Repayment block on loans for future shareholders under the Austrian Equity Substitution Act

02/12/2020

With its first civil law decision on the inclusion of future shareholders under the provisions of the EKEG (Eigenkapitalersatz-Gesetz, Austrian Equity Substitution Act), the Supreme Court (OGH, 28 May 2020, 17 Ob 1/20a) upheld a literal interpretation of the law. Nevertheless, the applicability of the EKEG may be extended in future exceptional cases. The issue A loan granted by a shareholder to a company in crisis is, according to Section 1, EKEG, a replacement for equity. The shareholder is not entitled to reclaim the loan including the interest thereon (except for the quota of the insolvency proceedings, of course) until the company is restructured. Payments made anyway must be reimbursed by the shareholder of the company according to Section 14, EKEG. Until now, there has been uncertainty as to whether the lender must already be a shareholder of the company at the time the loan is granted or whether future shareholders may also be subject to the provisions of the EKEG. This is the first time the Supreme Court has taken a position on this legal question in a civil law decision.