AUSTRIA Law and Practice Contributed by: Philipp Baubin and Stefan Weber, Weber & Co
Unless these criteria are met, the transaction is null and void in the legal relationship between the shareholder and its subsidiary. The shareholder is liable to return any undue benefit obtained. Furthermore, if the subsidiary incurs any dam- age due to an undue issuance of a guarantee or the undue provision of security, management may be personally liable for damages. A third-party beneficiary (creditor) is not neces- sarily affected by the ineffectiveness of the provi- sion of security in the legal relationship between the subsidiary and its shareholder. The ineffec- tiveness extends to a third-party beneficiary only if it knew or ought to have known that the provi- sion of security was unlawful. However, this may, likely be the case where lenders are involved in the structuring of financing transactions. Besides that, there are generally no applicable limitations or restrictions imposed by Austrian law regarding the entities which are permitted to provide collateral and guarantee support for bank loans. The choice of entities providing sup- port is therefore usually based on commercial considerations, such as financial strength and existence of substantial pledgeable assets. 5.5 Financial Assistance Austrian companies are prohibited from financ- ing or providing assistance in the financing of the acquisition of their own shares. In line with strict Austrian capital maintenance rules the return of equity to shareholders outside arm’s length transactions ( Verbot der Einlagenrückgewähr ) is strictly restricted, except for the distribution of the balance sheet profit, in the course of a formal reduction of the registered share capital or for the surplus paid to shareholders following liquidation.
Section 66a of the Austrian Stock Corporations Act ( Aktiengesetz ) explicitly prohibits financing or providing assistance in the financing of the acquisition of its own shares or the shares of a parent company. 5.6 Other Restrictions In addition to statutory restrictions, the articles of association or management by-laws of an Austrian company may restrict the creation of security interests in general or above defined thresholds. 5.7 General Principles of Enforcement Austrian security agreements typically foresee that lenders are entitled to enforce a security interest out of court, without any requirement to receive a title instrument for enforcement ( Exeku - tionstitel ) or to institute in court enforcement pro- ceedings in line with the Austrian Enforcement Act ( Exekutionsordnung ). Enforcement may be carried out by public auction or by private sale. Retention of a collateral is not permissible under Austrian law. The secured creditor must not take possession of the collateral and retain it to sat- isfy the secured debt. As the guarantee in international acquisition finance transactions is often governed by foreign law, the following should be noted. Austrian law and conflict of laws rules generally permit the choice of a foreign law as the govern- ing law of a contract, even if the respective con- tract is to be enforced in Austria. Austrian courts will principally recognise the contractual choice of foreign law, subject to certain requirements (eg, actual conflict of laws or the contract relates to a civil and/or commercial matter). However, some restrictions apply regarding the granting and perfection of security rights, which, depend-
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