AUSTRIA Law and Practice Contributed by: Philipp Baubin and Stefan Weber, Weber & Co
• Receivables: (a) notification to the respective third-party debtors ( Drittschuldnerverständigung ); or (b) pledge note in the electronic books of the pledgor ( Buchvermerk ). • Insurance receivables: (a) notification to the respective insurance company; or (b) pledge note in the electronic books of the pledgor ( Buchvermerk ). • In addition, a Vinkulierung could be made, whereby it is agreed with the insurer that it must not pay out any sums to the pledgor and must notify the pledgee where the pledgor does not pay the premiums. • Bank accounts: (a) notification of the account holding credit institution; or (b) pledge note in the electronic books of the pledgor ( Buchvermerk ). • IP rights: (a) additional act depending on the IP right (eg, registration of the pledge with the public Austrian trade mark or patent reg- ister at the Austrian Patent Office ( Öster- reichisches Patentamt )); or (b) in the case of non-registered IP rights, a pledge note in the electronic books of the pledgor ( Buchvermerk ). • Movable assets: (a) delivery of pledged asset into the custody of a pledgee or a custodian (alternative methods are available in certain instanc- es, eg, affixing placards identifying the secured party); or (b) pledge note in the electronic books of the pledgor ( Buchvermerk ). • Real estate: registration with the competent land register ( Grundbuch ). Failing to perfect a security interest results in the security interest being ineffective against third
parties. In the event of the debtor’s bankruptcy or insolvency, the unperfected security interest may be treated as part of the general assets of the debtor and distributed to all creditors. 5.4 Restrictions on Upstream Security The most notable limitations on security provid- ed by Austrian companies result from mandatory Austrian capital maintenance rules ( Kapitalerhal- tungsvorschriften ). These rules apply to limited liability companies and joint stock companies as well as to certain kind of partnerships, where the only unlimited partner is a limited liability com- pany or joint stock company. As a general rule, Austrian companies must not distribute any funds, assets or any other ben - efit (including the provision of security) to their direct or indirect shareholders by means other than the formal distribution of a dividend further to a respective shareholder vote. All dealings between an Austrian company and its direct or indirect shareholders consequently need to be at arm’s length to be admissible. However, a transaction that is operationally justified ( betrieblich gerechtfertigt ), meaning it is clearly in the benefit of the company and would have been concluded with a third party under the same conditions, even though there is an objective imbalance between service and consideration, does not violate Austrian capital maintenance rules. This means that an Austrian (upstream and sidestream) security provider needs to receive sufficient funds from the loan, other consideration or an adequate corporate benefit from the overall transaction in return for any security it provided to, or for the benefit of, its (indirect) shareholders acting as borrower in a loan transaction.
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