Limitation of distributions and bonus payments due to COVID-19 subsidies

Since the beginning of the COVID-19 crisis, a recurring view in Austrian political discussions 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). Others argue that a prohibition of distributions under company law linked to the short-time working model would be counterproductive. In political discussions, there have also been calls for limitations of bonus payments to board members and managing directors.

The article represents the information available to us on 2 June 2020.

As a result of these political debates, there are currently restrictions on distributions and bonus payments to board members and managing directors only in connection with guarantees, direct loans, and the fixed cost subsidy in the context of the Corona Support Fund. The relevant Austrian government directives (ordinances) contain annexes setting out the following obligations for companies (exceptions regarding the fixed cost subsidy are listed separately):

• 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 (for the fixed cost subsidy: in the year 2020) to board members or managing directors, which exceed 50% of the bonus payments for the previous year
• Adjustment of amounts withdrawn by, or of profits distributed to, the owners of the company during the term of the financial support (fixed cost subsidy: from 16 March 2020 to 31 December 2020) to take account of economic circumstances
• Ban on dividends and profit distributions for the period 16 March 2020 to 16 March 2021
• No release of reserves to increase the unappropriated retained earnings for the period of the financial measures (fixed cost subsidy: from 16 March 2020 to 16 March 2021)
• Appropriate policy on dividends and profit distributions for the remaining period (fixed cost subsidy: until 31 December 2021)
• No use of liquidity received from financial measures for payment of profit distributions, for share repurchases, or to make bonus payments to board members or managing directors.
• Fixed cost subsidy: No distribution of dividends or other legally non-mandatory profit distributions, and no share repurchases in the period 16 March 2020 to 16 March 2021
  

Authors: Daniela Stastny, Verena Heffermann, Cornelia Kalina