Austrian Federal ChancellorSebastian Kurz of the conservative People's Party, a 31-year-old college dropout and the world’s youngest head of state, was praised as a rock star” by U.S. ambassador Richard Grenell. He formed a coalition government with the far-right Freedom Party in December 2017 and stated that they had agreed on a "clear pro-European outlook".

Since the start of Austria’s six-month presidency tenure of the EU Council (Financial Times), Kurz has stated that Brexit negotiations should be extended between the U.K. and the EU(Telegraph) to avoid the looming prospect of a U.K. departure from the EU without an exit agreement in place. Any extension for Brexit negotiations would likely require the two-year withdrawal period under Article 50 of the Treaty of Lisbon to be extended.

Austria's debt rating was raised to positive from stable on 20 July 2018 and affirmed at AA+ by Fitch Ratings. Finance Minister Hartwig Loeger said "The outlook increase confirms the reform efforts of the Austrian government." and is likely to be seen as an economic win for Kurz.

This month's trade alert considers Austrian loan targets with a focus on Steinhoff and reviews the key legal issues for loan traders in the Austrian secondary market.



During the past six months, Steinhoff has been of significant interest for the secondary debt market. Steinhoff entities, including Steinhoff Europe AG ("SEAG") and Steinhoff Finance Holding GmbH ("Holding"), have debt and assets being sold that are based in Austria. This has led to the secondary market considering Austrian law and its impact on secondary loan trades.

Steinhoff is a conglomerate focused in the retail space with operations worldwide and listed on both the Johannesburg and Frankfurt stock exchanges.  Accounting irregularities came to light in December 2017 when Deloitte refused to sign-off on its year-end accounts. This resulted in Steinhoff losingEUR10.7 billion of its market value with its share price dropping more than 80 per cent. Furthermore, PwC was called in to conduct an independent investigation with the results, as well as testimony from the board, being presented to a parliamentary review in South Africa. Steinhoff's CEO, Markus Jooste, who resigned immediately following these revelations, was also investigated by South Africa's elite "Hawks" police unit, which investigates serious corruption and organised commercial crime.

In an attempt to raise cash following the crash in market value, the Steinhoff group sold real estate and shares in subsidiaries including Steinhoff Africa Retail Ltd. ("STAR") (raisingUSD313 million). Steinhoff also sold the 17 per cent stake that it had in Showroomprivé, a French e-commerce specialist, to Carrefour for around EUR79 million (around half of what Steinhoff paid for it in May 2017). Other entities that Steinhoff has sold include Extreme Digital, a Hungarian electronics retailer, and Austrian property assets valued at EUR490 million, including the 48 Kika/Leiner furniture stores.

These actions were not enough to stem the outflow and withEUR10.4 billion of debt due in August 2018, Steinhoff met with its creditors in London to discuss proposals to restructure its debt on 18 May 2018. SEAG and Holding entered into standstill agreements with their creditors on 6 June 2018, which were amended on 29 June 2018 following support being garnered from the requisite number of creditors to extend the support period from 30 June 2018 to 20 July 2018. The purpose of the standstill was to provide these Steinhoff entities time to restructure their debts totaling EUR9 billion, with the creditors agreeing not to bring legal proceedings or enforce their rights during the standstill period. The creditors were further incentivised with the entitlement to a support fee payable following completion of the restructuring. Steinhoff launched a consent process for a lock-up agreement ("LUA") in connection with the restructuring on 11 July 2018.

The LUA (approved by (i) 89 per cent of holders of SEAG debt, (ii) 89 per cent of holders of Stripes US Holding Incorporatedebt, and (iii) between 92-99 per cent of holders of the convertible bonds due 2021, 2022 and 2023 issued by Holdingas announced on 19 July 2018) provided (i) that creditors will receive 10 per cent annual PIK interest (instead of cash), (ii)corporate governance of Steinhoff will be changed so that creditors have more involvement in and oversight of the supervisory and management boards and (iii) Steinhoff will have a three year extension on payments due to lenders and bondholders. Steinhoff now has three months in which it aims to implement a restructuring plan with suggestions that a jurisdiction shift to the U.K. may occur to take advantage of a U.K. Scheme of Arrangement or Company Voluntary Arrangement.

Furthermore, a lock-up agreement was also entered into on 26 July 2018 following the support of around 90 per cent, by value, of the creditors of Hemisphere International Properties B.V. ("Hemisphere"). This will enable Hemisphere's restructuring to be implemented, with the intended date of 3 August 2018.


We appreciate the assistance of Andreas Jank, Bernhard Köck and Sarah Koller of Jank Weiler Operenyi (Deloitte Legal)with the following discussion of Austrian law, regulation and practice.


The Austrian legal system is a civil law legal system which has its origins in Roman law. Austria is a federal republic made up of 9 states (known as Bundesländer) which joined the European Union (the "EU") on 1 January 1995 and adopted the EU legal framework. Austria's General Civil Code (known as the Allgemeine Bürgerliche Gesetzbuch (the "ABGB")) is one of the world's oldest codes of civil law, enacted into 1811 and coming into force in 1812. The legal system in Austria is structured on a "tier system" of laws, with laws and regulations having to comply with the standards set by the higher tiers. The Austrian Federal Constitution and individual constitutional laws as well as the EU Acts of Accession constitute the higher tier, whilst the general federal laws and the laws of the federal provinces make up the lower tiers. The Oberster Gerichtshof(the "Supreme Court") is the highest court in Austria of ordinary jurisdiction.



  • Banking licence required for secondary trades of unfunded term loans and revolving loans.
  • Austrian banking secrecy: any disclosure in violation of the banking secrecy rules would render any transfer null and void and may trigger administrative and criminal penalties.
  • Trusts may not be recognised in Austria.
  • Tax: there is generally no withholding tax on interest payments to non-resident companies.
  • Stamp duty (at a rate of 0.8 per cent of the settlement amount) can be triggered if transfer documentation is signed in Austria. Warning: stamp duty can be triggered by correspondence sent from or to Austria referring to an oral agreement. 



A banking licence is generally required for lending in Austria unless the lender is passported.

The Austrian Banking Act (the "BWG") contains a list of banking businesses which, if carried out commercially, require a banking licence.

This list includes, amongst others:

  • the lending business (Kreditgeschäft) defined as "the conclusion of loan agreements and the granting of loans";
  • the factoring business (Factoringgeschäft) defined as “the purchase of receivables, the assumption of the risk of their commercial enforceability and their assertion”.

The Austrian Financial Market Authority (the “FMA”) takes the view that an acquisition of loans by way of a “true sale” (which involves the transfer of legal title) qualifies as a “factoring business” and therefore requires a banking licence if carried out commercially. However, it should be noted thatthere is no established case-law on the regulatory classification of the acquisition of a loan. Strong arguments can therefore be made that if an acquisition occurs by way of a funded participation, it is not a factoring business and, as such, no banking licence is required.

If an investor purchases a loan with no further funding obligations (i.e., a fully-funded term loan) by assignment in the secondary market, then a banking licence would not be required as no further lending would take place. However, if there are any further funding obligations (i.e., a revolving loan) then, a banking licence may be required as additional lending would take place.

The BWG is only applicable if the banking business in question has an Austrian nexus. According to Austrian case law this nexus only exists “if there is a targeted approach to the Austrian market”. In some cases an Austrian nexus can be avoided by, for example, performing negotiations regarding the envisaged loan acquisition outside of Austria and executing and keeping all arrangements concerning the transaction outside of Austria. This should be reviewed on a case-by-case basis.



In Austrian legal practice, the legal title to terminated loans (i.e., a loan that has been called by a bank after an event of default as, under Austrian law, all amounts due under such a loan become due and the underlying loan agreement is terminated) is transferred either (i) by way of a contractual assignment (rechtsgeschäftliche Zession) or (ii) by way of aredemption (Einlösung) pursuant to section 1422 ABGB.

Under Austrian law, the legal title to performing loans (i.e., loans that have not been called due - even if some of the amounts under the loan are due, the underlying loan agreement is still in force) is usually transferred by way of a “transfer of contract” (Vertragsübernahme). With this method of transfer, the buyer assumes all rights and obligations of the seller under the loan agreement.

Neither of the aforementioned transfer methods have the effect of releasing any guarantee or security given in respect of the original contract. However, depending on the transfer method and the type of security the transfer of the security may require additional formalities (such as the registration of a mortgage transfer in the land register - see below).

Assignment is the recommended form of transfer (so as to preserve the security as an accessory security does not automatically pass to the new lender if novation is used), but an English law novation may be used when the agent holds rights to the security by way of a parallel debt structure, subject to banking licence requirements.

Funded participation agreements can also be entered into in Austria. A Loan Market Association ("LMA") funded participation agreement would be less likely to trigger any Austrian banking licence requirements given its derivative nature and the fact that neither legal nor beneficial interest is transferred. However, neither LMA nor Loan Syndication and Trading Association ("LSTA") style funded participation agreements have been considered by the Austrian courts and, as such, these structures should be reviewed on a case-by-case basis.



Trusts (Treuhandschaft) and agency (Stellvertretung) are regulated by the ABGB and case law. Foreign trust concepts and foreign agency concepts are sometimes recognised in Austria. It is market practice in Austria to include a parallel debt claim (qualifying as a “joint claim” (Gesamtforderung) within the meaning of Austrian civil law) for a security trustee/agent over the entire loan, not just their part.



In Austria, there is no withholding tax on interest payments to non-resident companies, as interest received by a corporate entity that has neither its seat nor place of management in Austria is not subject to tax.

The Austrian Stamp Duty Act subjects the assignment (transfer) of receivables to 0.8 per cent stamp duty which is levied on the consideration / purchase price for the receivables. This duty is triggered by the creation of a written (executed) agreement on the transfer in Austria or by bringing the original or a certified copy of such an executed agreement to Austria (stamp duty can also be triggered by correspondence referring to an oral agreement which is sent from or to Austria [rechtsbezeugende Urkunden]). Assignments between banks are exempted from stamp duty.



Under Austrian civil law, Borrower's consent is not required for the effectiveness of a contractual assignment unless it is specifically required pursuant to the credit documentation. Notification of the contractual assignment is also not required to perfect the transfer. However, it is advisable as, until the borrower has been notified of the transfer, the borrower can validly discharge the debt by paying the former lender.

Additional formalities are required for certain types of security, for example, the registration of the transfer of a mortgage in the land register requires a notarised copy of the transfer agreement and a registration fee in the amount of 1.2 per cent of the registered pledged amount is also charged.



Austria has strict banking secrecy obligations whereby, pursuant to Section 38 of the BWG, credit institutions must not divulge or exploit secrets which are revealed or made accessible to them on the basis of their business relations with their customers (e.g., the fact that a customer is a client of the bank and details of the transactions with the customer (such as loan amounts, repayment details etc.)) ("banking secrecy"). The obligation to maintain secrecy applies for an indefinite period of time. Exemptions are, inter alia, if the customer consents to disclosure or if disclosure is necessary to resolve legal matters arising from the relationship. Any disclosure in violation of the banking secrecy rules would render any transfer null and void and would likely trigger administrative and criminal penalties.

The sale and transfer of a loan to a third party without the explicit consent of the borrower (i.e., releasing the bank from banking secrecy) is at risk of violating banking secrecy as it will involve the transfer of customer data regarding the loan relationship. However, the Austrian Supreme Court has provided that borrower consent is not necessary if the borrower is in default and the bank has already obtained an enforceable title (i.e., a judgment) against such borrower.


Elena Rey led a round table discussion on 17 July 2018 on the growth of litigation funding in the U.K. and U.S. and the latest trends and financing structures in this area. "There has been an exponential growth of litigation funding in the U.K. over the last decade and the current size of the litigation funding market in the U.K. is estimated to be around GBP10 billion. It is clear that investors are now eyeing Litigation Funding as a credible alternative investment in a market of poor returns from traditional asset classes and an increasingly distressed landscape."

Elena Rey is a partner in the Special Situations practice. Elena represents funds, property investors & family offices on complex financings, litigation funding as well as NPLs and debt restructurings. Elena holds a law degree from Harvard University.




On 3 July 2018, Ukraine's parliament approved a bill to resolve certain areas that caused issues for the resumption of lending in the Ukraine and undermined the rights of both domestic and foreign creditors in the Ukraine.

Ukraine's central bank (the "NBU") noted that the issues that the bill aimed to rectify included (i) the poorly functioning mechanism of surety, (ii) the complicated mechanism of determining floating interest rates, (iii) the inefficient instruments of out-of-court settlements and (iv) loopholes allowing debtors to withdraw collateral under loan agreements.

The NBU went on to say that it hoped that the resolution of these issues would lead to reduced risks for creditors which would, in turn, result in lower lending rates and increased accessibility to loans for both businesses and individuals.


 Lehman Brothers International (Europe) (in administration) ("LBIE"): The Waterfall Proceedings and the Scheme of Arrangement

On 20 June 2018, the LBIEscheme of arrangement (the "Scheme") came into effect. This brings an end to almost 10 years of Administration and a plethora of litigation.

The Scheme was sanctioned on 18 June 2018 by Mr Justice Hildyard in the High Court with the support of well over 75 per cent of the creditors present and voting at the meetings.

The aim of the Scheme is to reach a fair outcome for all persons who hold a provable claim against LBIE including: (i) any admitted claim (whether unpaid or paid in full or part), and (ii) the subordinated debt. PwC (as administrator) aimed for a scheme that was consistent with the Waterfall Proceedings and to provide a framework to determine creditor entitlements to the surplus (estimated at aroundGBP8 billion following the payment in full to all creditors) in a consensual manner and to allow expedited payments of these sums to the creditors. Due to the outstanding litigation (which was settled following the coming into effect of the Scheme), the administrator had been unable to make payments of surplus to the creditors.

The Joint Administrators (who were replaced on 16 July 2018) have announced that they intend to make a Third Interim Client Money Distribution in early August 2018 which will take the dividend rate declared and paid to 100 per cent.

The case law addressing the surplus in the LBIE insolvency is known as the "Waterfall Proceedings". The Waterfall Proceedings consider contests amongst creditors for distributions, including in particular, rights to receive principal and interest prior to any payment made to the subordinated creditors and the appropriate interest calculation methodology to be applied in insolvency.

Click here for more detailed analysis.



Following Abraaj’s filing for provisional liquidation in the Cayman Islands in June 2018, PwC and Deloitte, liquidators of Abraaj and Abraaj Investment Management Limited respectively, have been entertaining bids for the private equity group’s assets. However, Colony Capital withdrew a bid of USD248mearlier this month, leaving York Capital ManagementAbu Dhabi Financial Group (ADFG) and Kuwait's Agility amongst the remaining interested parties, as Abraaj’s liquidators seek to settle more than USD1 billion in debts.

In other news, a criminal case filed in Sharjah (United Arab Emirates) against Arif Naqvi, the founder of Abraaj Group, has been dropped as the claimant waived his rights to pursue the claim after an out-of-court settlement had been reached (Reuters). The case related to a cheque for USD48 million which was issued without sufficient funds; a criminal offence in the UAE.

AGROKOR D.D (“Agrokor”)

80.20 per cent of Agrokor’screditors approved a controversial debt settlement plan on 4 July 2018 as part of its emergency administration process. According to theFinancial Times, the settlement plan for Agrokor will see Russian state banks owning nearly 50 per cent of the indebted food producer and retailer, with Sberbank andVTB taking 39.2 per cent and 7.5 per cent respectively. More than 50 complaints were filed to the commercial court in Zagreb by the appeal deadline on 23 July 2018.

Click here for Agrokor monthly cash report: 11 June 2018 to 10 July 2018


Fred Olsen, a Norwegian offshore drilling firm, has been attempting to complete a restructuring with creditors before a waiver expiration. The waiver, which was granted in January 2018expired on 30 June 2018 and the financial terms of the debt agreements were due by 20 July 2018. Reuters reported that Fred Olsen creditors, which include Nordic banks DNB, Danske and Nordea, chose not to extend the waiver, which resulted in sending Fred Olsen’s shares as much as 27 per cent lower on2 July 2018.

Fred Olsen’s shares fell even further on 4 July 2018 after it announced that it had stopped paying its creditors to preserve liquidity, meaning that it would not pay a scheduled semi-annual installment under its bank facility (Reuters). At the end of 2017, Fred Olsen had USD759 million outstanding under a syndicated bank loan, and a bond loan worth USD122 million maturing in February 2019.

Relevant documents

Fred. Olsen Energy ASA 2Q results presentation

Fred. Olsen Energy ASA report for the 2nd quarter and the 1sthalf year 2018


Gaucho, the operator of Argentinian themed restaurants, has gone into administration with 540 jobs lost as its Cau restaurant chain is to close (Financial Times). The Cau restaurants have “struggled in the oversupplied casual dining sector with rapid over-expansionpoor site selectiononerous lease arrangements and a fundamentally poor guest proposition”, according to Matt Smith, Gaucho’s joint administrator from Deloitte.

Gaucho, owned by private equity firm Equistone Partners Europe, had been seeking buyers in recent weeks and is the U.K. High Street’s latest failurePoundworld, Maplin and Toys R Us have also entered administration, while fellow restaurant chains such as Jamie’s Italian, Byron Burger and Prezzo have reported financial trouble in 2018.


Barbados has announced an “emergency plan” to address its economic crisis. TheFinancial Times reports that the Caribbean country is looking to restructure its public debt after it discovered that its liabilities had reached “175per cent of gross domestic product” and that the Central Bank of Barbados’ international reserves had fallen to only USD220 million at the end of May 2018 which is the equivalent to seven weeks of imports.

Reuters has reported that Barbados’ prime minister, Mia Mottley, who came to power following an election at the end of May 2018, will “seek to restructure the Caribbean island’s public debtsuspend payments due on debts owed to external commercial creditors and receive an International Monetary Fund (IMF) mission”.

The island’s prime minister has a significant challenge ahead, with Barbados’ annual economic output about USD4 billion lower than the total of its overall bonds, loans and other financial responsibilities(Financial Times). Mottley is seeking to boost Barbados’ tourism to USD4 billion within the next five years as a means to addressing the island’s deficit and improving an industry that has fallen fromUSD2.3 billion in 2007 to USD2.1 billion in 2018 (Barbados Today).



The U.K. Government published draft legislation on 6 July 2018 which will create a new charge to U.K. capital gains tax / corporation tax on the disposal by non-residents of U.K. real estate.  It is proposed that the legislation will be effective in relation to disposals occurring on or after 6 April 2019.



A new key ruling in the Doran v Paragon Personal Finance(unreported) case has put British banks at risk of paying out billions more in compensation to customers involved in mis-sold PPI claims.  A couple brought a case against Paragon Personal Finance ("PPF") in order to receive compensation for the excessive commission they unknowingly paid, which amounted to GBP7,985.46, or76 per cent of the PPI premium. Christopher and Joanne Doran succeeded on the basis that although they had knowingly taken out PPI, they were not aware of the excessive commission earned by the provider and on 26 June 2018, the judge awarded compensation for the full amount of commission paid, plus interest (totaling toGBP17,345) as opposed to just awarding 26 per cent, which would have been the case had the judge followed the original FCA guidance and the Plevin rules (whereby only commissions above 50 per cent of the premium value were deemed to be unfair and only amounts above this 50 per cent threshold had to be paid out).

In July 2018, the FCA issued a consultation paper on their suggested guidance for dealing with new PPI claims. They are requesting feedback on their proposals by 4 September 2018 and, subject to assessment, will issue a policy statement in late Autumn this year.


On 31 May 2018 the Australian Law Reform Commission (the "ALRC") published a discussion paper on its "Inquiry into Class Action Proceedings and Third-Party Litigation Funders". The ALRC proposes, amongst other things, that there should be a litigation funding licensing regime in Australia. The proposal envisages that a litigation funder would be subject to obligations similar to those imposed under the current Australian Financial Services Licence regime and that at a minimum the licensee would need the financial skills to operate a funding business and the legal skills to understand civil litigation. The full proposal can be accessed here.


Louisa Watt

P: +44.20.7851.6141

F: +44.20.7851.6100

Elena S. Rey

P: +44.20.7851.6101

F: +44.20.7851.6100