UK: Modernization Of The Luxembourg Law On Commercial Companies: The Transitory Period Is Ending Soon - Is Your Company Compliant?

Last Updated: 25 June 2018
Article by Gérard Maîtrejean and Pawel Hermeliński

Towards a more comprehensive, attractive and competitive legal framework for Luxembourg companies and private equity investors:

The Luxembourg law effective as of August 23, 2016 modernizing the amended law of August 10, 1915 on commercial companies, amending the civil code and the amended law of December 19, 2002 on the register of commerce and companies and the accounting and annual accounts of companies (the Law) enacted a major reform of the Luxembourg company law.

The Law aims to recognize a certain number of well-established corporate practices, thus reinforcing legal certainty for the Luxembourg entities and their investors as well as introducing new mechanisms to further increase Luxembourg's attractiveness and competitiveness as a hub for international investments and cross-border equity transactions.

Due to the significant changes introduced by the Law, a 24-month transitional period for adapting the articles of association of Luxembourg companies, starting on August 23, 2016 and ending on August 23, 2018, was provided.

The following changes are particularly noteworthy and may impact / be of interest for your company:

  • Changes relevant to the S.à r.l.: authorized share capital, redeemable shares, profit units (parts bénéficiaires), sweat equity contributions without external revision, public issuance and listing of bonds, distribution of interim dividends by the managers, delegation of the daily management to third party
  • Changes relevant to the S.A. and S.C.A.: possibility to issue shares without consideration (actions gratuites) and allocate them to employees and management of the issuing company and affiliated companies to implement incentive schemes, more flexible non-voting share regime, possibility to create committees and delegate the management to a general director (directeur général) or a management committee (comité de direction), new rules on share transfer restrictions

The Law further authorizes the government to proceed with a coordination of the Luxembourg law on commercial companies as amended. In that context, complete overhaul of its numbering came into force on December 19, 2017 following a Grand-Ducal decree of December 5, 2017 coordinating the law of August 10, 1915 on commercial companies, as amended.

Transitory period ending soon: what are the implications?

Companies incorporated before August 23, 2016 continue to benefit from a grandfathering period of 24 months but the August 23, 2018 deadline is now fast approaching.

Less than three months are left for Luxembourg companies/partnerships to assess whether they should adapt their articles of association and/or any other corporate and financing documents to comply, to the extent required, with the new requirements introduced by the Law and proceed with the necessary amendments.

As from August 24, 2018, all Luxembourg companies/partnerships incorporated before August 23, 2016 will be fully subject to the new mandatory provisions introduced by the Law.

As far as they are concerned, Luxembourg companies incorporated after August 23, 2016 are already subject to all binding and supplementary provisions of the Law since their incorporation.

What will be the consequences in case of non-compliance?

As from August 24, 2018, any provisions contained in the articles of association in contradiction with the mandatory provisions of the Law will be overruled by virtue of law. It means that the contradictory provisions contained in the articles of association will be deemed unwritten, and the mandatory rules of the Law will automatically apply instead, irrespective of any agreements to the contrary between shareholders.

As the Law mainly expressly confirms a certain number of existing practices, and the newly introduced provisions are in their majority of supplementary and not mandatory nature, it should be assessed on a case-by-case basis whether there is a specific need to update the articles of association of your company.

In case there is a need to update the articles of association, we would recommend proceeding with those changes before the end of the grandfathering period to avoid situations where the full application of the overriding provisions of the Law would render provisions contained in the articles of association inapplicable or unclear and thus subject to court interpretation.

By way of example, an update of the articles of association of a S.à r.l. may be desirable in relation to the rules on transfers of shares to non-shareholders: The Law introduced a framework for an orderly exit in the event a transfer of shares to a non-shareholder is not approved by the general shareholders' meeting of the S.à r.l. In case of refusal, the other shareholders or the company may purchase the shares offered for transfer. In this respect, would the articles of association of the S.à r.l. not provide for a method of calculation of the transfer price of the shares, the President of the Luxembourg District Court dealing with commercial matters and sitting as in urgency matters will be designated to determine it in the place of the parties. In order to ensure that the shareholders maintain control over this process, it is recommended to amend the articles of association and clearly set out the rules on the determination of the price of the shares applicable in such scenario.
Also, while the cases where an amendment to the articles of association is strictly required should remain limited, you may wish to consider benefiting from the new non-binding rules introduced by the Law and/or ensure that they are in line with your business objectives and properly reflected in your legal documentation.

By way of example, you may wish to see the articles of association of your company amended to allow the management to transfer the registered office of the company anywhere in the Grand-Duchy of Luxembourg without need for shareholder's consent, to implement an authorized share capital within a S.à r.l., to decrease the required majority to transfer shares to non-shareholders to 50 percent (instead of 75 percent) in a S.à r.l., to enable the S.à r.l. to proceed to a public issuance of bonds, to issue shares below par value (subject to certain conditions) in an S.A., to allow for convening notices for general meetings to be sent by email or courier services for an S.A. or to allow the board of directors/managers to suspend the voting rights of shareholders in the event of a breach of their obligations under the articles of association or other agreements.

Actions we can help you with in the coming weeks:

  1. Reviewing all provisions of the articles of association to ensure that they are fully compliant with the Law and remain in line with the shareholders/investors' intention and expectations.
  2. Considering any new flexibility and contractual freedom introduced by the Law that could benefit your organization and respond to the specific needs of your business and tailor your company's legal documentation accordingly.
  3. Considering whether other documents your company is a party to should also be amended to avoid potential discrepancies and misleading cross-references.

How can we assist you?

Our dedicated team would be happy to assist you in reviewing any relevant legal documentation (e.g. articles of association, partnership agreements, shareholders' agreements, joint venture agreements, incentive plans, financing instruments and any other corporate agreements) and identifying whether any changes need to be made in light of the Law and the complete renumbering.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions