AUSTRIA Law and Practice Contributed by: Horst Ebhardt, Philipp Kapl, Hartwig Kienast and Matija Bernat, Kinstellar
9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights PE shareholders in Austria typically secure extensive control rights over their portfolio companies. This includes board appointment rights, usually allowing the PE fund to appoint managing directors and/or key members of the supervisory or advisory board (if avail - able). A broad catalogue of reserved matters requiring shareholder or board-level consent is market stand - ard; these typically cover changes to the business plan, major investments or divestments, financing and debt arrangements, related-party transactions, amendments to constitutional documents, issuance of new shares, executive remuneration, etc. Informa - tion rights (monthly or quarterly financials, budgets, key performance indicators) are standard and often go beyond statutory rights. These control mechanisms are implemented through shareholders’ agreements and/or articles of association, adapted to the legal form (limited liability company or stock company) of the portfolio company. 9.2 Shareholder Liability Liability of PE Funds for Portfolio Companies in Austria Under Austrian law, shareholders or the persons behind them are not liable for the obligations or con - duct of their portfolio company, provided it is a cor - poration ( Kapitalgesellschaft ), due to the principle of separate legal personality. In exceptional cases, how - ever, piercing the corporate veil ( Durchgriffshaftung ) may occur, particularly if there is obvious abuse of the corporate structure, such as using the company as a mere facade to pursue unlawful or harmful purposes, deliberate asset stripping, or systematic undercapi - talisation that endangers creditor interests. In addition, Austria’s strict capital maintenance rules prohibit the unlawful return of capital contributions to shareholders in order to safeguard the company’s equity base (only dividend distributions and arm’s length transactions with shareholders are permitted). If a majority shareholder – such as a PE fund – wrong - fully extracts or receives capital, it may be held per - sonally liable for any resulting damages.
10. Exits 10.1 Types of Exit
In addition to traditional private sales to other pri - vate equity-backed investors or to corporates or an exit by way of an IPO, the Austrian market has also recently seen exits via structured secondary transac - tions, including continuation fund transactions and management buyouts (MBOs). While still less com - mon than in larger jurisdictions, such alternative exit routes are gaining traction, particularly in mid-market transactions. “Dual-track” processes are regularly seen in Austria, especially in high-profile or complex exits. While rela - tively resource-intensive, they are used to maximise competitive tension and increase pricing pressure among bidders. “Triple-track” processes are rare in Austria. However, dividend recapitalisations and lev - eraged refinancings have occurred in isolated cases, particularly where market conditions were not condu - cive to a clean exit. 10.2 Drag and Tag Rights Drag-along and tag-along rights are standard features of equity arrangements in Austrian PE transactions. Drag-along rights allow the majority shareholder (typically the PE fund) to force minority shareholders (including management or co-investors) to sell their shares in an exit, ensuring transferability. The typical drag threshold is 50% plus one share, although higher thresholds (eg, 75%) are also seen, depending on the transaction structure and investor alignment. In prac - tice, a minimum valuation or a minimum term for the investment is typically required. Tag-along rights entitle minority shareholders to participate proportionally in a sale initiated by the majority; these often apply from the first share sold, especially for management and smaller co-investors. Institutional co-investors may negotiate stronger pro - tections, including enhanced tag or consent rights. Drag-along and tag-along rights are regularly used in practice and are generally enforced through the share - holders’ agreement.
24 CHAMBERS.COM
Powered by FlippingBook