AUSTRIA Law and Practice Contributed by: Farid Sigari-Majd and Mathias Lehner, Freshfields
be restricted to termination for cause (see 2.9.5 Other Effects of a Lessee’s Insolvency ). In that case, lease payments that fall due after the insolvency would con - stitute preferred claims. Any lease security deposit would normally be kept on account of the lessor. It would thus not form part of the insolvency estate and remain available to the les - sor to cover outstanding claims, and the same would normally apply to maintenance reserves. 2.10 Cape Town Convention and Others 2.10.1 Conventions in Force Austria has not ratified the Convention on International Interests in Mobile Equipment or the related Protocol on Matters specific to Aircraft Equipment, and conse - quently neither the Convention nor the Protocol are in force in Austria. 2.10.2 Declarations Made Concerning Conventions See 2.10.1 Conventions in Force . 2.10.3 Application of Article XIII of the Protocol on Matters Specific to Aircraft Equipment
that the Austrian authorities have taken a strict view in the past as to what constitutes a sufficient nexus to Austria. Subject to applicable sanctions (if any), the authors are not aware of any restrictions under Austrian law which would prevent a borrower from borrowing funds from a foreign lender. 3.1.2 Effect of Exchange Controls or Government Consents See 2.1.4 Exchange Controls regarding exchange control restrictions and reporting to the Austrian National Bank. 3.1.3 Granting of Security to Foreign Lenders Austrian borrowers are permitted to grant security to foreign lenders. 3.1.4 Downstream, Upstream and Cross-Stream Guarantees Austrian borrowers are generally free to provide secu - rity for the benefit of their direct or indirect subsidiaries (“downstream security”). Companies (and partnerships which do not have any natural person as an unlimited partner) are subject to capital maintenance rules under Austrian law prevent - ing them from granting security for the benefit of their direct or indirect shareholders (“upstream”) or sister companies (”cross-stream”) unless such security is provided on arm’s-length terms or, in some cases, where they receive another form of corporate benefit. In any event, there must be no doubt about the bor - rower’s solvency. If the test referred to above is not satisfied, the rel - evant security would prima facie breach capital main - tenance rules. In practice, this would be mitigated by limiting the economic value of the security interest to an amount equal to the distributable profits of the security provider (“limitation language”). 3.1.5 Lenders’ Share in Security Over Domestic SPVs Share pledges or pledges over partnership interests are recognised under Austrian law and frequently requested by lenders. In addition, Austrian law share
See 2.10.1 Conventions in Force . 2.10.4 Enforcement of Conventions See 2.10.1 Conventions in Force . 2.10.5 Other Conventions See 2.10.1 Conventions in Force .
3. Aircraft Debt Finance 3.1 Structuring 3.1.1 Restrictions on Lending and Borrowing Commercial lending to an Austrian borrower qualifies as a banking business under Austrian law and requires a banking licence. Credit institutions from within the EU may rely on their EU passport to lend to Austrian borrowers if they have obtained the relevant licence in their home member state. A banking licence will not be required in Austria if all elements of the loan are kept abroad, noting, however,
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