In an interview with the APA at the beginning of January, Justice Minister Alma Zadic (Greens) called for harsher penalties for companies that conceal their balance sheets through late or non-existent reporting. Now it has presented an action plan that has not yet been coordinated with its government partner ÖVP.
Previous punishments “aren’t enough”
According to their idea, a penalty of up to 5 percent of global annual sales should be imposed. “The wave of Signa bankruptcies has shown that the current penalties are not enough. Large corporations would rather pay penalties than provide open and honest information regarding their economic situation,” says a ministry paper. “That’s why it will be necessary to increase the penalties so that even large corporations can no longer ignore them,” said Zadic. “As a result of the Signa bankruptcies, trust in Austrian accounting law has suffered. It is necessary for the entire business location to restore this trust,” said Sabine Jungwirth, federal spokeswoman for the Green Economy, regarding the minister’s plan.
Previously, penalties were automatically due for missing annual financial statements; for a medium-sized company this was 700 euros, and for the second violation it was 2,100 euros. The penalty is renewed every two months if the balance continues to fail.
In the future, companies – especially medium-sized and large ones – will be punished with significantly higher amounts. The fines for medium-sized companies are to be increased from 2,100 euros to 4,500 euros from the second offense onwards, and for large companies a fine of up to 20,000 euros should be possible. Companies in the public interest can even be fined up to 50,000 euros.
If a company systematically fails to present a balance sheet despite penalties that have already been imposed, even harsher penalties of up to 5 percent of the company’s global annual turnover should be possible. “The prerequisite should be that the punished company persistently violates its disclosure obligation and that a compulsory penalty imposed by the court has had no effect,” the proposal states.
Courts should also be empowered to enforce the publication of annual financial statements on their own initiative following the third violation – which would normally be six months following the first missed deadline. They are currently only allowed to take action if a company objects, but that almost never happens.
New transparency rules
Zadic also wants to introduce new transparency rules for corporations. The aggregation obligation is to be expanded so that a parent company can no longer claim to be small and therefore only publish certain data. To date, the parent must calculate its threshold values on a consolidated basis only for stock corporations; this rule is to be extended to (holding) GmbHs. “In future, companies should have to state whether they are subject to group reporting (i.e. whether they are parent companies) and which size category this means that they fall into,” suggests the ministry.
In the future, there will also be penalties for false statements regarding the size of the company; the Ministry of Justice is considering fines of up to 2 million euros for companies of public interest. This innovation is intended to avoid complex box constructions with many small sub-companies like the Signa Group.
Transparency Austria also supports painful penalties for companies that persistently refuse to submit financial statements, as well as the possibility that courts can intervene in the future in the event of repeat offenders. Higher penalties would generally increase the pressure. “Of course you have to be careful with penalties that they don’t become disproportionately high,” said Transparency Austria lawyer Georg Krakow on Friday in the ORF’s Ö1 morning journal.
