The first part of the article deals with various legal issues that may become relevant for financings in connection with measures to limit the spread of Covid 19. The second part sets out links to current public subsidy offers.
Information is of a general nature and, therefore, cannot replace specific advice in individual cases. Only the legal position of an entrepreneur but no specifics for consumers are addressed.
1.1. Can my bank stop and deny a utilization of overdraft, current account, revolving or other facilities?
Both in the area of facilities based on the general terms and conditions as well as individually negotiated agreements a lender may successfully deny utilization, depending on how affected a borrower is by the current situation and its general financial condition.
According to section 991 of the Austrian General Civil Code (Allgemeines Bürgerliches Gesetzbuch – ABGB), a lender may refuse to disburse a loan if after signing circumstances arise which deteriorate the borrower's financial condition or reduce the value of collateral provided to such an extent that the repayment of the loan or the payment of interest is jeopardized even in case of a realization of the collateral. Number 26 of the general terms and conditions of credit institutions (Allgemeine Geschäftsbedingungen für Kreditinstitute – General Terms and Conditions) includes a parallel provision.
Under individually negotiated large facilities, which in Europe are typically based on recommendations of the Loan Market Association (LMA), lenders are only obliged to comply with a utilization request if there is no default and the repeating representations are true in all material respects. This typically includes a representation that there has been no material adverse effect, which usually includes (the wording is typically individually negotiated and therefore varies materially) that there has been a material adverse effect on the business, assets, operations or financial condition of the borrower.
1.2. Can my bank change the terms of a facility?
In respect of facilities subject to the General Terms and Conditions, credit institutions have a right to amend: In dealings with entrepreneurs, the credit institution may in its discretion change fees agreed upon that the credit institution or the customer must pay (including debit and credit interest for current and other bank accounts, account maintenance fees, etc.), taking into consideration all conceivable circumstances (including a change to the basic statutory conditions, changes on the money and capital market, changes in refinancing costs, changes to personnel and material expenditures, changes in the consumer price index, etc.) (No. 43). Furthermore, if circumstances subsequently occur or become known that justify an increased risk assessment of the claims against the customer, the credit institution is entitled to demand that collateral be granted or enhanced by a reasonable deadline. This is particularly the case where the customer’s financial condition has deteriorated or is at risk of deterioration or the existing collateral has become impaired or is at risk of becoming impaired (No. 47/48).
Individually negotiated agreements usually do not provide for any right of the lender to change the terms (in particular, the applicable margin or a right to demand further collateral). Generally, this applies as long as the borrower complies with all representations and undertakings. A breach of representations and/or undertakings usually comprises an event of default and thus, gives the lender a termination right and lenders often waive such termination right only if the borrower agrees to changes of the terms.
1.3. Can my bank terminate a loan agreement?
Pursuant to section 986 para 2 ABGB, a loan agreement concluded for an indefinite period of time (this includes not only loan agreements but also overdraft facilities or current account lines "until further notice") may be terminated by any party (therefore, both the bank and the customer) subject to a one-month notice period. The General Terms and Conditions (No. 23) repeat such provision.
A loan agreement concluded for a specified period of time terminates upon its expiry (no possibility of "ordinary" termination, unless agreed).
Each party (therefore, both the borrower and the lender) may terminate a loan agreement at any time without notice if maintaining the agreement is unbearable for important cause. According to the General Terms and Conditions (No. 24), important cause entitling a bank to terminate a loan agreement with immediate effect exists if, in particular:
- the financial circumstances of the customer or a co-obligor (such as a guarantor, surety or collateral provider) deteriorate or are at risk, thereby jeopardizing performance of the obligations to the credit institution;
- the customer has provided incorrect information in material aspects regarding significant parts of its financial circumstances (assets and liabilities) or other material circumstances and the bank would not have entered into the agreement if it had known the true financial circumstances or circumstances; or
- the customer has not fulfilled or is unable to fulfil an obligation to provide or increase collateral and there is therefore a considerably increased risk that the customer will not be able to meet its payment obligations. Such a considerably increased risk is particularly given in case of imminent or already actual inability to pay debts due.
In particular, the first and third point may become relevant in the current crisis situation if the economic situation of a borrower deteriorates.
2. Support schemes offered by the public sector
According to the Austrian COVID19 Act, financial support is to be handled by the federal government's "Abbaubeteiligungsaktiengesellschaft des Bundes" (ABBAG), which was founded in 2008 as part of the financial crisis.
On 15.3.2020, the Austrian parliament passed an amendment to the Act on the Establishment of a Federal Workout Company (ABBAG Act). The business purpose of ABBAG is expanded to include the rendering of services and the taking of financial measures in favor of companies (which have their registered office or a permanent establishment in Austria and carry out their main operational activities in Austria), which are necessary to maintain the solvency and to bridge liquidity difficulties of these companies in connection with the spread of the SARS-CoV-2 pathogen and the economic effects caused by it.
The Federal Minister of Finance shall, in compliance with the requirements under EU laws on state aid, issue regulations including guidelines, in particular defining the group of beneficiary companies, the form and purpose of the financial measures, the amount of financial measures and the duration of financial measures. Such regulations of the Federal Minister of Finance have yet to be issued.
The government must provide ABBAG with the necessary financial resources. No person has a legal entitlement to receive financial support. In processing applications, ABBAG may use a service provider (such as Oesterreichische Kontrollbank Aktiengesellschaft, which also processes applications under the Export Promotion Act for the Republic of Austria).
2.2. Other bridge financing or support
In the following a non-exhaustive and selective list of information:
- There is the possibility for commercial and industrial SMEs (not companies in the tourism and leisure business) to make use of a bridge guarantee of the austria wirtschaftsservice in connection with the "coronavirus crisis".
- For SMEs in the tourism and leisure business, there is the possibility of obtaining a federal guarantee of 80% for bridge financing with a term of 36 months.
- Lower Austrian SMEs in the commercial and tourism business have the possibility to obtain a 80% guarantee to secure a new working capital loan of up to EUR 500,000.