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Liquidity support for companies under the COVID-19 Act

In the current situation, directors must switch to crisis mode. In order to support companies in overcoming the crisis, the COVID-19 Act (Federal Law Gazette I 12/2020) was passed on March 15th. Besides measures on health protection and strengthening of the Austrian economy as a whole, in particular

  • a COVID-19 crisis management fund (endowed with up to EUR 4 billion) has been established and
  • the Austrian ABBAG Act (Federal Law Gazette I 51/2014) has been amended in order to enable the Federal Wind-Down Management Company (ABBAG) to provide services and financial measures to Austrian companies.

The spread of the coronavirus can have a substantial impact on the liquidity of companies and ultimately trigger a duty to file for insolvency. Since, according to legislative materials, liquidity problems caused by the virus are due to force majeure, appropriate financial support shall be required.

Which measures will be provided?

In addition to temporary special tax regulations (https://www.bmf.gv.at/), interim support measures and guarantee instruments already announced last week (Coronavirus – State Aid) and an up to EUR 2 billion credit line for exporters provided by the Österreichische Kontrollbank (https://www.oekb.at/en/oekb-group/news-und-wissen/news/2020/covid-19-aid.html), the COVID-19 crisis management fund represents a comprehensive public support program, the specific implementation of which will be effected by guidelines of the Federal Minister of Finance (State Aid II – COVID-19 Fund).

The wording in the COVID-19 Act is deliberately broad and mentions

  • the provision of services and the taking of financial measures necessary to maintain liquidity and bridge liquidity difficulties, such as
  • the provision of security (guarantees) for (bank) financing which, for example, must be newly granted, deferred or extended, or
  • the granting of bridge loans and working capital financing to cover current unavoidable costs during the period of limited business activity.

For the time being, the funds are limited to up to EUR 4 billion, but a possible increase has already been announced.

When are companies eligible for support?

Only companies that have got into financial difficulties as a result of the Corona crisis or are threatened with such difficulties are eligible for support. A precondition is therefore that the temporary liquidity problems are related to the spread of the corona virus and the economic effects caused by it. For this reason, no support is to be provided to companies that are already in difficulties or in a crisis for other reasons.

Who may apply for support?

All companies that have their headquarters or a permanent establishment in Austria and carry out their main operational activities in Austria are eligible to apply for support. Apart from that, there are no restrictions regarding the form and size of the company, but clarifications through guidelines of the Federal Minister of Finance have been announced.

What applies to groups of companies?

Again, being domiciled in Austria remains a prerequisite (see above). However, in the case of international groups, formal processing can also be carried out via a foreign group member, provided that the Austrian subsidiary benefits from the measure.

Is there a legal entitlement to the granting of support measures?

If the formal requirements are met, companies are offered the prospect of receiving support measures quickly and unbureaucratically. However, the Act makes it clear that there is neither a legal entitlement nor a subjective right to the granting of support measures.

Who is the competent authority?

ABBAG or a newly established subsidiary shall be responsible for the support measures. It is expected that the processing of the measures will be carried out via the Österreichische Kontrollbank or other suitable service providers.

Effects on the insolvency test and duty to file for insolvency

The COVID-19 Act is intended to prevent companies from being forced into insolvency as a result of the pandemic. The support measures are therefore intended to prevent insolvency and the triggering of the duty to file for insolvency. In addition to liquidity support, the legislative materials allow for binding commitments by ABBAG to be taken into account in the context of a possible forecast of the company's continued existence (Fortbestehensprognose)in order to prevent over-indebtedness under the Austrian Insolvency Code.

It is important to emphasise that directors can only rely on binding commitments; an application that has been made is not sufficient, especially since the law expressly states that there is no legal entitlement to the granting of support. It is therefore advisable to submit an application rather sooner than later in order to obtain a binding commitment as soon as possible. The reasons for insolvency in the Insolvency Code itself and the statutory period linked to the duty to file for insolvency (60 or 120 days - see Switch to Crisis Mode) have not been changed by the new Act.

Recommendations for directors

As part of their current crisis-related duties , directors should therefore immediately

  • identify the status quo and especially a possible liquidity shortage (in particular by updating liquidity planning),
  • document the causes of liquidity  problems (connection with COVID-19),
  • reach out to the main financiers and stakeholders, and on this basis
  • evaluate possible support measures (e.g.: would the core bank be willing to provide (further) financing combined with an ABBAG guarantee or is a bridge financing by ABBAG itself necessary?)

The better prepared an application for support is, the more likely and quickly a positive outcome can be expected.


Please note: This newsletter merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The newsletter cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the newsletter.

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