Corporate financing in times of crises

Financing by shareholders and within the group is often the simplest or last option to ensure the survival of the company in case of financial difficulties. Thereby, it is important to avoid the liability of the parent company and the management and to avoid criminal consequences.

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Several recent court decisions deal with shareholder and group loans in times of crisis. Even though shareholders are free to decide whether and when to finance the company, the risk of failure of a restructuring must not be passed on to the company’s other creditors in the event of financial difficulties. Therefore, s. 14 of the Austrian Equity Replacement Act (Eigenkapitalersatzgesetz (EKEG)) provides for a mandatory repayment stop for loans from shareholders with a controlling or at least 25% stake until the company has been successfully restructured. These loans are also subordinated in the event of insolvency (s 57a(1) Austrian Insolvency Code (Insolvenzordnung (IO)).

The EKEG thus stipulates that a loan is re-qualified as equity if the granting of the loan replaces a capital increase that would have been necessary and, thereby, creating the risk of a delay in filing for insolvency.

Recently, the Austrian Supreme Court (Oberster Gerichtshof (OGH)) had to decide on the repayment of loans granted during a crisis, in particular on the subsequent liability within the group and on the repayment to subsequent shareholders. The guidelines developed in case law should be observed in corporate financing.

The repayment of shareholder loans can be a criminal offence

In a criminal case the OGH (12 Os 42/19x) dealt with the repayment of a loan granted by a future shareholder in crisis. In that case, the lender’s acquisition of the shares in the borrower had already been specifically planned and recorded in writing (although not in the legally required form) at the time when the loan was granted. The loan was granted prior to a composition procedure of the borrower was finally concluded. The Supreme Court judged the repayment to be a violation of the repayment stop which also includes future shareholders, provided that the acquisition of shares was already certain when the loan was granted. Although there is an exception to the EKEG in the case of an acquisition of shares for restructuring purposes (s. 13 EKEG) which, however, would have required that a suitable restructuring plan existed at the time of granting the loan and the loan served the restructuring. Ultimately, repayment led to the insolvency of the borrower and thus to corresponding damages to other creditors. This was considered as a grossly negligent impairment of creditors’ interests, which is punishable by imprisonment of up to 5 or 10 years according to s. 156 of the Austrian Criminal Code (Strafgesetzbuch (StGB)).

At the time of repayment the lender was already the de facto-managing director of the borrower and has prompted the formal managing director to make the repayment. Such de facto-managing director is someone who – without having been formally appointed – exerts significant influence on the management of the company. Consequently, the lender as de facto-managing director was an offender in the grossly negligent impairment of creditor interests and was convicted for such criminal offence.

Repayment before acquisition of shares does not violate the mandatory repayment stop

In another case, the lender (an investment company of an existing 20%-shareholder of the borrower) was seeking to acquire a 25% share in the borrower, however, agreement on the acquisition was only reached after the loan was repaid.

Shareholders with a controlling or at least 25% shareholding have a “responsibility to finance“, which – in the view of the Supreme Court (17 Ob 1/20a) – must already exist when the loan is granted. Therefore; the acquisition of a share of at least 25% in the borrower must already be certain at the time of granting the loan. In this case it was not enough that the acquisition was discussed with some shareholders, but there was no agreement on the concrete implementation of the share transfer and the size of the share.

According to s. 9 EKEG, the repayment stop also applies if the lender is not itself a shareholder of the borrower, but the lending is based on the instructions of a common shareholder. In order for this to be the case, the common shareholder giving the instructions must (i) have a controlling direct or indirect stake in the lender and (ii) be a shareholder of the borrower as defined by the ECEG. The shareholdings of several shareholders of the borrower can also be added together if the loan is granted on the basis of their concerted behaviour (s. 6 EKEG).

In this case, however, none of the possible cases was present, so that repayment was not prohibited. The Supreme Court stated: “The repayment stop of s. 14 EKEG basically requires that the lender is a shareholder of the borrower at the time the loan is granted and is therefore responsible for its financing. Exceptionally, it may be sufficient if the granting of the loan is directly related to an – albeit not yet formally valid – agreed participation in the borrower. The granting of a loan only with regard to a mere possible acquisition of shares, on the other hand, does not yet lead to the application of the EKEG“.

Group financing – payment obligation of the group parent company

In another case, the Supreme Court (6Ob154/19v) dealt with the applicability of the repayment stop to group financing (s. 9 EKEG). In the Alpine Group, which was acquired by the Spanish FCC Group in 2006, Alpine Holding granted several loans to a second-tier subsidiary (Alpine Bau) between 2010 and 2012, in which it indirectly held a stake of over 75%. Both companies went bankrupt in 2013. In the bankruptcy of the borrower, the claim of the lender was not recognized due to the repayment stop of the EKEG. Therefore, the lender demanded repayment of the loan from its majority shareholder based on a reimbursement claim pursuant to s. 9(1) 2nd sentence of the EKEG.

9 (1) 1st sentence of the EKEG treats the granting of a loan between group companies which is made “on the instructions” of a common shareholder as if it had been granted by the borrower’s parent company. Since the loan cannot then be reclaimed due to the repayment stop, s. 9(1) 2nd sentence of the EKEG grants the lender “a claim for reimbursement of the loan amount” against the group company issuing the instruction.

For the first time, the OGH was able to decide whether a claim for reimbursement exists without explicit instructions from the shareholder and s. 9 EKEG also covers down-stream loans (and not just side-stream loans) in the group which exceeds the express wording of law. The Supreme Court decided both affirmative.

9 EKEG covers down-stream loans within a group, so that the claim for reimbursement may be justified even if a vertical loan is granted.

A loan of another group company subject to s. 9 EKEG typically also constitutes a prohibited repayment of equity because the lender “is burdened by the repayment stop and the high risk of default without any advantage being attached to it“. However, for a claim for reimbursement the prerequisites of a prohibited repayment of equity do not have to be fulfilled. Consequently, s. 9 EKEG also applies if the lender act in its own interest when financing a subsidiary.

The claim for reimbursement does not require any express instructions from a group company. It is sufficient for the parent company to make a recognizably external statement of intent to the lending subsidiary that limits its scope of action. For that, any intended and actual influence on the lender’s scope of action is sufficient. A mere approval of the granting of credit, however, would not be sufficient.

If the majority of the lender’s executive bodies are persons who are also represented in the executive bodies of the company giving the instruction, the requirements for the instruction are reduced. This also applies if the person represented on both bodies (i.e., who has a “dual role”) can de facto restrict the decision-making authority of the other members of the lender’s management (e.g., due to a division of responsibilities).


Many companies get into financial difficulties during the Covid-19 crisis, but due to s. 9(1) of the 2nd Covid-19-Justice Accompanying Act (2. Covid-19-Justitzbegleitgesetz ((2. Covid-19-JuBG)) they do not have to file for bankruptcy until January 31, 2021 in case of over-indebtedness. Also, the liability of the executive board (Vorstand) was also excluded by law (s. 9(4) 2. Covid-19-JuBG). For serious reorganization efforts, a deadline for filing for insolvency, which has been doubled to 120 days, is now also available during pandemics pursuant to s. 69(2a) IO.

However, if a company is arithmetically over-indebted and without a positive prognosis for its continued existence, the EKEG applies. In this context also s. 13 of the 2nd Covid-19-JuBG may help, which provides that the EKEG does not apply to loans granted for no more than 120 days and disbursed until 31 January 2021, if the company has not provided any collateral. However, it is unclear whether bank loans with collateral provided by shareholders are also excluded from the EKEG.

This exception does not apply to other loans, especially if they are granted for more than 120 days. Financing and repayments must then be in conformity with the EKEG in order to avoid criminal consequences and liability of group parent companies and managing directors.

In addition, other legal obligations in the event of economic difficulties must be observed, such as the obligation to file for insolvency in the event of inability to pay, special reporting of the executive board of a stock corporation to the chairman of the supervisory board, convening of a general meeting in the event of the loss of half of the share capital of a GmbH or a stock corporation, etc.