Austria: recent Supreme Court ruling leaves many questions re ‘hidden contributions in kind’ open
In a recent decision, the Austrian Supreme Court considered the validity of the payment of a cash consideration to a public limited liability company in the course of an increase of its stated capital (decision dated 25 March 2014, file no. 9 Ob 68/13k). As a consequence of the current Austrian jurisprudence on this matter, any and all business transactions that occur in a substantive and temporal connection with a formal increase of the stated capital — including debt equity swaps — must be made under the disclosure and examination rules for contributions in kind.
In 1999, two Italian individuals subscribed to the cash capital increase of an Austrian public limited liability company, paying a cash consideration of approximately €12m (£10m). The company forwarded this amount to its subsidiary in Italy, which in turn bought assets from the two Italian individuals for a consideration of approximately €40m, partly using the money from the capital increase to do so. Four years later, in the course of a dispute with these shareholders, the company ‘discovered’ that it might still have an open claim against these shareholders because the disclosure and examination rules on contributions in kind had not been met and declared that it was offsetting its claim against a damage claim made by the shareholders.
The Supreme Court held that the shareholders’ payment in 1999 was void and did not fulfil their payment obligation because the disclosure and examination rules for contributions other than cash contributions were not met. In addition, the court indicated that the parallel business transaction — i.e. the sale of assets from the target company’s subsidiary to the shareholders — might be void…
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