AUSTRIA Law and Practice

Contributed by: Markus Fellner, Florian Kranebitter and Florian Henöckl, Fellner Wratzfeld & Partners

1. Structurally Embedded Laws of General Application

1.1 Insolvency Laws

Austrian insolvency law affects securitisations in different ways depending on whether there is a true sale transaction of receivables or a secured loan transaction.

In a true sale transaction of receivables, the legal and economical ownership of assets, including the credit risk, is legally transferred to the special purpose entity (SPE), while the originator receives the corresponding amount of funds. Therefore, the sale and transfer of receivables enables not only the increase of liquidity, but also the distribution and reallocation of credit risk. Under Austrian civil law, such transaction requires an agreement (title) between the originator (as seller) and the SPE (as buyer) as well as an act of transfer (modus) in order to be valid.

The true sale transaction of receivables is considered to be insolvency-remote, because in the event of the originator’s insolvency, the acquired receivables are not part of the originator’s insolvency estate and are therefore not accessible to the originator’s creditors. Instead, the SPE’s right of ownership over the acquired receivables triggers a right of segregation (Aussonderungsrecht), which ensures that the receivables do not fall into the originator’s insolvency estate. Notwithstanding this right of segregation, the agreement (title) or the act of transfer (modus) may be avoidable in an insolvency of the originator. In order to prevent claims for avoidance, it is particularly necessary for receivables to be assigned at a fair market value.

A transaction may be categorised as a secured loan transaction if the SPE receives claims for granting a loan to the originator and the SPE considers these receivables as collateral. In such case, the SPE has a right to separate satisfaction in the case of the originator’s insolvency (Absonderungsrecht). The right to separate satisfaction is only legally valid if the debtor has been notified of the assignment of the receivables or a book entry in the obligor’s company ledger for the effectiveness of the security assignment has been made prior to the opening of insolvency proceedings (modus). In the case of a secured credit transaction, similar to a true sale transaction, the creation of the security may be subject to avoidance in a later insolvency of the originator.

Besides the significant consequences in the event of the originator’s insolvency, securitisation is a useful instrument for reaching certain economic objectives and – more precisely – for balance sheet management by reason of its flexibility as a financial product. The use of financial means that were received in the course of the transaction in order to repay liabilities leads to a balance sheet contraction at the level of the SPE. Thus, the balance sheet figures can be actively improved. The interposition of an additional entity also broadens the originator’s access to new investors, as their decision about potential investments is mainly dependent on debt securities ratings.

Segregation and Separation Rights

The fulfilment of segregation rights and separation rights may be subject to a six-month deferment, mandated by the insolvency administrator after the commencement of insolvency proceedings, if the business continuity of the originator might be at risk. During such deferment period, the SPE – which has an ownership interest or is entitled to separate satisfaction – cannot request the fulfilment of its claims. This provision may only be disregarded if the enforcement is vital