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06 October 2020
The outbreak of COVID-19 triggered various response measures across the globe. Among other measures, the Austrian legislature, similar to other European countries, has implemented a moratorium on payments of credit obligations to support operational and liquidity challenges faced by borrowers due to the COVID-19 pandemic. Contrary to, for example, Germany, the Austrian legislature has included, in addition to consumers, micro-enterprises pursuant to Commission Recommendation 2003/361/EC (SME Recommendation) in the scope of the Austrian moratorium. As such, Austrian credit institutions (and other creditors extending loans) have – provided that the respective conditions are met – a statutory obligation to grant a moratorium on the schedule of payments to one specific type of small and medium-sized enterprise (SME). The initial three-month moratorium has been extended until the end of January 2021.
Statutory moratoria on payments, like any intervention in pre-existing civil law agreements, are particularly sensitive under constitutional law. That is reason enough to take a critical look at the factual justification and design of the Austrian moratorium, particularly from a constitutional principle of equality perspective.
Pursuant to Section 2 of the Second COVID-19 Justice Accompanying Act,(1) creditors' claims for repayment, interest or principal arising from a consumer credit agreement will be deferred for a certain number (initially three, then seven, now 10) of months from the due date if, as a result of exceptional circumstances caused by the spread of the COVID-19 pandemic, the consumer suffers a loss of income which makes it unreasonable to expect them to provide the debt service owed. Further, Section 2 will also apply(2) to micro-enterprises as borrowers if:
According to the explanatory remarks to the law, these regulations shall be "largely based on the corresponding German regulation in Article 240 of the Introductory Act to the Civil Code (EGBGB)". However, that is not entirely correct.
While the general moratorium pursuant to Article 240, Section 1 of the EGBGB also applies to micro-enterprises, the regulations on loans (Article 240, Section 3 of the EGBGB) apply only to consumers and founders of new businesses pursuant to Section 513 of the German Civil Code (BGB). Further, Article 240, Section 3, Paragraph 8 authorised the German government to extend the personnel scope by statutory order to include micro-enterprises. However, no such order has been made "presumably for good reason, because extending the personal scope of application would inevitably aggravate doubts about the constitutional conformity".(3)
In its current User Guide to the SME Definition,(4) the European Commission holds that "one of the main objectives of the SME Recommendation is to ensure that support measures are granted only to those enterprises that genuinely need them". Further, the European Commission holds that when determining whether an enterprise is an SME, its size (ie, number of employees, turnover and balance sheet total) is not the only factor that should be taken into account. Even a small enterprise may be ineligible for SME status if it has access to significant additional resources (eg, because it is owned by, linked to or partnered with a larger enterprise).(5)
In a nutshell, EU laws and the European Commission seem to assume that an SME (ie, any entity which employs fewer than 250 persons and has an annual turnover not exceeding €50 million or an annual balance sheet total not exceeding €43 million) would fall out of the 'spirit' of the SME Recommendation if it has access to "significant additional resources" of affiliated larger enterprises.
The SME Recommendation fixes the thresholds for differentiating SMEs into micro, small and medium-sized SMEs arbitrarily. Further, the partial inclusion of affiliated or partner enterprises when assessing the thresholds presupposes, without any verification whether those resources are actually accessible and any possibility for correction if the assumption proves to be incorrect, that SMEs can access the "significant additional resources" of such affiliated or partner enterprises. In times of the COVID-19 pandemic, in which liquidity shortages can occur at all levels of the economy and even in the largest companies, this assumption is inappropriate. Also, the Second COVID-19 Justice Accompanying Act provides for no mechanisms that would enable a requalification of the entity if there is no access to "significant additional resources".
In addition, the Austrian legislature opened a Pandora's box by including micro-entrepreneurs in the moratorium's personal scope of application, while leaving other SMEs outside (ie, by simply distinguishing based on an essentially arbitrary and not materially justifiable distinction between SMEs). Further, considering that the Austrian legislature has so far refrained from making use of the possibilities offered by EU regulations to put micro-entrepreneurs on an equal footing with consumers (eg, the implementation of the EU Payment Services Directive (2015/2366/EC) or even in the Austrian Consumer Protection Act), it is highly incomprehensible that a credit institution must grant the 'payment holiday' to micro-enterprises but not to an SME that exceeds the arbitrarily fixed thresholds, based on the (partial) inclusion of partner enterprises or linked enterprises when calculating head count or the financial thresholds, irrespective of whether these partner or affiliated enterprise are able to provide resources to the SME.
Similar to the situation in Germany, legal practitioners have criticised substantial deficiencies in the Austrian debt moratorium that exceed mere poor drafting and in particular address the potential violation of the constitutional principle of equality. There is no doubt that larger SMEs (ie, non-micro-enterprises) also face massive losses of income, such as retailers or real estate companies or entities active in the hotel business. In particular, with respect to these borrowers, considerable credit sums are not covered by the moratorium. The Austrian legislature has provided no insight into why it deems these enterprises (including their employees, creditors and shareholders) that still count as SMEs as less in need of protection, and puts them on the same level as large (non-SME) companies, in particular with regard to negotiation power towards banks and financial strength to tackle the financial turmoil caused by the COVID-19 pandemic.
Of course, the moratorium is just one of the various measures implemented by the Austrian legislature to help Austrian entrepreneurs. However, COVID-19 subsidies such as credit guarantees and bridging loans are also available to micro-enterprises. Therefore, the statutory differentiation in which if the material conditions are met, a credit institute must grant a deferment to a micro-enterprise but not to a small or medium-sized enterprise within the meaning of the SME Recommendation (ie, this could also be a micro-enterprise affiliated to a small SME facing similar liquidity issues) fails to meet the constitutional principle of equality.
This situation is further aggravated by the fact that the Austrian (and European) legislature has failed to safeguard the interests of banks as lenders and house banks of these larger SMEs.(6) The absence of a general payment moratorium outside of the personal scope of application of the Second COVID-19 Justice Accompanying Act could be mitigated if the bank would have a similar incentive to defer payment (ie, if an individually granted borrower-specific COVID-19 deferral would be treated like general payment moratorium, in particular with respect to the (non)application of Articles 47b and 178 the EU Capital Requirements Regulation (CRR)). Such institute-specific deferment agreements could fall within the scope of the European Banking Authority (EBA) Guidelines on legislative and non-legislative moratoria on loan repayments applied in light of the COVID-19 crisis,(7) provided that the moratoria granted on the individual level and the bank meets the criteria set out in the guidelines and does not qualify as forbearance within the meaning of the CRR. Further, the guidelines do not exempt banks from the obligation to categorise the exposures subject to a moratorium as performing or non-performing in accordance with applicable requirements.
Again, it seems to prove that well-meant is badly done. During the beginning of the COVID-19 pandemic, several Austrian banks initially granted extensive deferments to their creditors as a first aid in the uncharted waters of the lockdown. However, the extensions of the statutory moratoria reinforce the effects of unjustified distinction between the different types of SME, in particular considering the Austrian credit institutions, also in order to comply with their regulatory obligations, tend to no longer extend their institute-specific deferments, leaving small and medium-sized SMEs, in particular those entities operating in the retail, hotel business or real estate sector, at the brink of insolvency as the economic effects of the COVID-19 pandemic are still strongly visible and jeopardise their business and liquidity plans.
For further information on this topic please contact Stephan Schmalzl at Schima Mayer Starlinger by telephone (+43 1 383 60) or email (firstname.lastname@example.org). The Schima Mayer Starlinger website can be accessed at www.sms.law.
(2) Interestingly, the Austrian legislature has failed to prescribe that these provisions will be applied analogously or mutatis mutandis on these micro-enterprises, even though the main provisions use the terms 'consumer' and 'debtor' side by side. Hence, it is questionable whether those provision explicitly referring to 'consumers' apply to micro-enterprises at all.
(5) A similar regime applies with respect to competition / subsidies laws. In ECJ 24.9.2020, C-516/19 (NMI Technologietransfer), the ECJ just confirmed that a legal entity whose voting rights are majority-held by a charitable foundation having full legal capacity, does not qualify as a SME within the meaning of Regulation 651/2014.
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