Austria enacted a major revision of corporate law on July 1. The aim of the EU Company Law Amendment Act is to complete the harmonization of Austrian corporate law with EU company law. The Act applies to all corporate entities, but some changes are of particular importance to the Austrian banking sector. They relate to a bank's acquisition of its own stock, reasons for the exclusion of certain auditors of banks, financial reporting of banks and creditors' protection in the case of mergers of financial institutions.
Acquisition of company stock
The acquisition of company stock was previously only permissible if necessary to avert serious damage to the company. The Act introduces a number of reasons allowing the acquisition of company stock.
The most important exception allows the purchase of company stock if the acquiring party is a financial institution acting on the explicit approval of its general shareholders meeting and for the sole purpose of trading the company stock as securities. The legislature wants to ensure banks can maintain a liquid market for their shares.
A bank can hold at most 5% of its share capital for this purpose on any given day. The shareholder approval must also quote a minimum and a maximum figure for the consideration for the shares. The approval may be granted for at most 18 months.
The Act also introduced further limits on circumstances where the purchase of company stock is allowed. The total amount of company stock held by the financial institution under exemptions cannot exceed 10% of the nominal share capital.
Another limitation on the acquisition of company stock derives from new accounting rules. The acquisition of company stock for certain purposes is only permitted if reserves under Section 225 para 5 Commercial Code can be created simultaneously, without reducing the net asset value below the nominal share capital combined with statutory reserves and reserves provided by the articles of association. If company stock is acquired contrary to the provisions of the Act, the obligations of the parties under such an agreement are null and void.
Exclusion of certain auditors
Section 92 of the Banking Act further restricts certain auditors from auditing a bank. In addition to the existing limitations, an auditor is now disqualified from auditing a financial institution, if:
- the auditor has drawn at least 30% of his yearly professional income in the past five years from auditing and counseling the financial institution and/or companies in which the financial institution holds a stake of at least 20%, provided it is likely that 30% or more of its income will again be derived from the same source in this business year;
- the auditor is the statutory representative or member of the supervisory board of a legal entity, member of a partnership or owner of a firm, if such entity, partnership or firm is affiliated with the financial institution or holds a stake of at least 50% in the financial institution;
- the auditor is employed by a company affiliated with the financial institution or owning at least 20% of its shares, or if he is employed by a person who owns at least 20% of the shares in the institution.
Article 43 of the amended Banking Act first applies to the financial year starting after June 30 1996. However, a financial institution may elect to apply the new financing reporting regime to earlier years. New financial reporting requirements apply to: capitalization of financing costs, restriction on distribution of profits, explanation of extraordinary revenues and expenses and reserves for company stock.
Joint stock corporation
Section 92 of the Banking Act provides for the restructuring of certain banking businesses by using the tax-driven legal techniques of the Restructuring Act (Umgründungssteuergesetz). As the restructuring process is effected through a contribution of an existing banking business to a joint stock corporation, the Banking Act increases the protection of creditors of both the banking business and joint stock corporation. Within six months of the announcement of the merger the creditors may demand the securitization of their obligations if they can demonstrate that the merger puts the enforcement of their claims at risk. In such cases the requested securitization is a precondition of the merger becoming effective.
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