The Supreme Court(1) recently ruled on the requirements for exclusion of liability clauses during an asset deal. In its decision, the court rejected a new theory supported by the appeal court and classified supplementary capital in the form of bank bonds as a business-related legal relationship.
Austrian law has two sets of rules on liability in connection with the acquisition of a business via an asset deal:
- Section 38/1 of the Commercial Code provides for a non-mandatory rule that buyers accept all business-related legal relationships with all existing liabilities and rights of the seller. However, pursuant to Section 38(4) of the Commercial Code, this liability may be excluded under certain circumstances and exclusions may be made public:
- in the Companies Register;
- in a manner that corresponds with typical business practices; or
- by informing third parties of the exclusion at the time of acquisition.
- Section 1409 of the Civil Code stipulates that buyers are liable for all debts which they knew or should have known about at the time of the transfer of the undertaking. This liability is limited to the enterprise value. Section 1409 is a mandatory legal provision.
The plaintiff was a stock corporation which issued supplementary capital in the form of bank bonds to the seller in 2006. In 2009 the seller sold and transferred part of its business to the buyer (the defendant). The defendant and seller agreed on a liability exclusion clause pursuant to Section 38(4) of the Commercial Code, which was registered in the Companies Register as follows: "exclusion of liability for all liabilities of the banking business of [the plaintiff] which were not explicitly mentioned in the business purchase contract." The purchase price had been paid into a trustee account with a notary in order to satisfy the seller's creditors.
The plaintiff filed suit based on Section 1409 of the Civil Code and Section 38 of the Commercial Code. It asked the court to hold the defendant liable for all losses caused by the acquisition of the supplementary capital in the form of bank bonds. The plaintiff argued that the defendant had continued its business and that the exclusion of liability clause was insufficiently specified and therefore void.
The defendant argued that a general exemption from liability was permissible and that Section 1409 of the Civil Code was inapplicable due to the notarised trust account and the creditors' ability to obtain satisfaction from the deposited purchase price.
The first-instance court confirmed the plaintiff's view, but restricted the defendant's liability to the value of the company that exceeded the purchase price paid into the trustee account.
On appeal, the appeal court held the defendant liable for all obligations regarding the plaintiff's supplementary capital in the form of bank bonds. The appeal court pointed out that, in this case, the general exemption from liability registered in the Companies Register was void because creditors must be able to learn about the liability exclusion through the wording published in the Companies Register. According to the court, the exclusion was insufficient, as it referred to the purchase contract (which was not publicly available).
The Supreme Court reversed the appeal court's decision and denied unlimited liability pursuant to Section 38(1) of the Commercial Code. It held the defendant liable up to the purchase price (ie, limited liability pursuant to Section 1409 of the Civil Code) and affirmed the legitimacy of the exclusion of liability clause under Section 38(4) of the Commercial Code.
The Supreme Court had already reviewed a case(2) concerning the legitimacy of exclusion of liability clauses. In that case, the court clarified that a general exemption from liability was possible and that there was no need to detail each and every obligation. The prevailing opinion requires a close and timely connection between the acquisition of a business and the registration of a liability exclusion with the Companies Register (no more than one month after acquisition). In another decision,(3) the Supreme Court ruled that both the buyer and seller must register an exclusion clause with the Companies Register. The scope of efficient exclusion clauses must be clear and comprehensible. Further, the Supreme Court differentiated between:
- an agreement not to take over certain legal relationships; and
- an exclusion of liability for obligations outside these legal relationships.
According to the court, exclusion of liability will not be assumed where only certain legal relationships are taken over. Therefore, liability must be explicitly excluded.
Exclusions may relate to all obligations (ie, general exemptions) or particular obligations (ie individual exemptions).
While Section 38(1) of the Commercial Code covers liability for business-related legal relationships only, buyers are generally not liable for a seller's personal liabilities. According to the Supreme Court, supplementary capital in the form of bank bonds is always considered business related.
The Supreme Court also held that Section 1409 of the Civil Code applied, even though the purchase price had been paid into a trustee account. In this case, the company's value could not be determined and thus the purchase price was paramount. The creditors had no guarantee that the money in the trustee account would be used only for their needs; thus, it could not be considered equal security for their obligations.
Arguably, this was a close call for the buyer. The Supreme Court interpreted the exclusion as a general exclusion of liability, which requires no specifications. For individual exclusions of liability, only reference to a generally accessible document (eg, record of documents in the Companies Register) would have been sufficient. The asset purchase agreement referred to in the case at hand would not have fulfilled this requirement, as it was not generally accessible.
For further information on this topic please contact Wolfgang T Graf at Graf Patsch Taucher Rechtsanwälte GmbH by telephone (+43 1 53 54 820) or email (email@example.com). The Graf Patsch Taucher Rechtsanwälte website can be accessed at www.gpra.at.
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