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New Supreme Court Decision on Liability of Banks

publiziert: 
Butterworths Journal of International Banking and Financial Law
Datum: 
1. Januar 1999
Already at the end of the eighties in the so-called "EUMIG"-decisions the Austrian Supreme Court held that a bank which controlled the debtor as creditor and shareholder is liable vis-à-vis creditors of the debtor for damage caused by delaying the initiation of bankruptcy proceedings. This also establishes a criminal offence. Furthermore, in such a situation the bank also remains with the shortfall, if it discounts drafts accepted by an insolvent company insofar, as in case the company does not pay the bank, the bank cannot seek recourse against the third party. Now, in a recent judgement (dated 13 August 1998, 2 Ob 2336/96 k) the Supreme Court specified in more detail, under which circumstances a bank - especially in case it is the main banking connection - shall be liable vis-à-vis third parties in case of a bankruptcy of its client.

Facts

In the case at hand, the defendant, a bank - which was the main banking connection and a creditor of the later bankrupt - took bills accepted by its client on discount. As it turned out that the client was insolvent, it debited the account of the plaintiff who had presented the bills. The plaintiff argued that the bank helped to hide the insolvency by granting loans to the limited liability company and the discounting of bills and also had material influence on its conduct of business.

Held

The Supreme Court held that to establish a material influence on the company, it is not sufficient that the bank, through persons appointed by it, supervises the conduct of business of the company. It rather would be necessary that it actually leads the business of the company regarding material issues. Material influence exists if the bank imposes certain actions as conditions for further granting loans or dictates a compulsory finance plan which does not leave important decisions to the company.

Furthermore, according to this new decision the bank is obliged to warn the third party of the insolvency of its client and debtor, who accepted the bills, before it takes bills on discount, if it knows about the insolvency.

Practical consequences

As a consequence of this ruling, as far as Austrian law is applicable, banks which grant loans to borrowers in a financial crisis should avoid to get involved in the business of their customers to an extent where it might be argued that they have a material influence on the conduct of business, as this might lead to a liability in case a reorganisation is not successful. Also, banks have to be careful not to create the impression, a company is not bankrupt by discounting bills accepted by such a company or by comparable actions although the bank knows about the insolvency of such company.

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