Limitation of distributions and bonus payments due to COVID-19 subsidies
This article provides an overview of the current situation regarding limitations on distributions and bonus payments to board members and managing directors in connection with COVID-19 state aid.
The article represents the information availabe to us on 23 April 2020.
Since the beginning of the COVID-19 crisis, a recurring view in Austrian political discussions (in particular from certain political parties) has been that companies should refrain from paying out dividends in the present situation, especially if they benefit from state support in connection with coronavirus (e.g. through the short-time working model). On 2 April 2020, a motion was tabled in the budget committee of the Austrian National Council to amend Section 235 Austrian Business Code (UGB) to extend the ban on distributions under company law to all recipients of COVID-19 state aid. The Federation of Austrian Industries responded by noting that any ban on distributions would be counterproductive to the short-time working model, as this is an instrument designed to prevent redundancies despite official restrictions on business activities. The restriction of property rights through a ban on distributions would lead to an increase in redundancies. At the same time, views on the limitation of bonus payments to board members and managing directors have also been voiced in political discussions.
This political wrangling has resulted in the following compromise: No general statutory ban on distributions in connection with state support has been implemented. Instead, a directive issued by the Austrian finance minister on 8 April 2020 envisages certain conditions on claims for state guarantees and direct loans via the COVID-19 Financing Agency of the Austrian Federal Government (COFAG). As a result, there are currently restrictions on distributions and bonus payments to board members and managing directors only in connection with guarantees or direct loans from the Corona Support Fund. Point 12 of the guidelines, which were issued as an annex to the directive, sets out the following requirements for companies, although COFAG is able to impose further obligations on applicants in individual cases:
- No payment of disproportionate (excessive) remuneration, remuneration components, or other disproportionate payments to owners or the bodies, employees and principal agents of the company.
- In particular, no payment of bonuses in the current financial year to board members or managing directors, which exceed 50% of the bonus payments for the previous year – interestingly, bonuses to other (even senior) employees are not subject to restrictions, provided these do not constitute “disproportionate remuneration components”.
- Adjustment of amounts withdrawn by, or of profits distributed to, the owners of the company during the term of the financial support to take account of economic circumstances.
- Ban on dividends and profit distributions for the period 16 March 2020 to 16 March 2021 – distribution resolutions relating to the last retained profit can still be passed in this period, but the time of payment (due date) must be after expiry of the period.
- Appropriate policy on dividends and profit distributions for the remaining period
- No release of reserves to increase the net profit
- No use of liquidity received from financial measures (i.e. from a state-supported credit facility) for payment of profit distributions, to buy back own shares, or to make bonus payments to board members or managing directors.
It is still unclear whether these restrictions will also apply to direct subsidies from the Corona Support Fund. Corresponding guidelines are currently being developed and publication is anticipated in the coming days.
Authors: Daniela Stastny, Verena Heffermann, Cornelia Kalina