AUSTRIA Law and Practice Contributed by: Markus Fellner, Stefan Sallat and Florian Henöckl, Fellner Wratzfeld & Partner Rechtsanwälte GmbH
Mortgages In principle, mortgages must be enforced through court enforcement proceedings, which require a pub- lic auction of real property, and the involvement of the court is prone to cause delays with the enforcement procedure. Receivables In the case of receivables, there is no specific enforce- ment procedure; rather, the pledgee will be entitled to directly claim payment from the debtor. Guarantees/Suretyship For this type of “personal security”, there is no spe- cific type of enforcement procedure. Rather, depend- ing on the terms and conditions agreed in the relevant security arrangement (eg, “first demand guarantees”), payment may be requested directly from the security provider (guarantor). Movable Property It is common market practice that the court enforce- ment procedure provided for under statutory law is modified to permit out-of-court enforcement. Movable goods may be sold after a notification to the pledgor, a cooling-off period of one month and by way of pub- lic auction. Disposal without such auction is permis- sible and, in the case of securities, mandatory (see the information about share pledges above) if a stock exchange or market price exists. The same principles would apply to the enforcement into security rights over intellectual property rights. 6.2 Foreign Law and Jurisdiction As a general rule, Austrian law and conflict of laws rules permit the choice of a foreign law as the gov- erning law of a contract, even if that contract is to be enforced in Austria; in terms of market practice this would frequently apply to loan agreements governed by German or English law. Restrictions apply, however, to the granting and per- fection of security rights, which, depending on the type of security, is in most instances governed by local (Austrian) law. By way of example, this would apply to pledges over the shares in Austrian compa- nies, pledges over or security assignments of Austrian
defaults under its existing debt. But if a company is already over-leveraged, it may need to find creative ways under its existing debt agreements to allow for a new loan using its existing collateral as security. Lenders in the new loan will likely require a senior pri- ority lien on the company’s collateral. As a result, all existing loans are “primed” when their liens against the collateral are surpassed by the new loan. Most collateral priming transactions tend to fall under two mechanisms – loopholes or amendments. Under the first, a company uses a loophole within the terms of their loan document to allow it to take on additional senior debt secured by collateral already pledged under a separate credit facility. With an amendment, the company works with requisite lenders to amend the existing loan documents to allow for a new senior loan facility and often “priming” the existing facility as a result. 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders The enforcement of (contractual) security rights varies significantly depending on the type of specific securi- ties (and any contractual arrangements in place); while statutory law provides for enforcement of security rights through the courts as a general principle, devia- tions by way of contractual arrangements between the parties are permissible. Regarding the most relevant types of security, the fol- lowing statutory rules and market practice observa- tions apply. Share Pledges In the case of shares in a GmbH, it is common market practice to agree on out-of-court enforcement, which entails information to the pledgor, a valuation of the shares and subsequent disposal to the best bidder. In principle, the same applies to shares in an AG; how- ever, if these have a market or stock exchange price, they must be sold at such price without public auc- tion.
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