28
Thu, Mar
51 New Articles

Guest Editorial: Under the HETA Spell

Legal Markets
Tools
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

Large parts of the Austrian legal market are currently under the spell of the HETA saga.

There is hardly a business conversation among the partners of the major law firms in the country that does not at least mention HETA and the numerous civil, insolvency, constitutional, and European law issues associated with it. I myself am involved in it as advisor to several of HETA’s creditors, including its former main shareholder. No single topic, currently, provides a deeper insight in the Austrian legal market, which is why I would like to use this editorial to share a few thoughts on it.

HETA is the former Hypo Alpe-Adria-Bank, which used to be Austria’s sixth largest bank and had to be nationalized in 2009. The bank had built a large lending network in SEE which, in the wake of the global financial crisis, became unsustainable. Following its nationalization, the bank continued its operations for several years. However, on March 1, 2015, it was put into “resolution proceedings” pursuant to new EU legislation for failed banks and – on April 10, 2016 – became subject to a so-called “bail-in”, a forced write-down of its senior liabilities to approximately 46% of their original amount.

The heavy involvement of Austrian and foreign lawyers in the HETA case has, in no small part, been due to attempts by the Austrian government to use innovative legal routes to defuse HETA’s financial disaster, and the threat that it poses to the Province of Carinthia, which is liable for EUR 11 billion of HETA’s liabilities under a statutory deficiency guarantee. Under an arrangement between Austria and the European Commission in 2003, the deficiency guarantee expired in 2007 but covers liabilities maturing until 2017. Carinthia claims it lacks the financial means to make up for HETA’s default.

A law enacted by the Austrian government in 2014, annihilating certain subordinated liabilities and (former) shareholder liabilities of HETA, had caused an outcry amongst large parts of the legal community and was culled by the Austrian Constitutional Court because it infringed upon the constitutional right to property. HETA’s current “resolution” proceedings are, equally, the subject of legal challenges because, under EU law, such proceedings should only apply to systemically important licensed banks, whereas HETA’s bank license expired in 2014. Claims for several billion EUR in HETA liabilities are currently pending in proceedings before the courts of Frankfurt, Germany. Should the German courts allow creditors to enforce upon HETA’s assets irrespective of its ongoing Austrian “resolution”, this could lead to HETA being declared bankrupt in the near future. This, in turn, would further worsen Carinthia’s position.

A bid made in February 2016 by a government-sponsored fund to purchase HETA’s debt at a price of 75% of its nominal amount, which would have helped to shield Carinthia from its liability, was rejected by a large majority of HETA’s creditors. For them, more is at stake than just Carinthia’s liability, which had acted as an incentive for regulated lenders to subscribe HETA’s debt. Allowing Carinthia to disown its obligations would set an unacceptable precedent from the lenders’ point of view in times of heavy public debt burdens. A further important aspect of the HETA case is the heavy exposure by German lenders who historically have provided a large part of the funding need of Austrian institutional and public borrowers due to the closeness of both countries. The HETA case, and the sustained alienation of German lenders that it has caused, has had a negative impact on market access by Austrian borrowers, especially public debtors and banks.

Recent press reports suggest that talks between the various HETA parties have resumed; however, the reluctance so far by Carinthia’s leaders to contribute to any settlement remains a key difficulty. With the German proceedings looming, the coming weeks may provide a time window for all sides to agree a solution. From the creditors’ point of view, this could take the form of a deferment of Carinthia’s payment obligations over a number of years. Already, an increasing number of creditors are taking direct legal action against Carinthia. It seems almost inconceivable that these law suits should, ultimately, fail. The guarantee is clearly set out in the law, and similar guarantees have been provided by other Austrian provinces and public debtors in large amounts. And while some have called for Carinthia’s insolvency, putting an Austrian province into insolvency does not seem politically feasible. It seems like the HETA case is putting our political system to the test in more than one way.

By Friedrich Jergitsch, Partner, Freshfields Bruckhaus Deringer (Vienna)

This Article was originally published in Issue 3.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Czech Republic Knowledge Partner

PRK Partners, one of the leading Central European law firms, has been helping clients achieve their business objectives almost 30 years. Our team of lawyers, based in our Prague, Ostrava, and Bratislava offices, has a unique knowledge of Czech and Slovak law and of the business environment. Our lawyers studied at top law schools in the United States, United Kingdom, Switzerland and elsewhere. They also have experience working for leading international and domestic law firms in a number of jurisdictions. We speak your language, too. Our legal team is fluent in more than 15 languages, including all the key languages of the region.

PRK Partners has one of the most experienced legal teams on the market. We are consistently rated as one of the leading law firms in the region. We have received many significant honours and awards for our work. We represent the interests of international clients operating in the Czech Republic in an efficient way, combining local knowledge with an understanding of their global requirements in a business-friendly approach. We are one of the largest law firms in the Czech Republic and Slovakia. Our specialised teams of lawyers and tax advisors advise major global corporations as well as local companies. We provide comprehensive legal advice drawing on our profound knowledge of local law and markets.

Our legal advice delivers tangible results – as proven by our strong track record. We are the only Czech member firm of Lex Mundi, the world's leading network of independent law firms. As one of the leading law firms in the region, we have received many national and international awards, in some cases several years in a row. Honours include the Chambers Europe Award for Excellence, The Lawyer and Czech and Slovak Law Firm of the Year. Thanks to our close cooperation with leading international law firms and strong local players, we can serve clients in multiple jurisdictions around the globe. Our strong network means that we can meet your needs, wherever you do business.

PRK Partners has been repeatedly voted among the most socially responsible firms in the category of small and mid-sized firms and was awarded the bronze certificate at the annual TOP Responsible Firm of the Year Awards.

Our work is not only “business”: we have participated on a longstanding basis in a wide variety of pro bono projects and supported our partners from the non-profit sector (Kaplicky Centre Endowment Fund, Tereza Maxová Foundation, Czech Donors Forum, etc.).

Firm's website: www.prkpartners.com

Our Latest Issue