AUSTRIA Law and Practice Contributed by: Markus Fellner, Stefan Sallat and Florian Henöckl, Fellner Wratzfeld & Partner Rechtsanwälte GmbH
Austrian legislation on other corporations (GmbH) does not contain comparable restrictions. As to sub- stance, however, these are similar to those for the AG in view of the Austrian capital maintenance rules as per Austrian case law. 5.5 Other Restrictions The most relevant risks in relation to the grant of security guarantees are valuations of the principles of accessoriness and capital maintenance rules. In addition to that, Austrian insolvency law provides for an elaborate set of provisions permitting an insol- vency administrator to challenge and void certain transactions entered into prior to the opening of the insolvency proceedings of a security provider. The insolvency administrator is entitled to rescind acts of the bankrupt company if: • such acts have been completed prior to the open- ing of insolvency proceedings; • such acts affect the assets of the estate; • such acts are detrimental to the estate’s creditors; and • a specific rule (subject to additional criteria) on such rescission applies. In Austria, there are no significant costs associated with the grant of security or guarantees for credit or loan agreements. Besides, no specific prior consent by authorities or statutory interest representation (eg, works council) is required. 5.6 Release of Typical Forms of Security Formalities on the release of security depend on the type of security that has been granted. Accessory security (such as pledges or suretyships) will automatically lapse in the event of a full satisfac- tion of the secured liabilities. In these cases, no spe- cific formal requirements would apply to the “release” of security; nevertheless, release agreements or con- firmations on repayment (which may take the form of pay-off letters issued in advance of such payment) are customary. In the case of non-accessory securities, depending on the type of security, a formal re-transfer or similar
act may be required in order to reverse the original creation of a security right. In case of securities recorded in registers (such as mortgages, trade marks pledges, etc), even if the pledges are accessory securities, certain formal requirements may apply to the deletion of the relevant security right. For instance, the deletion of a mort- gage from the land register will only be possible on the basis of a consent to the release issued by the pledgee (executed in an authenticated form). These requirements and documentary deliverables may cause significant complexity in refinancing transactions where an outgoing lender/security hold- er would only agree to a release of security (or the issuance of confirmations) upon full repayment and a new lender/security holder insists on the creation/ perfection of the security as a condition precedent to draw-down. In these scenarios, escrow arrangements are common market practice. 5.7 Rules Governing the Priority of Competing Security Interests As a general rule, Austrian rules on the creation of securities follow the principle of priority when it comes to the in rem perfection of security rights. Contractual arrangements varying this principle are permissible among creditors (eg, in intercredi- tor agreements in syndicated loan transactions). This, however, would not have to be observed by an insolvency administrator and/or court in the case of enforcement and/or insolvency proceedings. In syndicated financing transactions, the appointment of a joint agent/security agent constitutes significant mitigation for larger groups of creditors against this legal concept because the proceeds from an enforce- ment, or in the course of insolvency proceedings, would be disbursed to the agent/security agent for the account of a larger group of creditors so that internal distribution could be effected as per the agreed terms (and outside of the insolvency proceedings). 5.8 Priming Liens With financial stress, a company will look for addition- al liquidity to shore up its finances to avoid covenant
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