does allow for a squeeze-out of minority shareholders by a majority shareholder holding at least 90 per cent of the registered share capital in a limited liability company or a stock corporation.

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

In a transfer of business, the automatic transfer of employees pertaining to the business to the buyer under the EU Acquired Rights Directive, which has been implemented in Austria by the Employment Contracts Adjustment Act, cannot be excluded; otherwise, the parties may contractually define the scope of assets, liabilities and contracts to be transferred in an asset deal.

Several provisions of Austrian law provide for a statutory successor liability of the buyer in respect of third parties for liabilities pertaining to the business, even if the parties have agreed among themselves that the liabilities shall remain with the seller. Such statutory successor liabilities may only be partially excluded with effect to third parties.

Third parties to contracts must be individually notified of the transfer of their contract and have a right to object to the transfer of their contract.

Consents

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

The ICA transposes the requirements under the EU FDI Screening Regulation and replaced the liberal regime under the Foreign Trade Act. M&A transactions lacking the required ICA approval will, among other things, be null and void.

Under the broadened scope of the new legislation, all non-EU, non-European Economic Area and non-Swiss investors must check whether they meet the threshold (25 or 50 per cent control and, in certain cases of highly sensitive sectors (eg, defence and critical energy or digital, such as 5G infrastructure) already at 10 per cent) and broadened sector requirements for an approval requirement under the ICA.

Sensitive sectors for public order or security where the 25 or 50 per cent thresholds apply, among other things, include critical infrastructure, such as energy, information technology, transport; health food; critical technologies (eg, artificial intelligence, cybersecurity and nano and biotech) and dual good items; and critical resources, including energy, medicines, vaccines and medical devices, as well as access to sensitive information and the freedom and pluralism of media.

In many cross-border deals relating to Austrian targets, this requires a pre-transaction determination, regardless of whether approval under the ICA is required. If approval under the ICA is required, an additional condition precedent in the transaction documentation and a filing for approval and clearance by the Ministry of Digitalisation and Economic Affairs will be required to allow the closing of a transaction. The timeline for approval is a minimum of one month plus 15 to 40 days from filing.

Additional government approvals include merger control clearance and approval requirements in certain regulated industries, such as banking, insurance, aviation and telecoms.

Are any other third-party consents commonly required?

Statutory law does not require co-shareholders to consent to the sale and transfer of shares; however, the articles of association of limited liability companies often include such consent rights or rights of first refusal.

Agreements concluded by the target company may include change of control clauses. Change of control clauses are typical for financing agreements allowing the lender to accelerate the loans granted in the case of a change of control. Furthermore, in the case of a transfer of business, third parties to contracts may object to the transfer of their contract.

Regulatory filings

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

Any shareholder of a limited liability company, as well as the sole shareholder of a joint-stock corporation, must be registered with the companies register. Furthermore, a transfer of a business must be registered with the companies register. All registrations are of declaratory effect only and not required for the transfer of ownership title. The related filing fees are minor (a few hundred euros maximum).

The parties to a transfer of business may, to a certain extent, exclude the transfer of liabilities to the buyer, also with effect in respect of third parties, if the exclusion is registered in the companies register within a maximum of one month of closing.