AUSTRIA Law and Practice Contributed by: Markus Fellner, Stefan Sallat and Florian Henöckl, Fellner Wratzfeld & Partner Rechtsanwälte GmbH
assets as are required for the daily operations of the pledger. In individual cases, lenders and borrowers agree on pledges on the contents of warehouses. These are, however, subject to strict requirements under case law entailing, inter alia, signage of the goods affected and the engagement of a special guardian, which will be bound by instructions solely of the pledgee and assure that no goods are removed from a warehouse in the absence of the pledgee’s consent or in the case of direct replacement. Intellectual Property Rights Trade marks pledges do not require a specific form. In terms of perfection, a registration of the pledge (which, however, requires notarisation of the pledgor’s consent declaration) is considered necessary and standard. Patent pledges require a registration in the patent reg- isters. Copyrights as such may not be pledged or transferred. However, licences may be established or be the sub- ject matter of security rights to achieve an equivalent economic result. 5.2 Floating Charges and/or Similar Security Interests The concept of a “floating charge”, or other universal or similar security interest over all present and future assets of a company, is not recognised by Austrian law. Rather, security arrangements must be made specifically with respect to each and every asset and type of asset and take into account observation of the requisite perfection requirements, which vary sig- nificantly. 5.3 Downstream, Upstream and Cross- Stream Guarantees Austrian law does not restrict downstream guarantees (or other security). However, there are stringent limita- tions on upstream and cross-stream security. Distributions to (direct or indirect) shareholders may only be effected by corporations – eg, an AG, a GmbH or a GmbH & Co KG (ie, a limited partnership in which
the only unlimited partner is a GmbH) – in the form of formal dividend distributions (based on a balance sheet and appropriate shareholders resolution), in the case of a capital decrease (which also requires a shareholders resolution) or in the form of a potential liquidation surplus. In addition, a company and its shareholders or affili- ates may enter into transactions with each other on arm’s length terms and conditions. This requirement entails that the company will only enter into such transactions with its shareholder or affiliates if and to the extent that it would equally (but hypothetically) enter into the transaction on identical terms and con- ditions with any unrelated third party. Austrian case law on these restrictions is based on a case-by-case evaluation and has become increas- ingly stringent over the last 20 years. In practice, it is advisable to have the management of the company assess the proposed transaction under the business judgement rule, in particular the risks involved, in accordance with the above criteria. The entering into of such a transaction may not, in any event, threaten the existence of the company. A breach of the capital maintenance rules would lead to personal liability of the management and nullity of the transaction. In order to mitigate the relevant risks, limitation language restricting the (potential) enforcement of upstream or cross-stream security arrangements is common in Austria. Since there are no clear guide- lines on the admissibility of upstream or cross-stream guarantees (such as the limitation to certain financial criteria), any type of proposed limitation language is necessarily ambiguous to some extent and decreases the commercial value of upstream or cross-stream security significantly. 5.4 Restrictions on the Target For joint-stock corporations (AG), there is an outright prohibition on providing financial assistance in relation to the acquisition of their own shares (including in the form of granting advance payments, loans or provid- ing security to a third party in order to provide such assistance). Exceptions only exist for transactions in the ordinary course of business of credit institutions.
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