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.


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.