Briefing

20 March 2020

COVID-19: Key legal issues in Austria

As you know, the Covid-19 outbreak has significantly changed the way we live and work.

As we are sure you are aware, on Monday, 16 March 2020, several emergency laws came into force in Austria. These laws provide, among others, different regimes for emergency relief, such as an amount of EUR 4 billion pledged, in particular to stimulate the job market, and financial measures to certain qualifying companies, in order to ensure liquidity and bridge liquidity needs. More recently, on Wednesday, the government has announced a EUR 38 billion assistance to push the economy, which will very likely be resolved upon by parliament over the weekend and come into force on Monday, 23 March 2020.

In addition to the economic challenges, the Covid-19 outbreak provides for various legal challenges, such as:

Employment

The Covid-19 laws provide for two different emergency measures in respect of employment law: Corona short-time work (Corona-Kurzarbeit) and special care leave (Sonderbetreuungszeit). Short-time work (Kurzarbeit) is a state-subsidised temporary reduction in working time and pay due to economic difficulties. Given the current situation the parameters and prerequisites for short-time work have been revised to the benefit of employers. Several other employment-law related questions are currently of particular interest (such as plant closures, home office questions, continuance of salary payments, etc.).

Corporate Governance

A company having a supervisory board meeting has to hold at least four supervisory board meetings per year and at least one per quarter. The high risk of contagion arising from Covid-19 (leading to the general behaviour of social distancing) and the current restrictions on free movement make it difficult for supervisory boards to hold regular (and, if scheduled, extraordinary) meetings with their members being physically present. Options may range from cancellation or postponement (in most cases not advisable) to holding the meeting by way of video conference. Please note that, generally, Austrian law enables supervisory board meetings to be held by way of "qualified" video conference. Similar issues arise in connection with shareholders’ meetings, although, currently, the options to hold shareholders’ meetings electronically are limited. However, on Thursday, the Austrian government has proposed to allow corporate meetings (AGMs, EGMs, supervisory board meetings) to be held without participants being physically present provided a decision-making process comparable to physical meetings is warranted. Further details on what measures provide for a comparable decision-making process will likely be enacted by the federal ministry of justice in due course (we would expect this to be video conferencing and/or online streaming). Virtual board meetings, however, might make it harder to maintain a corporate tax residence which may trigger tax consequences.

M&A

For planned or already ongoing M&A projects, valuations may need to be reconsidered and may become challenging. Opportunities for distressed M&A transactions will likely arise for cash rich buyers. In deals that have already signed, "Material adverse change" (MAC) or "Material adverse event" (MAE) clauses could be triggered. The fulfilment of other closing conditions (e.g. regulatory approvals or carve-outs) might be considerably delayed. Obtaining acquisition financing might also be delayed or getting more difficult entirely. Covid-19 has also led to a considerable drop in the share prices of many listed companies although fundamental data does not support such drop. This may present ample opportunities for public takeovers and may turn listed companies into attractive takeover targets.

Capital Markets

Please be aware that certain ad-hoc announcements may become required, e.g. in relation to possible profit outlook having been communicated to the public which have changed meanwhile due to the Covid-19 outbreak. Furthermore, since 18 March 2020 a prohibition of short sales for certain shares has come into effect.

Data protection implications

Private companies intending to implement their own measures to mitigate the Covid-19 impact must keep in mind that processing health data in the course of such measures is subject to strict requirements under the GDPR. Thus, collecting health data in the course of general preventive measures (e.g. temperature measurements of employees or visitors before entering the premises, or health questionnaires to be filled out) will most likely not be justifiable. However, pursuant to guidance issued by the Austrian Data Protection Authority, in case of actual or suspected Covid-19 incidents, health data might be processed, provided that general data protection principles are observed. Further, Austrian employers are urged to enable their employees to switch to teleworking wherever possible. Companies providing their employees with the possibility to work from home must bear in mind that according to the GDPR appropriate technical and organisational
measures must be implemented (including with respect to cyber security).

Lease Agreements

Circumstances which do not fall in the sphere of either the lessor or the tenant (“neutral sphere”) are generally considered risks of the lessor under Austrian law. Epidemic or pestilence as such would not normally give rise to a right of termination on the part of the tenant. In case of a mandatory closure of business ordered by the Austrian government, the tenant may be permitted to request a reduction of the rent and to terminate, if the mandatory closure lasts for a significant period of time.

Construction Agreements

Should the completion of the construction works be delayed due to force majeur, the contractor may be entitled to extent the agreed construction deadlines without any contractual penalty becoming due. The construction agreements may however provide for notification obligations towards to the principal.

Financing

Although the Covid-19 Act does not provide for any specific rules with respect to financing arrangements, the Covid-19 outbreak has significant implications for the liquidity and financing situation of companies. Against this background, both borrowers and lenders should have a clear picture of rights and obligations under their financing documents. For example, a payment default will generally constitute an event of default giving lenders the right to cancel commitments, accelerate outstanding amounts and enforce security. An event of default may also occur due to an actual or threatened suspension or cessation of all or a material part of the borrower’s business, a deterioration of its financial situation, circumstances in a specific jurisdiction (e.g. state of emergency) or a cross-default. Further, borrowers may find themselves unable to give representations (e.g. on the correctness of information provided to creditors, the validity or enforceability of the facility agreement or the status of any material contracts or licenses), meet financial covenants (e.g. liquidity, leverage or equity ratios) or comply with any general undertakings (e.g. to keep material agreements in place). Borrowers should also consider that emergency financial support provided to them by or on behalf of the government may conflict with restrictions under the financing arrangements and should therefore be pre-discussed with lenders. It is also worth reviewing whether access to financing under revolving facilities or back-up facilities can be used in the current circumstances. In general, we recommend borrowers to take a pro-active approach and enter into a dialogue with creditors early on. In this respect, it is expected that the relaxation of banking regulations will allow banks more flexibility vis-à-vis borrowers.

Taxes

The Federal Ministry of Finance has published some guidelines to address liquidity issues taxpayers might be facing as a result of Covid-19. Such tax measures include, for instance, a reduction (potentially to zero) or non-assessment of advance payments on income tax / corporate tax for 2020, a deferral of tax payments and the option of a payment in instalments. A precondition for applying these measures is in all cases that the taxpayer files a respective application and credibly demonstrates that there is a liquidity shortage due to Covid-19 (respective templates have been published by the Federal Ministry of Finance). We further understand that (open and future) tax audits may be suspended upon request by the taxpayer. In addition, the second line of Covid-19 laws (currently under discussion at parliamentary level and expected to enter into force on Monday 23 March 2020) provide, among other things, for an exemption from stamp fees for documents and administrative acts in connection with Covid-19 (not including, however, stamp duty on certain legal transactions (Rechtsgeschäftsgebühren)) and for certain measures in relation to ongoing tax proceedings; in particular, open periods to file an appeal against a tax assessment (or a decision of the Federal Fiscal Court) shall be interrupted until 30 April 2020 and newly begin on 1 May 2020 (said deadline may be amended by way of an ordinance of the Federal Minister of Finance if need be). Further extensions of other procedural deadlines may be governed in a separate ordinance.

Business Contracts & Force Majeure

Force majeure clauses in contracts should be identified and examined on a case-by-case basis. In general, Covid-19 might be considered a case of force majeure within the meaning of the jurisdiction of the Austrian Supreme Court. Although this needs to be assessed on a case by case basis, as force majeure event, Covid-19 can be considered a fortuitous event which might result in a non-fault subsequent impossibility or non-fault delay of performance.

Legal Proceedings

Further measures have been announced in relation to legal proceedings; in particular, the time bar period shall be inhibited until 30 of April and the maximum timeframe to file for insolvency shall be extended from 60 to 120 days.

We have set-up a cross-practice Covid-19 specialist team to assist our clients in every angle. Hence, feel free to contact us anytime if you want to discuss any of the issues, require more information on certain topics and/or require immediate assistance.

Further information from across our global network is available on our Coronavirus Alert Hub.