AUSTRIA Law and Practice Contributed by: Philipp Baubin and Stefan Weber, Weber & Co
6.2 Restrictions There are no other restrictions other than those described in the context of upstream/sidestream security. The granting of guarantees on a commercial basis in Austria qualifies as “banking business” pursuant to Section 1(1)(8) of the BWG. While there is no statutory exemption for group financ- ings, it is recognised that guarantees do not require a banking licence to the extent that they are granted solely for the obligations and liabili- ties of group companies with a view to achieving a group’s other overriding commercial goals. 6.3 Requirement for Guarantee Fees There is no guarantee fee required under Aus- trian law. However, the parties frequently agree on the payment of a guarantee fee to the guaran- tor. They very often do so to provide additional consideration to the Austrian guarantors in order to mitigate risks in connection with strict capital maintenance provisions. 7. Lender Liability 7.1 Equitable Subordination Rules According to the Austrian Equity Substitution Act ( Eigenkapitalersatz-Gesetz or EKEG), a lend- er who is granted extensive rights of control over the borrower, together with decisive influence over the borrower’s business in the loan agree- ment or any related security document may be qualified as a shareholder of the borrower. Where the borrower is in “crisis” , a loan provided by the lender to the borrower may be considered as equity subordinated to the claims of all secured and unsecured creditors of the subsidiary. The borrower is therefore prohibited to repay the loan to the lending shareholder as long as the
ing on the type of security, is in many cases governed by local Austrian law (eg, for pledges over shares in Austrian companies, pledges over security assignments of Austrian law governed receivables or for the creation of mortgages over real estate properties located in Austria). Accordingly, it is common market practice that security rights over assets which are located in Austria, including those which are provided by Austrian domiciled transferors or pledgors, have Austrian law governed security documentation. 6. Guarantees 6.1 Types of Guarantees In principle, Austrian law distinguishes between two different types of guarantees: • abstract guarantee ( abstrakte garantie ) according to Section 880a of the Austrian General Civil Code (the “ABGB” ), by which the guarantor undertakes to pay on formal demand of the beneficiary (on first demand), without examining the merits of the demand. The guarantor’s obligation to pay is abstract and therefore independent of the underlying legal relationship between the beneficiary as creditor and debtor. The guarantor may therefore not raise any objections based on the underlying legal relationship, but may only assert abuse of rights ( Rechtsmissbrauch ) by the beneficiary; and • surety ( Bürgschaft ) pursuant to Section 1346 of the ABGB, under which the guarantor undertakes to fulfil specific obligations of the debtor if the debtor defaults on payment when due. The guarantee is accessory to the underlying legal relationship between the beneficiary as creditor and the debtor.
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