General structuring of financing

Choice of law

What territory’s law typically governs the transaction agreements? Will courts in your jurisdiction recognise a choice of foreign law or a judgment from a foreign jurisdiction?

The parties to cross-border financing transactions are generally free to choose the law governing the respective loan agreement and other transaction documents. In the absence of choice, Austrian courts have in the past usually applied the law of the country where the lender has its corporate seat.

In practice, loan agreements typically contain choice of law clauses by which the parties agree on a specific governing law. This will usually be the law applicable at the lender’s corporate seat or, in the case of syndicated financing, at the corporate seat of the lender that acts as agent for the other lenders. Thus, if a syndicate of German, Austrian and Dutch banks grants credit to an Austrian lender and a German bank acts as agent, the parties will usually agree on German law as the law governing the transaction.

The choice of foreign law in a loan agreement will be recognised by the Austrian courts, unless the provisions of the Rome I Regulation (593/2008) and the Private International Law dictate otherwise. In particular, Austrian courts would not recognise the choice of foreign law to the extent that Austrian law provides for an overriding mandatory provision that applies to the specific situation falling within its scope.

A final judgment from a foreign jurisdiction within the European Union would have to be recognised and enforced by the Austrian courts in accordance with, and subject to, the recast EU Brussels Regulation (1215/2012), EU Regulation 805/2004, the Austrian rules of civil procedure and the applicable provisions of the chosen law. Further, the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters facilitates the enforcement of judgments in and from Switzerland, Norway and Iceland.

With respect to judgments rendered in jurisdictions outside the European Union, recognition and enforceability will depend on whether Austria and the foreign jurisdiction are parties to bilateral or multilateral treaties that regulate such matters.

Restrictions on cross-border acquisitions and lending

Does the legal and regulatory regime in your jurisdiction restrict acquisitions by foreign entities? Are there any restrictions on cross-border lending?

In general, Austrian law does not restrict acquisitions by foreign entities. However, when a non-EU entity acquires the majority of shares in an Austrian company that has ownership in Austrian real estate, approval by the local land transfer authority must usually be sought in accordance with local state legislation.

Further, when foreign investors wish to acquire shares of 25% or more in an Austrian company that operates in a strategic industry sector (eg, arms, transport, telecoms or energy), approval from the Federal Ministry of Economic Affairs will be required pursuant to the Foreign Trade Act.

Cross-border lending and other capital movements between Austria and non-EU member states are subject to no restrictions with the exception of the limitations provided in Articles 64 to 66, 75 and 215 of the Treaty on the Functioning of the European Union and the specific sanctions put in place pursuant to Sections 3 and 4 of the Foreign Exchange Act.

Other than that, foreign entities are subject to the same restrictions as local entities which may arise under Austrian takeover or EU and local antitrust legislation.

Types of debt

What are the typical debt components of acquisition financing in your jurisdiction? Does acquisition financing typically include subordinated debt or just senior debt?

The typical debt components of acquisition financing usually depend on the size and structure of the deal. Loan agreements are the most common instrument in terms of debt financing in Austria. However, other financing instruments such as subordinated debt financing, hybrid financing instruments (which possess characteristics of both equity and debt) and various types of so-called ‘equity kickers’ have been more prominent of late on the Austrian market. Equity kickers typically take the shape of an exit payment after the appraisal of a company’s value or a call-option granting investors the right to acquire a certain number of shares in a company for a pre-fixed price. Convertible bonds are typical forms of such equity kickers.

In some instances, the proceeds of issued notes or bonds are used for financing acquisitions. However, such instruments, in particular high yield bonds, are uncommon in acquisition financing transactions in Austria.

With regards to equity financing structures, (equity) capital will typically be provided by way of capital contributions to the target or in the form of subordinated loans. It is also possible to combine both of these financing methods. However, in practice, equity financing structures have become less common in Austria.

Certain funds

Are there rules requiring certainty of financing for acquisitions of public companies? Have ‘certain funds’ provisions become market practice in other transactions where not required?

In general, the concept of ‘certain funds’ is unknown to Austrian law. However, with respect to transactions that fall within the scope of the Takeover Act, debt or equity funding for the acquisition of the target’s shares must be available and certified by an independent expert. The respective certificate must be published together with the offer documentation. Other than that, Austrian law does not require proof of specific funds in connection with acquisitions of public companies. Occasionally, such provisions can be found in individual acquisition agreements.

Restrictions on use of proceeds

Are there any restrictions on the borrower’s use of proceeds from loans or debt securities?

Austrian law provides no specific restrictions on the borrower’s use of proceeds from loans or debt securities. However, loan agreements usually make provision for how the loan proceeds are to be used in order to prevent the diversion of the funds made available to the borrower, which may be relevant in an insolvency scenario.

Licensing requirements for financing

What are the licensing requirements for financial institutions to provide financing to a company organised in your jurisdiction?

The commercial grant of credit to entities in Austria typically requires an Austrian banking licence pursuant to the Banking Act. The acquisition of such a licence usually entails a lengthy process during which compliance with the legal requirements for credit institutions and an adequate business plan must be established. Compliance with regulatory requirements and the business plan will be reviewed and assessed by the Financial Market Authority, which, if satisfied that all legal requisites are met, will issue the licence.

Due to the EU principle of single authorisation, banking licences issued to credit institutions by an EU member state’s regulatory authority are valid for the entire European Union. Thus, for credit institutions from other EU member states, two alternative options are available to engage in the lending business in Austria through ‘passporting’. A financial institution may provide the services or perform the activities for which it has been authorised directly throughout the single market or establish a local branch in Austria.

Foreign lenders that do not possess the necessary EU banking licence may still engage in the lending business in Austria; however, only to the extent that such lending activities do not require a banking licence in Austria.

Withholding tax on debt repayments

Are principal or interest payments or other fees related to indebtedness subject to withholding tax? Is the borrower responsible for withholding tax? Must the borrower indemnify the lenders for such taxes?

The repayment of principal capital is not subject to withholding tax in Austria. However, interest payments will typically qualify as capital gains and therefore be taxable as such. With regard to interest generated from loans, capital gains tax is generally not a withholding tax. In respect of lenders outside the European Union, the payment of interest may be subject to withholding tax. For lenders from other EU member states, the withholding of capital gains tax ceased to apply on 1 January 2017 due to the introduction of a comprehensive cross-border information system.

Further, Austria entered into a number of double tax treaties with other countries which typically allow for the refund of such withholding tax or for it to be considered a deductible.

Restrictions on interest

Are there usury laws or other rules limiting the amount of interest that can be charged?

Contract-based interest on loans are subject to two limitations under Austrian law. First, Section 1335 of the General Civil Code contains an ‘usury limit’ pursuant to which interest may not exceed the principal capital, unless the claim for repayment of such principal capital is pending before a court. Second, the interest rate itself could be against good morals pursuant to Section 879 of the General Civil Code if there is a striking mismatch between the mutual benefits that the parties receive under the agreement and an additional element of immorality is present (eg, a threat to the borrower’s economic existence).


What kind of indemnities would customarily be provided by the borrower to lenders in connection with a financing?

In acquisition financing, borrowers will customarily provide specific indemnities to lenders that address certain circumstances in which lenders wish to have protection from or compensation for certain losses or damages. Typically, such indemnities grant the lenders the right to full reimbursement for all losses as well as the costs and expenses associated with:

  • the borrower’s default (in particular, its failure to repay the loan);
  • currency conversions;
  • the drafting, executing and documenting of the transaction, taxes and stamp duties (excluding withholding taxes); and
  • any regulatory costs.
Assigning debt interests among lenders

Can interests in debt be freely assigned among lenders?

Interest in debt is considered a receivable under Austrian law and may therefore be assigned freely among lenders (ie, without the borrower’s consent). Although it is possible to contractually prohibit the assignment of debt that stems from a particular loan agreement, such stipulations, if agreed on between entrepreneurs, do not have absolute effect and therefore cannot prevent the actual transfer of the receivable. Rather, the violation of such contractual prohibitions may give rise to a claim for damages by the borrower, if any. Apart from that, the cession of receivables is subject to Austrian stamp duty at 0.8% of the consideration received for the cession of the receivable.

Requirements to act as agent or trustee

Do rules in your jurisdiction govern whether an entity can act as an administrative agent, trustee or collateral agent?

Austrian law recognises the legal concepts underlying agency and trusteeship. In loan transactions that are governed by Austrian law, agency and trust concepts have become standard instruments. Typically, they are used in connection with security agency agreements.

Debt buy-backs

May a borrower or financial sponsor conduct a debt buy-back?

Unless an independent debt instrument is created, a borrower can usually not buy back its own debt, as this would result in a discharge and the debt being extinguished. A financial sponsor, on the other hand, may generally conduct debt buy-backs under Austrian law. However, usually certain restrictions on the permissibility of debt buy-backs can be found in the respective financing agreements. Further, should a company affiliated with the borrower conduct a debt buy-back at a time of ‘crisis’ (ie, when the borrower is in financial difficulty), the debt purchased by the company may be considered equity substitution under the Equity Substitution Act and will be subordinate to the rights of other creditors. A company will be in financial ‘crisis’ when it is insolvent or over-indebted pursuant to the Insolvency Act or when its equity ratio is lower than 8% and the assumed debt amortisation period is more than 15 years.

Depending on the parties involved in debt buy-backs, the EU Market Abuse Regulation (596/2014) may limit such transaction in case any insider information exists and the debt being bought back is traded on an EU-regulated multilateral trading facility or organised trading facility market.

Exit consents

Is it permissible in a buy-back to solicit a majority of lenders to agree to amend covenants in the outstanding debt agreements?

Amendments of debt agreements, also after a buy-back, will usually require the consent of all parties thereto. Austrian law does not explicitly prohibit the solicitation of lenders to agree to amend covenants in outstanding debt agreements.

Guarantees and collateral

Related company guarantees

Are there restrictions on the provision of related company guarantees? Are there any limitations on the ability of foreign-registered related companies to provide guarantees?

Austrian corporate law provides for a rigorous system of capital maintenance rules that, among other things, prohibit the return of equity from a company to its shareholders. A company cannot make payments to the shareholder other than the distribution of profit or in the course of a formal reduction of statutory capital. The provisions on the repayment of capital also include any benefits granted by the company to its shareholders when no ‘adequate consideration’ is received in return. Any agreement between a company and its shareholders, or any third party granting a benefit to the shareholders that would not, or not in the same way, have been granted to a third party is void.

The Austrian courts have broadly interpreted this mandatory principle and held that the prohibition of the return of equity generally also encompasses the granting of security by a company for a loan extended to its shareholders or any other group company other than such company’s subsidiaries (eg, up-stream or cross-stream guarantees or pledges of assets). However, what can be drawn from the Supreme Court’s past decisions is that the granting of security by a company for a loan of its shareholders is permissible if:

  • it is at arm’s length, hence, adequate consideration is received in return and, after due investigation by the company, no doubts towards the reliability and solvency of the borrower (ie, the shareholder) are established that could give reason to believe that potential recourse claims might fail; or
  • the granting of security is for the guarantor’s operational benefit.

In terms of foreign-registered companies, the abovementioned restrictions of Austrian corporate law do not apply.

Pursuant to the Stamp Duty Act, certain legal transactions are subject to stamp duty. In terms of security rights, the most notable are cessions (subject to 0.8% stamp duty) as well as sureties and joint debt (subject to 1% stamp duty). To avoid stamp duty in financing or acquisitions, pledges and abstract guarantees are primarily used as collateral, as these forms of security are not listed in the Stamp Duty Act. The act also contains a general exception for transactions which create collateral to secure the repayment of a loan.

Assistance by the target

Are there specific restrictions on the target’s provision of guarantees or collateral or financial assistance in an acquisition of its shares? What steps may be taken to permit such actions?

There are no specific restrictions on the target’s provision of guarantees or collateral or financial assistance in an acquisition of its shares. However, in this instance, Austrian capital maintenance rules will usually restrict the possibility to grant such security or assistance. Further, Austrian courts have applied the capital maintenance rules even more rigidly in cases where the target had to provide security for the funding for its own acquisition.

Further, if the value of a pledged claim exceeds the value of the secured obligations significantly, depending on the respective circumstances of the individual case, the pledgee might be obliged to release the (excess) security. In the event of over-collateralisation contrary to public policy, the security granted may even be void.

Types of security

What kinds of security are available? Are floating and fixed charges permitted? Can a blanket lien be granted on all assets of a company? What are the typical exceptions to an all-assets grant?

Under Austrian law, security can be provided in various ways and forms. The most common kinds of security are pledges, sureties, joint debt and guarantees. Equally, common security instruments are the transfer of ownership in moveable property or the security cession of receivables.

A ‘floating charge’ or similar security interest over all present and future assets of a company is generally not recognised by Austrian law. Security agreements must be entered into for all assets and types of assets that will serve as security. Further, the different perfection requirements, which may vary significantly from one type of security to another, must be duly observed.

However, there are certain exceptions to these general principles. For example, it would be possible under Austrian law to pledge or assign all present and future receivables as security if such (future) receivables are sufficiently individualised. In this regard, the Austrian courts held that the global cession or pledge of all future claims arising from a particular business operation is permissible, even though the future debtors are not yet known, provided that the perfection requirements are strictly adhered to (see the next question).

Requirements for perfecting a security interest

Are there specific bodies of law governing the perfection of certain types of collateral? What kinds of notification or other steps must be taken to perfect a security interest against collateral?

Under Austrian law, the creation of collateral requires a valid agreement (title) and, in many cases, certain publicity acts for its perfection. The different requirements for the perfection of the various types of collateral are regulated by the general principles of civil law as codified in the General Civil Code and interpreted by the Austrian courts. For certain types of collateral, such as pledges over real estate, registered IP rights (eg, trademarks and patents) or other registered rights, registration of the pledge usually is necessary for its perfection.

For the pledge or security cession of receivables, the primary mode of perfection would be the notification of the third-party debtor. In the case of receivables which are recorded in the pledgor’s books due to the statutory bookkeeping obligation, an appropriate book entry in the pledgor’s or assignor’s books may be used as an alternative mode of perfection.

If security is to be granted over a receivable which will arise only in the future (eg, in the case of an insurance event), perfection through a bookmark is not usually feasible as long as the receivable has not arisen and therefore has not been recorded in the pledgor’s books. In such cases, perfection can alternatively be achieved by notifying the third-party debtor of the pledge or security cession. However, it is also advisable to demand that the pledge or security cession are recorded in the pledgee’s books once the claims have arisen.

With respect to unembodied non-book claims and the pledge of shares in a limited liability company, usually only the notification of the third-party debtor or, in case of a share pledge, the notification of the company constitutes a sufficient act of perfection.

For certain types of collateral, in particular pledges over registered rights (eg, real estate, trademarks and patents), usually the entry of the pledge in the respective register is necessary for perfection.

Renewing a security interest

Once a security interest is perfected, are there renewal procedures to keep the lien valid and recorded?

Typically, once a security interest is perfected, there are no renewal procedures to keep the lien valid and recorded. However, for the pledge and security cession of receivables perfected through book entry, perfection must be maintained throughout the pledge’s or the security cession’s term, as otherwise the pledge would cease to exist.

Stakeholder consent for guarantees

Are there ‘works council’ or other similar consents required to approve the provision of guarantees or security by a company?

Under Austrian law the approval of a works council is not required for the provision of guarantees or other security by a company. However, works councils, if established, have the right to be notified of the economic situation, including the company’s financial situation, investment projects and other measures envisaged to improve its profitability.

Granting collateral through an agent

Can security be granted to an agent for the benefit of all lenders or must collateral be granted to lenders individually and then amendments executed upon any assignment?

Austrian civil law generally differentiates between accessory and non-accessory collateral. Accessory collateral, such as pledges or sureties, will be valid only if the secured obligation is valid. Further, this principle of accessoriness also requires the holder of the respective security right to be a creditor of the secured obligation – otherwise the security will be invalid.

Against this background, a security granted under Austrian law will be invalid or unenforceable, or will become invalid or unenforceable if the principle of accessoriness is not adhered to. The validity and enforceability of the accessory security right will thus depend on the validity and continued existence of the respective obligation which is secured by them. Since the accessory security cannot be separated from the secured obligation, it can only be held and enforced by a creditor of the secured obligation.

Austrian law does not recognise a trust arrangement or agency structure whereby security is granted in favour of a security agent that is not a lender but acts as trustee or agent for the other lenders, as it contradicts the principle of accessoriness. In practice, a parallel debt obligation for the benefit of the non-lending agent can be used to bypass this problem as long as the security provider is also a guarantor. However, to date, there is no case law confirming the validity of such parallel debt structures.

Creditor protection before collateral release

What protection is typically afforded to creditors before collateral can be released? Are there ways to structure around such protection?

Accessory collateral (eg, pledges or sureties) automatically ceases to exist when the secured obligations are satisfied in full. In such cases, Austrian law does not require a specific formal procedure to release security. In financing transactions, it has nonetheless become common practice to conclude release agreements to confirm that the secured obligation has been discharged in full. If the security was registered in a public register such as the Austrian land register (for pledges over real estate) or the Patent Register (for pledges over a patent), the security would have to be deleted from the register. To this effect, usually the consent of the beneficiaries of the security will be required in a certified (notarised) form.

With regards to non-accessory securities, the specific release procedure will depend on the type of security in question. Typically, a transfer or similar act (eg, return of the original guarantee to the guarantor) is required in order to release the security.

Before the release or lapse of security, a beneficiary of such may enforce its rights either through the courts or, in the case of pledges and a respective agreement, realise the security without any court action pursuant to Section 466a et seq of the General Civil Code and Section 368 of the Business Code, by collecting pledged receivables or dividends, or selling pledged shares or securities – either through public auction or a private sale.

Fraudulent transfer

Describe the fraudulent transfer laws in your jurisdiction.

Legal acts affecting the assets of a debtor may be contested outside insolvency proceedings pursuant to the provisions of the Contestation Act if such action is necessary for the satisfaction of creditors. The main grounds for contestation are, among other things, the intention to discriminate against creditors, the squandering of assets and the disposal of assets without consideration.

Further, under Austrian law, any party that hides, discards, sells or damages any part of its assets, forfeits or acknowledges a non-existent liability, or otherwise diminishes its assets, thereby defeating or at least diminishing the satisfaction of creditors or at least one of them, can be criminally charged.

Debt commitment letters and acquisition agreements

Types of documentation

What documentation is typically used in your jurisdiction for acquisition financing? Are short-form or long-form debt commitment letters used and when is full documentation required?

Austrian banks usually provide debt financing based on their own standardised credit agreements in conjunction with their general terms and conditions. This may be considered short form. In transactions that involve international banks, including those in which Austrian banks participate by way of syndication, the documentation is usually structured in accordance with the standards provided by the Loan Markets Association and entail a fully negotiated and executed credit agreement. This may be considered long form.

Level of commitment

What levels of commitment are given by parties in debt commitment letters and acquisition agreements in your jurisdiction? Fully underwritten, best efforts or other types of commitments?

In Austria, the levels of commitment given by parties in debt commitment letters and acquisition agreements can vary from one transaction to another and will typically depend on the structure of the contemplated acquisition. Equity commitment letters, hard letters of comfort or a bank (or parent) guarantee are typical instruments which grant the beneficiary an enforceable right against the issuer. Soft letters of comfort, on the other hand, do not grant the beneficiary an enforceable right against its issuer.

Conditions precedent for funding

What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?

The conditions precedent to funding contained in commitment letters may vary from one transaction to another. Usually, the conditions precedent to funding include:

  • the approval of certain regulatory bodies (eg, the Competition Commission for merger control or the Financial Market Authority in case of financial institutions);
  • the necessary corporate or other third-party consents;
  • certain other corporate formalities for all obligors (borrowers and guarantors);
  • the execution of the acquisition and finance documents (including any additional security agreements);
  • due diligence reports;
  • the submission of certain financial information;
  • the payment of the fees and expenses;
  • the legal capacity and enforceability opinions; and
  • the completion of an agreed restructuring process.

In some instances, the above conditions further encompass the absence of material adverse changes between the time of signing and closing, and the waiver of contractual termination rights stemming from change of control clauses.

Flex provisions

Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?

Although Austrian law does not explicitly prohibit flex provisions, the Austrian courts have repeatedly held that a contractual right which entitles the economically stronger party to unilaterally change the agreement grossly disadvantages the other (economically weaker) party to the contract and is therefore void. In cases where the contractual partners can be considered economically equal, flex provisions should at least be valid to some extent. However, in light of the prevailing case law, such rights may only be exercised with reasonable discretion. As regards, for example, the contractual right to subsequent interest adjustment, the Austrian courts have upheld the respective agreement, but emphasised that the right must be exercised with reasonable discretion.

Securities demands

Are securities demands a key feature in acquisition financing in your jurisdiction? Give details of the notable features of securities demands in your jurisdiction.

Securities demands are not a common feature in acquisition financing in Austria. However, in some instances the transaction documents may grant the lenders a right to demand the issuance of securities from the borrower.

Key terms for lenders

What are the key elements in the acquisition agreement that are relevant to the lenders in your jurisdiction? What liability protections are typically afforded to lenders in the acquisition agreement?

The representations and warranties given by the seller, the closing and transfer procedures, certain syndication covenants (pooling of voting rights) as well as certain option rights are the key elements of acquisition agreements in Austria.

Lenders are afforded protection against liability by way of contractual representations and warranties. In practice, parties to acquisition agreements typically deviate from statutory warranty rules and agree on an exhaustive catalogue of assurances for which the target company or its shareholders will be liable and must indemnify the lender. The representations and warranties can either be designed as independent guarantees pursuant to Section 880a of the General Civil Code or ordinary representations and warranties pursuant to Sections 922 et seq of the code. Depending on the strength of the respective parties’ bargaining positions and the industry sector concerned, these catalogues may vary greatly from one transaction to another.

Assurances that can be regularly found in acquisition agreements concern:

  • corporate matters regarding the target (eg, it must be duly incorporated, the existing shares must represent 100% of its registered share capital, all necessary corporate authorisations must exist and there must be no profit and loss pooling, domination, silent partnership or similar agreements);
  • the seller’s ownership of the shares (valid chain of title);
  • freedom of the shares from any encumbrances (including, but not limited to pre-emption rights);
  • the assets, liabilities and financial affairs of the target;
  • employment issues, including social security;
  • IP rights, real estate and taxes;
  • the correctness and completeness of the disclosed information; and
  • pending or threatened disputes or other administrative or arbitral proceedings.
Public filing of commitment papers

Are commitment letters and acquisition agreements publicly filed in your jurisdiction? At what point in the process are the commitment papers made public?

There is no general requirement for the public filing or publication of commitment letters or acquisition agreements under Austrian law. However, the transfer of business units pursuant to an asset deal must be registered in the Companies Register, which also requires the submission of the respective contract to the competent court for publication (redactions are possible). In share deals, usually no such submission of the underlying agreement is necessary but may nevertheless be demanded by the courts in a particular case.

In the context of mergers and de-mergers, the draft merger agreements or de-merger plans must be published through the web portal of the Federal Ministry of Justice.

If an entity directly or indirectly purchases or sells shares of an issuer whose shares are admitted to trading on a regulated market, they must inform the Financial Market Authority, the exchange operating company and the issuer of the shares immediately, but no later than two trading days, if, as a result of such acquisition or disposal, their voting rights amount to, exceed or fall below 4%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75% or 90%.

Lastly, with regard to the acquisition of public companies that fall into the ambit of the Takeover Act, a certified confirmation of available funds must be published together with the offer documentation.

Enforcement of claims and insolvency

Restrictions on lenders’ enforcement

What restrictions are there on the ability of lenders to enforce against collateral?

In general, the only legal obstacles for lenders to enforce security in Austria are of an administrative nature. Courts may require cost advances from lenders seated outside the European Union and transaction documents that have not been drafted in German will have to be translated by a court-sworn interpreter.

The documentation of security that may trigger the imposition of Austrian stamp duty should not be introduced into evidence in Austrian court or other proceedings, unless absolutely necessary for the enforcement of the security right and, even in such cases, only as uncertified copy. The production of such documentation in court, in particular certified copies or originals, could trigger Austrian stamp duty. It has therefore become common practice to agree in the relevant transaction documents that the parties will not contest the authenticity of such documents in court proceedings.

Further, commercial lenders that do not hold an EU banking licence and are therefore not permitted to engage in the commercial lending business in Austria, may lose their rights to claim interest payments as well as their rights regarding security granted as a result of Austrian law.

Debtor-in-possession financing

Does your jurisdiction allow for debtor-in-possession (DIP) financing?

Under Austrian insolvency laws debtors can file for reorganisation proceedings during which the debtor may retain control of the insolvent estate’s assets under the supervision of a court-appointed reorganisation administrator, which is comparable to the concept of debtor-in-possession (DIP) proceedings. The main requirement for such proceedings is that the debtor can pay at least 30% of its creditors’ claims over a period of two years.

Austrian law does not prohibit DIP financing. However, due to the high risk of default and little available security, it is advisable to demand the provision of an adequate analysis of the debtor’s financial status and future development.

Stays and adequate protection against creditors

During an insolvency proceeding is there a general stay enforceable against creditors? Is there a concept of adequate protection for existing lien holders who become subject to superior claims?

As of the opening of insolvency proceedings, the individual enforcement of claims will no longer be permitted (statutory moratorium). Creditors must file their claims with the competent court. The appointed insolvency administrator will then examine such claims and either approve or reject them. In case of the latter, creditors must file an action against the insolvency administrator for the approval of the rejected claim.

Claims of existing lien holders are, as a general rule, not affected by the opening of insolvency proceedings to the extent that their claims are secured. Since secured claims usually have the highest rank during insolvency proceedings, they may only conflict among each other in terms of superiority, which is usually a matter of priority.

However, under certain circumstances (see the next question), the insolvency administrator may contest the security granted to a specific creditor which – if the contestation is successful – will lose its position as creditor of a secured claim.


In the course of an insolvency, describe preference periods or other reasons for which a court or other authority could claw back previous payments to lenders? What are the rules for such clawbacks and what period is covered?

In insolvency proceedings, the insolvency administrator will usually examine the debtor’s existing contractual obligations, including security provided to its creditors. Should the insolvency administrator find that the security granted or payments made to a creditor are contestable under the applicable insolvency laws, this may result in a claw back of claims or a voidance of security. Austrian insolvency laws provide for a wide range of grounds on which the insolvency administrator may claw back payments or have the provision of security declared void, the most common of which are the discrimination of specific creditors (which covers payments or security granted in the 10 years prior to the opening of insolvency proceedings) or preferential treatment of creditors (which covers payments or security granted within one year prior to the opening of insolvency proceedings).

Ranking of creditors and voting on reorganisation

In an insolvency, are creditors ranked? What votes are required to approve a plan of reorganisation?

Austrian insolvency laws provide for a complex system pursuant to which claims are classified and ranked.

Creditors whose claims were secured by collateral usually have the highest-ranking claims. They can either assert a right of segregation through which they can demand the assets that have been given as security or a right of separation through which they can demand the proceeds of enforcement against the asset that has been given as security (eg, after the asset’s sale). Except for cases in which the security right has not been validly created or has ceased to exist (eg, by way of successful challenge by the insolvency administrator), secured claims are affected by the opening of insolvency proceedings to the extent to which they are secured.

Secured creditors must inform the insolvency administrator of the right of segregation or separation. Should the insolvency administrator not accept the security right, it must be enforced in court against the insolvency administrator. However, if the enforcement of secured claims jeopardises the continuity of the debtor’s business, the insolvency administrator may withhold payment for six months following the opening of insolvency proceedings unless enforcement is pivotal to prevent severe financial or economic harm for a secured creditor.

The costs of the insolvency proceedings, the insolvency administrator’s costs and expenses for the management and administration of the estate, employee claims that arose after the opening of insolvency proceedings, claims for the payment of services that were provided and goods that were delivered to the estate after the opening of insolvency proceedings and the costs of preferential creditor protection associations are considered estate claims. Creditors of such estate claims are entitled to satisfaction of their claims prior to the other insolvency claims. If the estate is insufficient to fully satisfy all estate claims, such preferential creditors will be satisfied on a pro rata basis. Estate claims are subordinate to secured claims.

All other claims against debtors that have not been secured are considered ordinary insolvency claims and share the same rank. They are subordinate to secured claims as well as estate claims. Insolvency claims which are unsuccessfully or not contested by the insolvency administrator are satisfied on a pro rata basis. They are superior only to so-called ‘subordinate claims’.

Subordinate claims are usually created by contract or operation of law. An example would be a subordinate shareholder’s loan. In practice, creditors of subordinate claims rarely participate in the proceeds realised in the course of insolvency proceedings, since their claims will be satisfied only if a surplus for distribution is generated.

The restructuring plan must be approved by the creditors with a double majority. First, the majority of creditors present at the respective court hearing must agree to the restructuring plan. Second, the majority of creditors must also represent the majority of claims in terms of capital. Further, the restructuring plan must be approved by court. Austrian courts will usually withhold their approval if:

  • ordinary insolvency claims are not treated equally;
  • rights of secured creditors or creditors with estate claims are affected; or
  • if the plan is unfeasible and inappropriate in comparison with a liquidation scenario (ie, the sale of the debtor’s assets and distribution of the proceeds among the creditors in accordance with the ranking of their claims).


Intercreditor agreements on liens

Will courts recognise contractual agreements between creditors providing for lien subordination or otherwise addressing lien priorities?

In general, the lien priority will be strictly in accordance with time, which is why those creditors whose security rights are perfected before the security of others will enjoy prior ranking (ie, first in time, first in law). If there is a conflict between two or more of the same security rights, the security first in time will be preferred first in law.

It is possible under Austrian law for a party to subordinate its rank for the benefit of another’s provided that the rights of other creditors are not affected. In connection with syndicated loan agreements, a security agent or trustee will be appointed by the lenders to realise their claims against the debtor and distribute the proceeds among them in accordance with their respective ranks.

Discounted securities in insolvencies

How is the claim of an original issue discount (OID) or discount debt instrument treated in an insolvency proceeding in your jurisdiction?

The claim of an original issue discount (OID) or other discount debt instrument is treated the same as any other claim in Austrian insolvency proceedings. Hence, if the claim is not secured by some form of collateral, the creditor will receive only a proportional part thereof in accordance with the insolvency quota and after satisfaction of all superior claims.

Liability of secured creditors after enforcement

Discuss potential liabilities for a secured creditor that enforces against collateral.

Secured creditors which seek to enforce their rights against collateral usually do not incur any specific liabilities (eg, environmental liabilities, such as the contamination of pledged real estate) regarding third parties as a result of enforcement. However, under certain circumstances, for example if enforcement was unjustified (eg, an event of default has not occurred) or was culpably delayed by the creditor, creditors may be liable for damages.

Update and trends

Recent developments

Updates and trends

As of 21 January 2019, the Vienna Stock Exchange offers a new stock exchange-regulated sub-segment named ‘direct market plus’. Its purpose is to offer small and medium-sized companies with lower capital requirements the opportunity to make their shares tradeable on the Vienna Stock Exchange. The direct market plus includes shares (including shares represented by certificates) that are included in the third market for trading, and whose companies (issuers) make a contractual commitment to comply with increased transparency, quality and publicity criteria.