Restructuring and insolvency law in Austria

1. What is the primary legislation governing restructuring proceedings in your jurisdiction?

Since July 2021, the Austrian Restructuring Act (Restrukturierungsordnung (ReO); BGBl I 147/2021) provides a regime for court-supervised preventive restructuring proceedings (Restrukturierungsverfahren) outside of an insolvency proceeding. The restructuring procedures under the Austrian Restructuring Act is not open to natural persons who are not entrepreneurs.

Restructuring proceedings under the Austrian Insolvency Act (IO) (Sanierungsverfahren) which are applicable to debtors who are already materially insolvent are covered in section 2 (Insolvency) below.

2. How are restructuring proceedings initiated? 

In Austria, restructuring proceedings can be initiated through a formal application of the debtor to the competent court. Only the debtor may file for a restructuring proceeding under the Austrian Restructuring Act.

The major prerequisite for initiating such proceedings is that insolvency of the debtor is probable (wahrscheinliche Insolvenz). Insolvency is considered probable if the existence of the debtor would be endangered without restructuring, in particular probable insolvency is assumed if the debtor has an equity ratio (Eigenmittelquote) of less than 8% and the notional debt repayment period (fiktive Schuldentilgungsdauer) is more than 15 years.  

Restructuring proceedings can, however, not be initiated if insolvency proceedings are already in progress or a restructuring plan under the Austrian Insolvency Act (Sanierungsplan) or restructuring plan Austrian Restructuring Act (Restrukturierungsplan) was confirmed less than 7 years ago. Also, the commencement of restructuring proceedings under the Austrian Restructuring Act is not permitted, if the debtor is illiquid (zahlungsunfähig).

The proceeding then continues as follows:

• Application: The debtor (or its legal representative) submits an application to the court to commence restructuring proceedings. The application must include relevant information about the debtor's financial situation, assets, liabilities, the proposed restructuring plan or concept and the debtor’s annual accounts for the last three years.
• Examination by the court: The court examines the application and verifies if the prerequisites for initiating restructuring proceedings are met. This includes determining whether the debtor is likely to become insolvent and assessing the feasibility of the proposed restructuring plan.

3. Which different types of restructuring proceedings exist and what are their characteristics? 

The Austrian Restructuring Act foresees a "standard restructuring proceeding". In addition to the standard restructuring proceeding, two special forms of such proceedings exist: the "European restructuring proceeding" and the "simplified restructuring proceeding".

Standard restructuring proceeding

The core of the standard restructuring proceeding is the preparation (in case only a restructuring concept has been presented with the filing), negotiation and acceptance (by the affected creditors) of a restructuring plan (Restukturierungsplan). In this restructuring plan, the debtor must present the intended restructuring measures, the duration and the effects of the restructuring. The plan must also contain a financial plan, a conditional going concern forecast (conditional upon the acceptance of the restructuring plan by the affected creditors) and a comparative calculation of alternative insolvency scenarios. In the restructuring plan, the debtor must present a proposal for the effects of the restructuring, in particular the intended haircut, on the various creditor classes.

A majority of the affected creditors (present at the court hearing, in which the restructuring plan is voted upon) in each class (majority by head count) and a capital majority of 75% of the affected creditors (present at the hearing) in each class are required to vote in favour of the restructuring plan. If a restructuring plan is approved by the required majorities, it must also be confirmed by the court. If a class of creditors rejects the restructuring plan, the court may nevertheless confirm the restructuring plan at the debtor's request (cross-class cramdown). A rejecting creditor may in this case request a review as to whether he would be worse off as a result of the restructuring plan than in insolvency proceedings under the Austrian Insolvency Code (creditor interest criterion). If such a request has been made, the court may only confirm an accepted restructuring plan if this criterion is met. If the restructuring plan is approved, the court confirms the plan, making it binding for all creditors, including those who voted against it.

If the court finds that the prerequisites are met, it may, upon the debtor’s request, grant a provisional moratorium for a total of up to 6 months to facilitate the restructuring. In the request the debtor must name the creditors or specify classes of creditors for whose claims the moratorium shall apply. The moratorium can cover all types of claims, including secured claims. However, a general moratorium is only possible, in case the restructuring proceeding is a European restructuring proceeding (i.e. a public proceeding (see below)). The moratorium provides the debtor with temporary protection from enforcement actions by creditors during the restructuring process.

In general, the restructuring proceeding is a debtor-in-possession proceeding. However, the court may appoint a restructuring administrator who supervises the restructuring proceeding and supports the debtor. Under certain circumstances, the appointment of an administrator is obligatory (e.g. if a moratorium is granted, a cross-class cram-down is confirmed or the debtor or the majority of creditors request such appointment). The administrator's duties are specified by the competent court, but generally involve the facilitation of negotiations between the debtor and creditors, the supervision of the implementation of the restructuring plan, and reporting to the court on the progress of the proceeding.

European restructuring proceeding

A special form of the standard restructuring proceeding is the "European restructuring proceeding". It must be published in the edicts database (Ediktsdatei). The main difference to the standard restructuring proceeding under the Austrian Restructuring Act is that such European restructuring proceeding is public. This means that such proceeding falls under the scope of the European Regulation on Insolvency Proceedings (Regulation (EU) 2015/848). The procedure and its legal effects are thus recognized throughout the European Union (with the exception of Denmark).

Simplified restructuring proceeding

Another special form of the standard restructuring proceeding is the so-called "simplified restructuring proceeding" for those cases in which an out-of-court conclusion of a restructuring agreement between the debtor and its financial creditors failed due to the consent of one or a minority of creditors ("chord breakers"). Such a simplified restructuring proceeding makes it possible to conduct the proceedings quickly and efficiently by preparing (“pre-packing”) the proceeding before it is formally commenced (in particular the necessary creditor consents are obtained before the formal commencement). In such a simplified restructuring proceeding only claims of financial creditors can be part of the proceeding.

4. Are there different types of creditors and what is the significance of the differences between them?

It is up to the debtor to decide which creditors (and which claims) to include in the restructuring plan (Restrukturierungsplan). Certain claims are, however, excluded (such as claims of existing or former employees or fines for criminal acts). The selection of the creditors concerned must be based on objectively comprehensible criteria and non-inclusion of certain creditors must be justified in the restructuring plan.

The debtor must divide the affected creditors into the following creditor classes:

• Creditors with secured claims
• Creditors with unsecured claims
• Bondholders
• Creditors requiring special protection (this class may cover creditors who are especially vulnerable (e.g. because they are non-diversified), such as small suppliers or other creditors whose claims amount to less than EUR 10,000)
• Creditors with subordinated claims

For microenterprises, there is an exception from this rule to divide creditors into different creditor classes.

5. Is there any obligation to initiate restructuring / insolvency proceedings? For whom does this obligation exist and under what conditions? What are the consequences if this obligation is violated?

There is no obligation to initiate restructuring proceedings.

The legal representatives of the debtor must file for insolvency in a scenario where the debtor is materially insolvent within the meaning of the Austrian Insolvency Act. This criterion is met if the debtor is:

• illiquid (cash flow insolvency or zahlungsunfähig; Sec 66, para 1 of the Austrian Insolvency Act), or
• over-indebted (balance sheet insolvency or überschuldet; Sec 67, para 1 of the Austrian Insolvency Act).

In the event that the requirements of either a cash flow insolvency (Zahlungsunfähigkeit) or balance sheet insolvency (Überschuldung) are fulfilled, the legal representative(s) of a company or partnership have to file for insolvency without undue delay, but in any case, within 60 days upon knowledge of the material insolvency. If a requirement for the opening of insolvency proceedings is fulfilled and the managing director does not undertake realistic restructuring measures, the managing director is obliged to immediately file for insolvency (i.e. the 60 day period does not apply in this case).

Also, Austrian courts have developed an increasingly extensive understanding of shareholders’ and even of non-shareholders’ (e.g. the supervisory board) liabilities vis-à-vis creditors of the debtor with respect to a delay in filing for insolvency. In general, the liability of persons other than the legal representatives towards creditors may exist, if they significantly influence the line of action of the legal representatives in a way that they factually run the day-to-day business. Under Austrian case law and literature, a person is considered to be a so-called shadow manager, if he

• takes significant influence on the business on a regular basis and not only temporarily and
• from the perspective of third parties appears to be the managing director.

In practice, this is the case if a majority shareholder of a company conducts the business in lieu of the legal representatives. Nevertheless, also other corporate bodies such as a supervisory board or even a third party may qualify as shadow manager.

Moreover, the supervisory board is liable for damages resulting from delay in filing for insolvency not only if it qualifies as shadow manager, but also if it breaches its obligation to supervise the activities of the legal representatives and therefore does not cause the legal representatives to duly and timely file for insolvency once the fact, that the company is materially insolvent, has become apparent to them.

Additionally, shareholders, irrespective of the percentage of shares held, may become liable in connection with a failure of the legal representatives to file for insolvency, if they act as shadow manager and hinder the legal representatives to file. Also, if a company does not have a legal representative (e.g. due to resignation), the obligation to file for insolvency lies with the shareholder, who holds more than half of the share capital of the company.

6. What are the main duties of the representative bodies in connection with restructuring proceedings?

The Austrian Restructuring Act does not contain any specific provisions on the liability of the debtor's legal representatives in case they do not file for restructuring proceedings. It rather specifies, that in the event of probable insolvency, the legal representatives of the debtor shall take steps to avert insolvency and ensure the continuity of the debtor, taking due account of the interests of creditors, shareholders and other stakeholders.

If a company is in a crisis, the Austrian Reorganisation Act (Unternehmensreorganisationsgesetz), however, places a “de-facto-duty” on managing directors to file for reorganization proceedings (Reorgnisationsverfahren), as there are personal liability sanctions attached to the omission of such filing if certain circumstances are present.  Pursuant to the Austrian Reorganisation Act, managing directors are liable vis-à-vis the company, for company liabilities not covered by the eventual insolvency estate if, within the last two years before the insolvency filing, they

• have received a report from the company’s auditor stating that the equity ratio is less than 8% and the notional debt repayment period exceeds 15 years and have not immediately filed for reorganisation proceedings or have not properly pursued such a proceeding, or
• have not prepared annual financial statements or have not done so in a timely manner or have not immediately instructed an auditor to audit the annual financial statements.

Such personal liability of managing directors does not arise if, immediately after the receipt of the auditor's report the managing directors have obtained an expert opinion from an auditor, which has negated the need for reorganisation.

7. What are the main duties of shareholders in connection with restructuring proceedings?

The Austrian Restructuring Act foresees that shareholders shall not unreasonably prevent or impede the adoption, confirmation and implementation of a restructuring plan.

Yet, if the restructuring plan includes any corporate measures that require shareholder approval (under company law), the provisions of company law must be fully observed. Hence, the restructuring plan cannot be used to implement a corporate restructuring (e.g. debt-equity-swaps) without the necessary shareholder approvals. Only if the restructuring plan does not interfere with the legal or economic position of the shareholders, a shareholders approval required under company law may be substituted by a court order.

1. What is the primary legislation governing insolvency proceedings in your jurisdiction?

This section addresses insolvency proceedings under the Austrian Insolvency Act (Insolvenzordnung) and the European Regulation on Insolvency Proceedings. Restructuring proceedings under the Austrian Restructuring Act (Restrukturierungsverfahren) are covered in section 1 (Restructuring) above.

2. How are insolvency proceedings initiated?

The commencement of any proceedings under the Austrian Insolvency Act – either restructuring proceedings (Sanierungsverfahren) or bankruptcy proceedings (Konkursverfahren) – is dependent on the existence of certain factual predicates. In the case of corporate entities, these are:

• illiquidity (cash flow insolvency or Zahlungsunfähigkeit; Sec 66, para 1 of the Austrian Insolvency Act)
• over-indebtedness (balance sheet insolvency or Überschuldung; Sec 67, para 1 of the Austrian Insolvency Act).

If either of these conditions is present, an insolvency petition must be filed by the legal representatives of a company or partnership (or in some cases the shareholders).

Creditors of a debtor may also file an insolvency petition if either of these insolvency reasons exist. In this application they must certify:

• the existence of a claim they have against the debtor, and
• the debtor’s material insolvency (i.e. illiquidity or over-indebtedness).

If the creditor does not certify this, the insolvency petition will be dismissed by the competent insolvency court.

3. What are the legal reasons for insolvency in your country?

Illiquidity/Cash Flow Insolvency

An entity is considered illiquid if it is unable to pay its debts as they fall due. Only monetary debts are relevant. Other obligations, in particular material, service or work performance obligations etc., are irrelevant (of course, the breach of such obligations may in turn give rise to monetary obligations (e.g. to pay damages or to compensate for unjust enrichment), which must then indeed be taken into account).  A temporary delay of payments, which will be resolved within a “reasonable period of time” (in case law 3 months is widely used as a reference), does, however, not constitute a state of illiquidity (some courts allow grace periods of up to 6 months under certain circumstances). Also, the mere threat of illiquidity does not amount to illiquidity until the entity is actually unable to pay its debts as they fall due.

Illiquidity is caused by a lack of readily available liquid assets. “Readily available” means of payment are primarily cash, bank money, open credit lines and items which, such as certain securities (e.g. cheques issued by third parties or bills of exchange accepted or otherwise signed by third parties), are normally accepted by creditors on account of payment. In addition, easily realisable assets (e.g. due and recoverable receivables, savings deposits, capital market securities, precious metals etc.), are also considered liquid assets because they could be turned into money at any time; so that non-payment of debts despite the existence of such assets does not constitute insolvency, rather unwillingness to pay.

Over-indebtedness/Balance Sheet Insolvency

The determination of whether an entity is over-indebted involves a two-stage test:

Firstly, an entity has to assess whether it is in a state of calculatory over-indebtedness (rechnerische Überschuldung), i.e. whether the liquidation value of its assets is exceeded by its liabilities. The negative equity (negatives Eigenkapital) reflected in the financial statements of a company only indicates whether a company is over-indebted on the basis of the book value of its assets (bilanzielle Überschuldung). In case of hidden reserves, over-indebtedness on the basis of a company’s book value does not necessarily mean that the company is calculatorily over-indebted, as liquidation values are to be used for this calculation.

The second prerequisite of over-indebtedness is that the company does not have a positive going concern prognosis (positive Fortbestehensprognose). This is the case if the going concern prognosis shows that the company will not (with a probability of over 50%) return to (and retain) a state of solvency (over the course of the next 6-9 months) and will not be able to achieve a sustainable turn-around in the long term. The prognosis has to be constantly reviewed and updated by the company’s management to ensure that it remains positive.

Over-indebtedness only constitutes a statutory reason for insolvency in the case of registered partnerships, in which no partner with unlimited liability is a natural person, companies and estates.

4. Which different types of insolvency proceedings exist and what are their characteristics?

Under the Austrian Insolvency Act, the following types of insolvency proceedings exist:

Restructuring proceedings under the Insolvency Act (Sanierungsverfahren)

Restructuring proceedings can take two different forms: with and without self-administration. While in the latter an insolvency administrator handles the proceedings and is, for the duration of the restructuring proceeding, the respective entity’s representative, in a proceeding with self-administration, representation powers generally remain with the managing directors. However, even in proceedings with self-administration an administrator (with less powers to act) will be appointed by the competent court, as the administrative and managerial powers of the managing director(s) of the insolvent entity are limited to typical transactions in the ordinary course of business. Any dealings falling out of this scope, or which are specifically listed as limitations in the Austrian Insolvency Act, require the consent of the appointed administrator. Also, the administrator retains a veto right with respect to any transactions envisaged by the insolvent entity (even if transactions in the ordinary course of business) in self-administration proceedings.

Key to the initiation of a restructuring proceeding is that the insolvent entity files for insolvency itself and (already in this filing) offers the creditors a restructuring plan (Sanierungsplan). If the proceedings shall be initiated with self-administration, the entity’s filings for insolvency must meet certain qualified standards (e.g. minimum quota to be offered to unsecured, non-subordinated creditors in this case is 30% vs. 20% in case of no self-administration).

The initiation of restructuring proceedings requires the managing director(s) of an entity to file for insolvency and present a restructuring plan (Sanierungsplan). These proceedings may already be opened if the illiquidity is only imminent (drohende Zahlungsunfähigkeit).

In the restructuring plan the debtor has to offer to pay within 2 years at least 20% (no self-administration) or 30% (self-administration) of all legitimate insolvency claims filed by creditors. The insolvency administrator must review the restructuring plan and the creditors have to agree to the plan (with a double majority of at least 50% by both headcount of creditors and value of claims represented at the court hearing, in which the plan is voted on). If the creditors do so and the court confirms the restructuring plan, the insolvency proceedings will be terminated.

If the debtor manages to fulfil the restructuring plan, it will not have to pay the outstanding balance (i.e. the amount exceeding the quota) of the claims to the creditors (haircut). If the creditors or court do not approve the restructuring plan or the debtor decides to rescind it or the court terminates the restructuring proceedings for another reason, bankruptcy proceedings (Konkursverfahren) will be initiated and the company will be liquidated (see below).

Bankruptcy proceedings under the Insolvency Act (Konkursverfahren)

Bankruptcy proceedings are similar to restructuring proceedings without self-administration in a way that the opening of such proceedings will have the same effect on the power of the managing director(s) of the debtor to run its company and undertake legal actions – i.e. an insolvency administrator will take over.

The administrator will also decide whether the business of the company will be continued or be shut down. The administrator will the liquidate the assets of the company (either by piecemeal liquidation or sale as a whole by way of a business (unit) sale) and distribute the proceeds to the creditors as insolvency quota (after the costs of the proceedings and other estate claims have been fully satisfied). After the distribution of the quota, the insolvency proceedings will be terminated by a decision of the court. In general, after the end of the insolvency proceedings the company will be fully wound up and deleted from the company register.

5. Are there different types of creditors and what is the significance of the differences between them?

Insolvency creditors (Insolvenzgläubiger) are creditors who, at the time of the opening of the insolvency proceedings, have a legal claim (insolvency claim) against the debtor. These creditors can participate in the insolvency proceedings by filing their claims with the insolvency court and will receive proportional satisfaction if the insolvency administrator accepts the filed claim or (in case the administrator does not accept the claim) the claim is accepted by court decision in a subsequent lawsuit initiated by the creditor to get the claim accepted.

Creditors of claims arising after the date on which the insolvency proceedings were opened (Massegläubiger) are generally to be satisfied in full from the insolvency estate when these claims become due and payable. If such claims cannot be satisfied in full (Masseinsuffizienz), Sec 47 of the Austrian Insolvency Act provides for an order of priority for their satisfaction. The insolvency administrator must disclose in the public insolvency database (Insolvenzdatei).

Preferred creditors exist:

• in respect of items that are part of the insolvency estate but are now owned by the debtor (e.g. retention of title or funds held on escrow), the owners of which can request the handover of such items from the insolvency administrator (Aussonderungsansprüche), and
• in relation to rights to preferential satisfaction from specific assets of the insolvency estate (e.g. mortgages, liens or other security interests) (Absonderungsrechte).

Pursuant to Sec 11, para. 2 of the Insolvency Act, the fulfilment of claims of such preferred creditors, which could endanger the restructuring of the company, can upon request by the administrator generally not be demanded prior to the expiry of 6 months after the opening of the insolvency proceedings, unless this would lead to significant adverse consequences for the respective preferred creditor.

Subordinated creditors only receive an insolvency quota payment, if the claims of all other (non-subordinated) creditors have been fully satisfied.

6. Is a solvent liquidation of the company an alternative to regular insolvency proceedings?

In the case that a company is materially insolvent (illiquid or over-indebted), the legal representatives of the company have a statutory obligation to file for insolvency with the competent insolvency court (no voluntary solvent liquidation is possible in this situation). If no material insolvency exists, the shareholders of a company may decide by shareholder resolution to voluntarily liquidate a company. 

1. If a lender wants to monitor the company very closely (i.e. more closely than the usual information covenants in the credit agreement require), what options are there?

The main legal basis for monitoring a borrower closely is the loan / credit agreement. A lender usually has no other right to demand information and / or monitor a borrower’s activities. Also, due to the legal considerations, lenders usually strive not to be involved actively in a borrower’s management (in order to avoid being qualified as “factual managing director”/ “shadow director”). It follows that it is rather unusual for the Austrian market that a monitor etc. would be installed in a corporate financing environment.

This may be different in a dedicated project financing transaction (e.g. a hotel or shopping center development and construction financing) where a project monitor is quite common - however, such monitor is not installed on an ad hoc basis only in distress situations but serves rather as a monitor of a specific construction project.

In a corporate environment, once a debtor indicates to a lender that a situation of distress may occur, additional information undertakings are often agreed as part of a larger restructuring package. Often, lenders are only willing to accept short- to mid-term standstill arrangement, if in turn the borrower agrees to additional covenants and / or e.g. the appointment of a financial advisor.

2. What issues arise if a creditor extends credit facilities or offers support conditional on additional or extended guarantees to a company in financial difficulties and/or takes asset security?

Lenders need to be aware that any form of new or additional security arrangements granted (for existing debt) in return for an extended loan term, would be subject to new clawback periods. Hence, should the restructuring fail and the borrower be insolvent after all, any new security granted to lenders could be subject to avoidance action.

In order to reduce clawback risks, any restructuring process proposed by the borrower and supported by lenders needs to be based on a sound restructuring plan. This means that lenders should assess ex ante whether the proposed restructuring by the borrower is objectively suited to turn-around the business. Lenders can instruct an expert to support them in preparing a restructuring plan, but in the end need to assess whether this plan is indeed sound (tauglich).

Such positive assessment of the restructuring proposal should also be the strict requirement for any fresh money arrangement. In addition, fresh money granted can be subject to security arrangements if the security is granted by the debtor step by step against the fresh money.

As mentioned above, lenders will want to involve themselves as little as possible into the operational restructuring as such, in order to avoid being qualified as “factual managing director”/ “shadow director”.

1. How does a lender sell a loan?

Receivables originating from non-performing (or performing) loans can be sold by assignment.

Receivables may be assigned by the originator to e.g. a securitisation special purpose entity (SSPE) or other acquirer without formal requirements. The debtors do not need to be notified of the assignment. In case of a security assignment (or pledge) rather than a true sale, perfection steps need to be taken. Either a notification of the debtors (Drittschuldnerverständigung) or a book entry in the assignor’s company accounts (Buchvermerk) is required. This may e.g. be relevant if the SSPE pledges or assigns for security purposes the purchased receivables as collateral to the Security Agent / Bond Trustee.

Notwithstanding the foregoing, if the debtor is not notified of the assignment, certain set-off rights and defences against the originator will survive the transfer to the SSPE (even in case of a true sale). This means that the debtor may continue pay to the originator with discharging effect and defences may also be raised against the SSPE. In practice, this is less of an issue because often the originator / seller remains the “face” vis-à-vis the customer and acts as servicer for the SSPE. In such cases, underlying bank accounts to which debtors are paying their debt are usually pledged in favour of the SSPE or the Security Agent / Bond Trustee.

Data protection in Austria is governed by Regulation (EU) 2016/679 (GDPR) and by the Austrian Data Protection Act (supplementing GDPR), which needs to be taken into account.

In addition, strict banking secrecy applies under Austrian law. Banking secrecy will only of a concern if customer identification is shared. Where data is anonymized, banking secrecy (as well as data protection) should be of no concern. All client banking data is protected, even the information that a certain person is a client of a bank. Banking secrecy is often a practical hurdle when selling loan receivables.

Unlike the GDPR, banking secrecy will also protect legal persons. Banking secrecy will apple to a securitisation special purpose entity (SSPE) by operation of the law. Any service provider acting for a SSPE in Austria (e.g., a servicer) will be bound by banking secrecy by law as well. Hence, the outsourcing provider / servicer will be directly subject to the sanctions of a breach of banking secrecy, including criminal liability.

While some scholars and practitioners accept that banking secrecy relevant data may be shared with SSPE, banks still often prefer to use data trustee structures, where the SSPE will only receive customer data in case of default of the servicer or debtor.

2. If the underlying credit agreement prohibits transfer or assignment (i.e. a change in the lender of record) how else (if at all) can a lender transfer the economic risk and/or benefit in the loan? For instance, are sub-participation agreements allowed under the law of your jurisdiction?

According to Austrian civil law, an agreement that a monetary claim may not be assigned between entrepreneurs arising from entrepreneurial transactions (prohibition of assignment) is only binding if it has been negotiated in detail and does not grossly disadvantage the creditor taking into account all circumstances of the case.

However, even such a prohibition of assignment shall not prevent an assignment from being effective; as soon as the assignment and the transferee have been made known to the debtor, the latter may no longer make payment to the transferor with debt-discharging effect, unless he is guilty only of slight negligence.

Rights of the debtor against the transferor due to the breach of a binding assignment prohibition shall remain unaffected, but they cannot be objected to against the claim. The transferee shall not be liable to the debtor solely because it was aware of the prohibition of assignment.

Alternatively, a sub-participation is also feasible. There are no restrictions on sub-participation agreements. If a true sale is prohibited by the credit agreement and the lender does not want to rely on § 1396a ABGB whereby the assignment as such would still be valid, (see above), the lender may enter into a sub-participation agreement with sub-participants (i.e. financial institutions) who take over the underlying risks.

3. Regulatory issues: is any form of licence or prior authorisation from any regulatory authority required for the purchase, sale and/or transfer of loans? Does it fall within the definition of providing banking or financial services in the territory of the assignor or the borrower?

Generally, the purchase of loan receivables, the assumption of the risk of non-payment associated with such receivables - with the exception of credit insurance - and the related collection of loan receivables (factoring) is a regulated banking business if carried out in Austria on a commercial basis. Should this be the case, a purchaser would be required to either hold a banking license under § 1 (1) no 16 of the Austrian Banking Act (Bankwesengesetz - BWG) or have passported its home Member State banking license into Austria under the Freedom of Services or Freedom of Establishment.

Whereas the text of the BWG might suggest that factoring without the assumption of credit risk’ would not be subject to licensing requirements, Austrian legal writing holds that licensing requirements will apply nonetheless.

There is an exemption in § 3 (5) BWG from licensing requirements for securitisation special purpose entities (SSPE; see Art 2(2) of Regulation (EU) 2017/2402, the "EU Securitisation Regulation").

In order for the exemption to apply, the business activities of such SSPE needs to be limited und must consist solely of:

• issuing debt securities or taking out loans;
• entering into hedges; and
• ancillary transactions

in each case for the purpose of (i) purchasing an originator’s exposure (as defined in Article 5(1) of Regulation (EU) 575/2013 ("CRR") (i.e., receivables) or (ii) assuming the risks associated with such exposure.

In this respect, the refinancing would need to be "securitisation" in accordance with the EU Securitisation Regulation. Such securitisation needs to have all of the following characteristics:

• payments in the transaction or scheme are dependent upon the performance of the exposure or of the pool of exposures;
• the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme; and
• the transaction or scheme does not create exposures which possess all of the characteristics listed in Article 147(8) of CRR.