AUSTRIA Law and Practice Contributed by: Markus Fellner, Stefan Sallat and Florian Henöckl, Fellner Wratzfeld & Partner Rechtsanwälte GmbH
security holder and the security provider that, inter alia, requires a valuation of the asset prior to its com- mercialisation (unless there is a defined market or stock exchange price). The requisite rules aiming at preserving the pledgor’s interest during enforcement must be followed meticulously when drafting security agreements. Overall, direct enforcement by the pledg- ee is standard market practice in financing transac- tions in Austria. Receivables Security rights over receivables may be effected either by pledge or full transfer (assignment) of rights (for security purposes); while both forms occur in prac- tice, security assignments are more common as they provide full title to the secured party. The transfer of receivables requires an (assignment) agreement between the assignor and the assignee (unless the assignor and the obligor have agreed on a valid assignment restriction). However, if an assign- ment is effected for security purposes, the same requirements as for pledges will apply and disclosure of the pledge/transfer will be required. In the case of receivables not recorded in the creditor’s/assignor’s books and records (which is rare in business practice), the notification of the obligor is considered sufficient. In the case of receivables being so recorded, Aus- trian case law has developed an increasingly strin- gent approach requiring that the pledge/assignment be annotated both in the list of obligors of the assignor as well as in the list of open accounts. Given the requisite legal restrictions, the notification of the obligor of an assignment/pledge is mostly with- held until an enforcement event occurs. Pledges and security transfers are not restricted to present receivables of the assignor but may extend also to future receivables or certain classes thereof, if and to the extent that such receivables are properly described in the security agreement. Cash/Accounts Cash collateral is most commonly granted in the form of account pledges, which are not subject to specific formal requirements and are therefore typically drawn up in written form. Perfection requires the notification
of the account bank. The standard business terms and conditions of Austrian banks contain a pledge arrangement over any and all assets of the customer transferred to the bank’s custody, including accounts with a positive balance. In order to create an effec- tive third-party pledge (to a pledgee other than the account bank), this standard pledge agreement is customarily waived or subordinated. Real Property Real property can be provided as security in the form of a pledge ( Hypothek ) under Austrian law. In addi- tion to a pledge agreement, which does not require a specific form, the registration of the pledge in the land registry is required. For this purpose, the pledgor/ owner of the property needs to provide a specific consent declaration regarding the registration, which must be notarised. Multiple pledges over one individual property are pos- sible and will rank towards each other in terms of pri- ority (as per registration in the land register). The registration of a pledge over real property in the land register is subject to a significant registration fee (1.2% of the secured amount), which is typically borne by the pledgor. Under certain circumstances (abun- dant other security or impeccable financial standing), lenders may temporarily refrain from the registration while having readily executed pledge documentation in place for immediate registration at their discretion. Movables While security arrangements relating to movable goods (such as equipment or inventory) are not subject to specific formal requirements, Austrian law imposes stringent standards on perfection which either require the physical transfer of the pledged goods or equiva- lent measures (in the case that a physical transfer is too onerous, transfer “by way of token” will be con- sidered sufficient). A full title transfer in such goods for security purposes will be possible but is subject to the identical perfec- tion requirements (to avoid circumvention). Given these requirements, pledge over moveable assets is not common, in particular in relation to such
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