COVID-19: Finance update – 3rd, 4th and 5th COVID-19 Act
04/06/2020 - Reading time: 6 minutes
In the context of the COVID-19 pandemic, the Austrian Parliament adopted the 3rd, 4th and 5th COVID-19 Act on 3.4.2020. Some points from these laws are also of particular relevance for financing practice.
Postponement of the due date for payments on loan agreements for consumer credits and credit agreements with micro-enterprises
For consumer loan agreements concluded before 15 March 2020, claims by the lender for repayment, interest or amortization payments made between 1 April 2020 and 30 June 2020 shall be deferred for a period of three months from the due date if, as a result of the exceptional circumstances caused by COVID 19 pandemic, the consumer suffers a loss of income which makes it unreasonable to expect him to provide the service owed, the criterion of reasonableness being based in particular on the possibility of maintenance of his own means of subsistence and that of his dependants. The act further clarifies that the borrower is not in default during this three-month period. In return, the deadline for the use of collateral was also extended by a three-month period.
Terminations due to default of payment or significant deterioration of the consumer’s financial situation are excluded within such three-month period. This provision may not be waived by mutual consent, but other deviating provisions by mutual consent (e.g. partial performance, interest and repayment adjustments or debt restructuring) are permissible.
According to Article 37 4 COVID-19 Act (Section 2 para 5 et seq.), the creditor “shall” offer to the consumer a discussion about the possibility of an amicable settlement and about possible support measures, whereby the use of means of distance communication is also expressly permissible. If no amicable settlement is reached for the period after 30 June 2020, the term of the contract is extended by a further three months period, whereby the mutual obligations are postponed by this period.
The above rules apply not only to consumer credit agreements but also to credit agreements with micro enterprises (Kleinstunternehmen) (in the meaning of Article 2 para 3 of the Annex to Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises, Official Journal of 20 May 2003, L 124/39) if the credit agreement was concluded before 15 March 2020 and the enterprise is unable to provide the services due to circumstances arising from the COVID 19 pandemic or if the enterprise would not be able to provide the services without jeopardizing the economic basis of its business.
Facilitation of transactions, meetings and resolutions subject to certain formal requirements
Formal measures have a considerable room for application in the context of financing transactions; this applies in particular to the area of formal collateralization or other measures such as registration or reorganization measures, which are regularly conditions precedent or resolutory conditions in financing transactions. The 4th COVID-19 Act provides considerable temporary relief in this respect.
Pursuant to the new Section 90a of the Federal Austrian Notarial Code (Notariatsordnung - NO) (see Article 34 4. COVID-19 Act), if a legal transaction, a declaration or a legally relevant fact requires for its effectiveness the form of a notarial deed or another public or publicly notarized deed, then, in order to prevent the dissemination of COVID-19, the official notarial acts required for the drawing up of the necessary documents may also be carried out using an electronic means of communication (Article 69b NO), applying Article 69b para 2 and 3 and Article 79 para 9 NO mutatis mutandis. Comparable simplifications were previously essentially only applicable to the formation of a one-man GmbH.
With the same intention by Article 35 of the 4th COVID-19 Act i Section 1 of the COVID-19 Act on Company Law is amended accordingly, according to which, in order to prevent the dissemination of COVID-19, meetings of shareholders and board members of a corporation, a partnership, a cooperative, a private foundation, an association, a mutual insurance association, a small insurance association or a savings bank, may be held and decisions taken without the physical presence of the participants. The Federal Minister of Justice is authorized to specify by ordinance which communication channels are permissible for meetings and resolutions in order to ensure the highest possible quality of legal certainty in the decision-making process.
Impact on current and future financing
The COVID-19 laws of the Austrian Federal Government have a considerable impact on current and future financing, particularly with regard to the direct or indirect use of the funds and the agreed resources for servicing the loans. For many sectors of the economy, the law provides for standstill, moratoria or deferrals for a period of essentially until 1 June 2020. An outline of all these changes would go beyond the scope of this overview, therefore, the following will focus on an overview of individual legal measures that are, inter alia, of importance in the context of financing agreements:
|Exclusion of contractual penalties||Contractual penalties agreed before 1 April 2020 are not applicable insofar as – as a consequence of the COVID 19 pandemic – the obligated party is either considerably impaired in its economic performance or cannot perform the service due to restrictions on working life (Article 37 § 4 4th COVID 19 Act); whether individual provisions in financing documentation are to be qualified as contractual penalties will therefore have to be examined in further detail.|
|Extension of the obligation to file for in-solvency in case of (mere) over-indebtedness||In case of over-indebtedness occurring after the 4th COVID-19 Act has come into force (but not in case of insolvency), there is no obligation to file for insolvency until 30 June 2020 (Article 37 § 9 4th COVID-19 Act). If only over-indebtedness is present but not insolvency, proceedings are not to be initiated at the request of creditors. Default and covenant clauses in financing agreements often refer to the obligation to file for insolvency or to an insolvency status; an examination of the effect of this change in the law with regard to these clauses will therefore be necessary.|
|Exception for loans from the application of the Equity Substitution Act||A loan does not qualify as a loan within the meaning of Article 1 of the Equity Substitution Act (Eigenkapitalersatzgesetz - EKEG) if a monetary loan is granted and disbursed for no more than 120 days after the entry into force of the 4th COVID-19 Act and no later than the end of 30 June 2020, provided that the company has not provided a pledge or comparable security out of its assets for such loan (Article 37 Article 13 4th COVID-19 Act). This change in the law thus creates, among other things, greater scope for co-financing.|
|Exemption from dues for hypothec registrations until 1 July 2020|
Hypothec registrations (in the land books) to secure loans taken out exclusively to mitigate the solvency and bridge liquidity problems of companies in connection with the COVID 19 pandemic and the economic effects caused thereby are exempted from dues, provided that the application for registration has been received by the court before 1 July 2020. The exemption also applies to hypothec registrations applied for before the entry into force of this provision (Article 37 § 16 4. COVID-19 Act).