I- Banking Activities in Austria
1- FMA Licensing Process
Pursuant to Article 4 §1 of the BWG (Banking Act), a license is required from the FMA in order to carry out the banking transactions listed in Article 1 §1 of the BWG. A formal application for a license must be submitted to the FMA, accompanied by all of the documents required by law.
The hearing process is conducted in parallel to the investigation process. This involves giving the Federal Ministry of Finance (BMF), the Oesterreichische Nationalbank (OeNB) and relevant deposit guarantee institutions the opportunity to give their opinion. Finally, the documentary evidence presented is considered in full and a decision made on whether to award a license, possibly subject to requirements and conditions. The decision on whether to award or refuse a license is made known to the applicant in the form of an administrative decision. In the Austrian Federal Banking Act, Section II, article 4 lists the requirements that need to be met in order to obtain a license to operate in Austria.
2- Fit and Proper analysis.
In context of the administrative procedure for granting a license the FMA has to assess the director's professional qualifications and experience necessary for operating the credit institution ("fit & proper"). In this connection and according to Article 5§ 1 Austrian Banking Act the license is to be issued if inter alia:
"The directors find themselves in an orderly economic situation and no facts are known which would raise doubts as to their personal reliability as required for conducting transactions pursuant to Article 1§ 1; if such facts are known, then the license may only be issued if the doubts are proven to be unfounded; on the basis of their prior education, the directors possess the professional qualifications and experience necessary for operating the credit institution. The professional qualifications of the directors require that they possess sufficient theoretical and practical knowledge of the transactions applied for pursuant to Article 1 § 1 as well as management experience;
professional qualification for the management of a credit institution is to be assumed if the directors have carried out management activities in a company of comparable size and business type for at least three years; with regard to a director of a credit institution who is not an Austrian citizen, no reasons for exclusion as specified in nos. 6, 7, 8 or 13 exist in the director's country of citizenship; this must be confirmed by the banking supervisor in the director's home country; however, if such a confirmation cannot be obtained, the director in question must provide credible evidence of this, certify the absence of the named reasons for exclusion and submit a declaration stating whether any of the named reasons for exclusion exist""
3- Banking activities and foreign shareholders
The acquisition of a material shareholding in a banking or insurance business requires advance notification to and an approval by the relevant regulatory authority.
There might be information/consent requirements depending on the assets to be transferred or structure of the transaction. Amongst others, a notification of the FMA is required in case that a person or group of persons which is not an Austrian credit institution intends to acquire or dispose of its (direct or indirect) shareholding in an Austrian credit institution and the limits of 10% (qualifying participation), 20%, 33% or 50% of the voting rights or capital of the credit institution are reached, exceeded or fallen below.
3.1 Licenses and Shareholders
Pursuant to Article 4 of the Banking Act, the FMA will require the applicant to provide the identity of and the amount contributed by owners who possess a qualifying participation in the credit institution, an indication of the group structure if those owners belong to a group of companies, as well as the information required for the purpose of assessing the reliability of the owners, the legal representatives and any of the owners' personally liable members;
The FMA may be required to obtain comments from the authority of the country of origin (equivalent of the FMA) in reviewing the suitability of the persons who possess qualifying participations. (Article 4)
The FMA will verify if the persons who hold qualifying participations in the credit institution meet the requirements stipulated in the interest of sound and prudent management of the credit institution, and no facts are known which would raise doubts as to the personal reliability of those persons; if such facts are known, then the license may only be issued if the doubts are proven to be unfounded. (Article 5)
3.2 Qualifying participation shareholders rules provided by the federal banking act.
Parties who intend to hold qualifying participation in a credit institution need to notify the FMA. Qualifying participation is defined in the Federal banking Act as: "Qualifying participation: a direct or indirect participation which represents 10% or more of the capital or voting rights in an undertaking, or which makes it possible to exercise significant influence over the management of that undertaking" (article 2).
Article 20. 1. Any party who intends to hold a qualifying participation in a credit institution directly or indirectly must first notify the FMA in writing accordingly with an indication of the amount of the participation. This does not apply to cases in which the qualifying participation is to be held through a credit institution which is subject to the approval requirement pursuant to Article 21§ 1 no. 2. (in this specific case, a special approval of the FMA is needed). 2. Any party who intends to increase a qualifying participation in a credit institution in such a way that the limits of 20%, 33% or 50% of the voting rights or capital are reached or exceeded, or in such a way that the credit institution becomes a subsidiary undertaking of that party, must first notify the FMA in writing accordingly.
Article 99 provides for fines if those notifications are not complied with.
The FMA may require information regarding the acquisition of shares in a credit institution. The FMA may require inter alia information from the competent authorities of third countries which is necessary for the supervision of parent undertakings which are incorporated in those third countries and which have as a subsidiary a credit institution or financial institution situated in Austria or hold participations in such institutions. (Article 77a)
In the context of administrative assistance the FMA can ask competent authorities in other third countries where cooperation is necessary in the interest of Austrian banking supervision and is in line with international standards. The FMA is entitled to the conventional and automated collection and processing of data as specified in the Federal Act Concerning the Protection of Personal Data 2000 where this is within the FMA's area of responsibility pursuant to the Banking Act federal and it includes qualifying participation pursuant to article 29 (article 77 (4)).
II-Forfaiting/Factoring
1- Definition
Forfaiting: Forfaiting consists in purchasing receivables from exporters by a forfaiter. The forfaiter is usually a bank and it takes all the risks related to the receivables (non payment by the debtor), and takes a commission on it. This system is for long-term receivables.
Factoring: A financial Institution, usually a bank, buys the account receivable of a company and pay up to 80% of the amount. The remaining amount when the customer pays the debt. This system is used for short-term receivables.
2-Relevant Legislation in Austria
The relevant article regarding this type of activity can be found in the Austrian Banking Act. Article 1 (16) provides specifies that "Credit Institutions" are allowed to carry out and comprises certain activities such as: "The purchase of trade receivables, assumption of the risk of non-payment associated with such receivables " with the exception of credit insurance " and the related collection of trade receivables (factoring business); »
Forfaiting is not expressly mentioned in this article, however this mechanism is very close to factoring and is a transfer/trade of receivables. It is covered by a more general term: Assignment and/or Transfer of receivables.
Pursuant to the Austrian Civil Code (ABGB) s.1392, an assignment is, "the transfer of a receivable from the current creditor to a new creditor which does not affect its terms". A valid assignment does not require the notification, let alone the consent of the debtor because it does not have any impact on the terms of the receivable and can therefore not result in disadvantages to the debtor.
The acquisition of receivables from the delivery of goods or provision of services and the assumption of the risk of the collectability of such receivables and in connection therewith the collection of such receivables is a banking business with the meaning of the Banking Act (Bankwesengesetz) for which a banking license is required.
-The EU Legal Studies of Legal Environments Across Europe[1]provides a general overview of receivable trade in Austria (see the information below):
According to Sec 1 Para 1 No 16 Austrian Banking Act the purchase of account receivables arising from delivery of goods or rendering of services, assumption of the credit risk on such claims - exempt credit insurance - and, in connection therewith, the collection of such receivables (factoring business) is exclusively restricted to so-called credit institutions.
A credit institution is an institution authorized to perform banking activities pursuant to Sec 4 or Sec 103 No 5 of the federal statute or pursuant to special federal statutory provisions. Pursuant Sec 4 para 1[2] a license from the Financial Market Authority (FMA) shall be required for performing such businesses. Whereas factors of other countries of the EWR (EU Internal Market) are allowed to transact business in Austria without any license form the FMA if they comply with their national regulations and fulfill certain criteria listed in Sec 11[3] of the Austria Banking Act.
Under Austrian laws the assignment of receivables is governed by the provisions Sec 1392 et sqq Austrian Civil Code. These provisions cover the conveyance of assets (assignment). In relation to securitized debts and the transfer by way of securitization the provision Sec 427 Austrian Civil Code is of importance. It governs the conveyance by means of signs ("Zeichen") as well as the provisions on publication governed by Sec 452 Austrian Civil Code.
The assignment contract can be concluded informally. The written form is not required for its validity. Generally the assignment does not require any particular deed of conveyance provided that they are not securitized. In case the receivables are securitized ("verbrieft") and the enforcement is dependant on the possession of the deed, this deed has to be handed over. Only if the assignment concerns receivables that are null and void due to a preliminary defect (dispute), the requirement of a mode ("Modus") pursuant to Sec 427 Austrian Civil Code has to be fulfilled also in case of an ordinary active (undisputed) debt in order to secure the underlying transaction and consequently the assignment contract. In this case it has to be a "sign" ("Zeichen") which can be linked to the property and is able to easily reveal the transfer to each interested party paying appropriate attention.
One exemption concerns the so-called assignment for collateralization purposes ("Sicherungszession"). Its economical purpose is - similar to the pledging of goods -to provide the creditor with some security as allow the debtor a credit. In this form of assignment the assignee acquires the position of a proprietor of the assigned claim; however, he is bound by the internal relationship to make use of his rights exclusively for the purpose of securing his claims against the assignor. The assessment of an assignment for collateralization purposes has to follow the conforming intent of the contractual parties. In contrast to the full assignment the assignment for collateralization purposes requires a particular legal form. It must be unambiguously transparent to the creditors of the assignor that the claim is separated from his sizable assets. Any kind of legal form ensuring the easy and secure possibility to ascertain fact, assignment, moment and dimension is deemed to be suitable. The written notification to the debtor as well as an endorsement in the accounts of the assignor conforms to these requirements. In opposition to this factoring implies full assignment. The factoring contract includes the titulus and the modus, so no further action is necessary. Notification of debtor is not necessary for the transfer of ownership. After having concluded the factoring contract each receivable directly comes into existence in the ownership of the factor.
-Assignment validity requirements
Notification of debtor is not necessary to achieve a valid assignment but in most cases it will be advisable because debtor is allowed to pay to supplier with effect of discharging from the debt as long as he has not been notified of the assignment.
The factoring agreement as well as the assignment transactions in fulfillment of this agreement are free of charge pursuant Sec 33 Austria Fees Act 1957.
The same applies to loan agreements and assignment for collateralization purposes in fulfillment of that agreement whereas other assignments are subject to a fee amounting to 0,8% pursuant Sec 33 Austria Fees Act 1957.
-Notifying the obligors[4]
Under Austrian law, generally sales of receivables need not be notified to obligors nor be approved by them. To the contrary sales of receivables between entrepreneurs concluded in the course of their business activities are valid even if the receivable contract between the seller and the obligor contains a non-assignment clause. Breach of a non-assignment clause however will subject the assignor to possible damage claims of the obligor. Such damage claims may not be set off against the assigned receivables and an assignee will not be liable only because it knew that a non-assignment clause had been in place between the seller and the obligor.
-Possibility to assign future receivables (assignment in advance)
Under Austrian laws the assignment of future claims is permitted in general. However, a necessary requirement for the validity is the concretization and individualization of the claim. This requirement is met, if e.g. all receivables arising in the business of the assignor are assigned. Whether the prospective debtor is not known yet is not relevant as far as determination is possible. On the other hand the actual assignment cannot happen before the receivable is in legal existence. However, the agreement on the assignment can be made in beforehand. Whenever these receivables come into existence they are automatically assigned to the assignee without the requirement of any further acts. (In case of factoring contracts the receivables come into existence directly in the ownership of the factor.) This does not apply to the assignment for collateralization purposes.
-Assignment of receivable using an Electronic Data Exchange message
Under Austrian laws a valid assignment of receivables requires a valid agreement between assignor and assignee. Following the provisions of contracts this agreement can be concluded informally, i.e. by means of electronic data exchange. For the transfer by way of security ("Sicherungszession") at least one of the following means is essential and requisite for its effectiveness: Either the notification of the debtor or an endorsement in the accounts of the assignor. In Austria contracts concluded by means of an electronic signature are equated with written contracts. No further requirements are needed.
-VAT issues or problems concerning the assignment of receivables
The assignment of a claim in settlement of own debts is not deemed to be a "service" ("Leistung") which is covered by the measures of the Austrian Value Added Tax Code and therefore not subject to VAT. In the case of Factoring the receivables are assigned against remuneration. Pursuant Austrian Value Added Tax Code 1994 VAT is charged on the factoring commission/ service charge and on other costs for recourse and non-recourse factoring, but not on the interest and not on the e-factoring-fee.
The factor is not exempted, consequently entitled to assert input tax deduction (provided all other requirements are complied with). In the case of assignment of accounts receivable for collection ("Inkassozession") the service of collection is not covered by the exemption but subject to the VAT.
-The VAT treatment of factoring commission/ service charge
In general the base for the factor's tax embraces any commission or service charge. For details please see our above-mentioned comments.
-The VAT treatment of discount or interest
Basically, discounts effect and lower the taxable base for the VAT whereas default interest, interest for deferment and interest receivable do not increase the taxable base. Interest based on Sec 1333 Austrian Civil Code represents compensation and is thus not even subject to the VAT.
-Differences in the VAT treatment between banks and non-banks engaged in receivables financing
According to Sec 1 para 1 No 16 Austrian Banking Act the purchase of accounts receivable arising from delivery of goods or rendering of services, assumption of the risk of collection on such claims - exempt credit insurance - and, in connection therewith, the collection of such claims (factoring business) is exclusively reserved to so-called credit institutions, an institution authorised to transact banking activities.
-Interest rates on late payments[5]
Austrian law provides for a right of the creditor to claim interest on late payments. Unless agreed otherwise between the parties the applicable interest rate stipulated by law applies. The statutory interest rate generally is 4% p.a. contracts and 8% p.a. over the base rate in case of claims arising out of contracts between companies in business transactions.
-Third party rights affecting an assigned receivable (e.g. taxes, social security dues or any other official or private rights)
If several assignments of one single receivable conflict, it can be stated as a general rule that the first assignment in the time-line is valid and all further assignments will be considered void as the assignee cannot transfer more rights than he de facto holds. One receivable cannot be assigned simultaneously to several parties. However, provisions can be found in Austrian law that provide for an assignment of certain receivables by laws, e.g. under insurance law damage claims of the insured against the injuring party are assigned to the insurance company by law.
Rights, against an assignee of a receivable, of third party creditors who have a deep reservation of title against goods supplied to the assignor and then onward sold to create an assigned receivable.
If the situation arises that the client has already assigned all future receivables resulting from his business activities (blanket assignment) to the factor and a supplier delivers under the reservation of title, the situation is as follows. Authorising the client to resale on behalf of the supplier but to assign all receivables arising from the resale to the supplier in advance, the latter assignment is effected after the former blanket assignment. Consequently the factor is entitled to the receivable resulting from the resale, certainly provided that the assignment to the factor is valid.
If the client stipulates a right of retention of title against a third party in the underlying contract and assigns the receivable in connection with this sale to the factor the retention of title is also conveyed. The assignee (factor) takes the position of the assignor.
-Rights to be registered or notified to be valid
The requirement to register only applies to immoveable property.
-Validity of a contractual prohibition against the assignment of receivables
Pursuant Sec 1396a Austrian Civil code a corporate business agreement containing stipulations that receivables arising from business transactions must not be assigned (prohibition) does only take binding effect if stipulated in detail in each case and if the creditor is not grossly discriminated. However, the validity and effectiveness of the assignment is not affected by the stipulation of a valid prohibition to assign. Upon rightful notification the debtor cannot pay to the assignor with effect of discharging the contract.
-Actions needed to make the prohibition effective
The prohibition is only valid if stipulated in detail in each case. A prohibition in General Terms and Conditions would not be valid.
Requirement for registration
Under Austrian law it is not required to register the prohibition separately, e.g. in some sort of register.
-Effect of a prohibition upon factoring or Invoice discounting (in each case with or without recourse)
In the case of non-recourse factoring the assignor is liable for the risk of performance. In the case of recourse factoring the risk is borne by the assignee. In both cases the validity and effectiveness of the assignment of receivables arising from business transactions is not affected by the stipulation of a prohibition.
-Choosing the applicable law[6]
In general the parties to a receivable contract are free to choose the applicable law. This freedom is restricted in cases where all parties to the receivable contract are resident in Austria and Austria is the place of performance. There are no special formalities for the sale of receivables. The sole requirement is a mutual agreement between the seller and purchaser on the sale of the respective receivables. For reasons of proof this agreement will normally be entered into in written form, which however is not mandatory under Austrian law. Furthermore, it is not necessary, for the effectiveness of the sale of the receivables, to inform the obligor of the sale. The obligor, however, is entitled to pay its debt to the seller and thereby discharge the debt until it has received notification of the sale.
Source:
-EU Legal Studies. A Study of Legal Environment Across Europe 2011. Addendum for AT, IT and UK. Factoring, Receivable Finance & ABL
-Austrian Banking Act
- International Comparative Legal Guides. Securitisation 2011. Austria. Markus Fellner.
[1] EU Legal Studies. A Study of Legal Environment Across Europe 2011. Addendum for AT, IT and UK. Factoring, Receivable Finance & ABL
[2] Granting of a License, Austrian Banking Act
[3] Financial Institutions fro Member States in Austria
[4] International Comparative Legal Guides.Securitisation 2011. Austria. Markus Fellner.
[5] International Comparative Legal Guides.Securitisation 2011. Austria. Markus Fellner.
[6] International Comparative Legal Guides.Securitisation 2011. Austria. Markus Fellner.
