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06 November 2009
When restructuring an insolvent company, it is often necessary to divest all or part of its business. Such a sale is possible only if the purchaser is aware of the liabilities that come with the assets. In a July 16 2009 decision the Austrian Supreme Court clarified the purchaser's liability for outstanding rent payments.
The plaintiff had let premises to the tenant, from which it operated its business. The tenant defaulted on the rent payments and subsequently filed for insolvency.
The defendant was interested in acquiring the tenant's business. As a first step the defendant leased the business (and indirectly also the premises) for three months. Under the terms of the lease, the ongoing rent payments were to be paid directly to the landlord in order not to endanger the rent agreement. After the expiry of the lease, the defendant bought the tenant's business by way of an asset deal. This had two consequences. First, pursuant to Section 12a of the Rent Act, the acquirer of a business automatically enters into the rent agreement as a new tenant, irrespective of the landlord's and/or the seller's consent. Consequently, the acquirer is liable for the seller's debts owed to the landlord in connection with the rent agreement. Further, the landlord is entitled to increase the rent unilaterally to market levels. Second, pursuant to Section 1409a of the Civil Code, the acquirer of a business by way of an asset deal is not liable for the seller's debts if the assets are bought from an insolvent seller.
The plaintiff argued that Section 12a of the Rent Act is the narrower provision and therefore should prevail, rendering the defendant liable for the previous tenant's debts. The defendant argued that Section 1409a of the Civil Code should prevail, removing its liability for the insolvent seller's debts.
The court held in favour of the defendant, arguing that Section 1409a of the Civil Code should prevail as the purpose of this provision is to facilitate the recapitalization of a company by allowing the assets to be sold without the purchaser assuming the liabilities of the insolvent seller.
The court seems to grant the tenant the best of both worlds by allowing the acquirer to enter automatically into the lease in accordance with Section 12a of the Rent Act and at the same time removing the acquirer's liability for past rent payments in accordance with Section 1409a of the Civil Code.
Despite this small flaw in its reasoning, the decision is to be welcomed as it is usually not possible to sell a business without the underlying rent agreement or to sell a business if the buyer has to assume liability for outstanding rent payments. If the court had ruled otherwise, the landlord could have held the other creditors to ransom by refusing to consent to a transfer of the rent agreement or by refusing to waive the outstanding rent payments in full or in part.
For further information on this topic please contact Nikolaus Pitkowitz or Martin Foerster at Graf & Pitkowitz Rechtsanwälte GmbH by telephone (+43 1 401 17 0), fax (+43 1 401 17 40) or email (firstname.lastname@example.org or email@example.com). The Graf & Pitkowitz Rechtsanwälte GmbH website can be accessed at www.gmp.at.
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