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23 March 2020

Financing in times of crisis - Austrian Chapter

Find the full comprehensive Central and Eastern European overview of the practical legal implications to be considered in finance transactions in the context of the ongoing coronavirus pandemic (COVID19) here.


How can macroeconomic implications of a crisis, which are not specific to a certain borrower or lender (or a group of borrowers or lenders), affect financing transactions. Note: this CEE legal insight series is published in cooperation with LexisNexis in the context of the ongoing 2020 COVID19 pandemic and will be updated regularly as the situation evolves – for more information on the legal effects from COVID19 see .

1. Existing financings / utilized debt

Does debt documentation in your jurisdiction typically foresee termination rights for the lender upon the occurrence of a crisis? If so, are eg customary material adverse effect (MAC) provisions enforceable in such instance?

Yes, not only "LMA style" project documentation but also usual "in-house" loan agreements typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments. Moreover general terms and conditions (GTCs) of Austrian banks usually contain similar clauses targeting a deterioration of the condition of a borrower, borrower group or the value of the collateral granted.

However, the lender's rights under such MAC provisions are limited by law and such provisions could be invalid if not objectively justified. In particular, careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself. Additional statutory protection rules (content checks) apply and should be assessed if a MAC clause is foreseen under the GTCs of a lender only.

No specific statutory "force majeure" provisions exist and are typically not contractually foreseen that would entitle a borrower to prevent a MAC termination by a lender in case of a crisis.

Are there statutory rights to terminate a financing contract in such instance?

Austrian law further provides for - to a certain extent mandatory - extraordinary termination rights in respect to loan agreements (Art. 987 Austrian Civil Code) in case maintaining the credit relationship would be unbearable for important cause (aus wichtigen Gründen unzumutbar) for a party . This relatively new law introduced as a consequence of the last financial crisis is so far relatively untested. Thus, careful legal assessment is recommended in case an extraordinary termination would be based on the occurrence of a crisis only.

Can the economic terms of a loan be changed unilaterally due to the occurrence of a crisis?

In principal yes, GTCs of the Austrian lending community often foresee the right to adjust margins or to request the granting of additional collateral in case of a material deterioration of the financial condition of a borrower or its assets or a significant decrease of the value of the collateral granted (eg substantial deterioration of stocks held by a borrower). Again, such GTCs may be subject to legal limitations (see above).

Is there a statutory moratorium of creditors' claims or a freeze in covenants (eg if a borrower's business is closed by the authorities due to a crisis)?

Generally no. Austrian law does not per se foresee statutory "force majeure" events that protect a borrower form failing to meet its payment obligations or to comply with financial covenants due to a crisis.

Are borrowers obliged to treat all creditor classes equally (eg with respect to interest payments etc) during a crisis?

Generally no. Under Austrian law there is no statutory general obligation to treat all creditor classes equally outside insolvency (unless otherwise agreed contractually).

However, in case a debtor is (about to become) insolvent in terms of Austrian insolvency law (i.e. illiquid or over-indebted), to avoid any adverse consequences (e.g. claw-back claims in case of subsequent insolvency proceedings, liability of management) it must be carefully assessed in each individual case whether payments to any creditor are admissible or not.

Once Austrian insolvency proceedings are opened, the principle of equal treatment of creditors applies and there is a specific classification of claims (e.g. insolvency claims, secured claims, subordinated claims, right to separate segregation) that needs to be respected. Further, the successful completion of out-of-court restructurings (on a contractual basis with the consent of all creditors concerned) usually requires that all creditor classes are treated equally.

2. New financings / committed debt

Can a lender impose a draw-stop (ie refrain from making available funds under a committed facility, revolving credit line, overdraft or similar financing instrument) on the occurrence of a crisis?

Contractually, loan documents usually stipulate the non-existence of a termination event (EoD) as a requirement for utilizations. Thus, utilizations may be refused based on the occurrence of a MAC (see details above). Further, contractual "market flex" conditions are also often foreseen in binding commitments by domestic banks.

Moreover, Austrian law (Art. 991 Austrian Civil Code) entitles a lender to refuse payouts if, after the conclusion of a loan agreement, circumstances arise which result in a deterioration of the financial condition of a borrower or respective collateral provided that such event endangers the repayment of the loan or the payment of interest (also taking into consideration potential enforcement proceeds form collateral). It is the same for Art. 987 (termination of a loan – see above), Art. 991 was passed in the context of the last financial crisis and is thus so far relatively untested.

It is advisable to carefully assess whether the requirements for Art. 991 are met in a given crisis. Further, it is recommendable to contractually address, specify or exclude the application of Art. 991 (which is not mandatory law) when entering into a new financing or amending existing financing as a consequence of a crisis.

Will contractual "no financial indebtedness" or negative pledge undertakings apply in respect to rescue financing provided by governmental or public funds made available for crisis prevention?

Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. Austrian law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.

In the context of the COVID 2020 crisis, the currently envisaged emergency package – as it currently stands - does not contain a statutory override of no-financial indebtedness or negative pledge covenants. Companies must perform a thorough due diligence on existing debt documents prior to obtaining governmental rescue finance.

3. Update COVID19 – jurisdiction specific impact on debt contracts:

  • The ECB has announced various measures to allow and encourage the provision of liquidity to the real economy by its supervised bank and, to the extent possible, avoid regulatory constraints on lending. Those measures currently include that banks can fully use capital and liquidity buffers, enjoy temporary relief from Pillar 2 Guidance (economic capital of the banks as ECB expects each bank to meet) and liquidity coverage ratio and have more flexibility to fulfill (mandatory) Pillar 2 Requirements. Regulators may, within the framework of ECB's guidance, also exercise more flexibility in respect of non-performing loans (see Additional measures (such as additional EUR 750 billion liquidity by a new asset purchase program) will follow.
  • Liquidity support for companies by the Republic of Austria, in particular under a special COVID-19 act (currently up to EUR 38billion - see Austrian federal ministry: Additional measures are envisaged under the COVID-19 II act, which will foresee financial support particularly for small and medium enterprises (eg. one-person enterprises, freelancers and non-profit organisations).
  • ABBAG (the State-entity that was also instrumental in the financial crisis) entrusted with implementing the emergency funding package put in place by the Republic of Austria.
  • No statutory moratorium for loans or similar debt instrument currently enacted.
  • Legislator clarifies that insolvency filing period is extended to 120 days also in case of pandemic (we think the 120 days already apply based on existing law but clarification is welcome).
  • FMA has issued a regulation prohibiting short selling in certain financial instruments that are listed on the Vienna Stock Exchange .
  • For more detailed information see

Updated 23 March 2020