Since the advent of broad public discussion about crowdfunding models, financing in the form of subordinated loans have been increasingly frequently offered for both crowdfunding and financing of start-ups. This can be attributed to the fact that qualified subordinated loans do not constitute a financial service requiring a licence, and on the other hand because they can be designed in such a way, that they are not classified as an investment, with the consequence that subordinated loans hitherto were not subject to prospectus obligations. The Supreme Court of Justice (OGH) sees this state of affairs as loophole for consumer protection, and therefore recently tightened up the relevant jurisdiction in this regard, with the consequence that subordinated loans are generally to be classified as investments, and therefore are now subject to prospectus obligations. Subordinated loans that have already been issued are not affected by this new interpretation.
The following arguments are presented for classification as an investment:
- Under the old interpretation there is a consumer protection loophole in the case of subordinated loans with a financing volume of more than € 1.5 million, since there are no legal obligations with regard to transparency and information.
- The legislator wishes that at least one of the two consumer protections concepts (1. “Licensing obligation – supervision – deposit guarantee scheme” or 2. “KMG/AltFG – prospectus requirement”) is applied in all cases.
- The Alternative Financing Act (AltFG; Alternativfinanzierungsgesetz) explicitly includes subordinated loans, and defines them as an investment.
The new legal interpretation now ensures that a tiered and continuous transparency and information requirement also exists for subordinated loans:
- Financing volume of below € 100,000: the general exemption from the prospectus requirement applies
- € 100,000 to € 1.5 million: Information sheet in accordance with the AltFG
- € 1.5 to € 5 million: Simplified prospectus pursuant to Annex F to the KMG
- Over € 5 million: full investment prospectus in accordance with the KMG
“The new legal interpretation on the one hand ensures a consistent protection for investors and consumers, while on the other hand providing the issuing entity with legal clarity,” remarked FMA Executive Directors Helmut Ettl and Klaus Kumpfmüller: “A legally compulsory prospectus provides the investor with an appropriate minimum degree of information, with the issuer being liable both in the case of there not being a prospectus as well as for false or misleading information. This also includes the investor’s right to withdraw as well as to claim damages. Furthermore, the advertising for the offer is not allowed to be misleading, must contain a reference to the prospectus, and the information in the advertising must be consistent with the prospectus.”
The FMA will, as far as is possible, actively approach providers it is aware of to explain the effects of the legal situation on the implementation of new financing issues in this legal form. Since this form of financing is not however subject to direct supervision, the FMA does not have information about all providers throughout Austria. The FMA therefore invites providers planning to use subordinated loans for financing purposes to check their financing model in light of the new legal interpretation.
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-6006
+43/(0)676/882 49 516
Information