Luxembourg: The Insolvency Review - 6th Edition - Luxembourg Chapter

Last Updated: 27 November 2018
Article by Pierre Beissel and Sébastien Binard


i Statutory framework and substantive law

Insolvency proceedings in Luxembourg are governed by the following legislation.

General insolvency regime

  1. the Law of 14 April 1886 on composition with creditors, as amended;
  2. the Grand Ducal Regulation of 24 May 1935 on controlled management;
  3. the Code of Commerce, which deals more specifically with stays of payments and bankruptcy proceedings; and
  4. Council Regulation (EC) No. 848/2015 of 20 May 2015 on insolvency proceedings.2

Main special insolvency regimes

  1. Banks and professionals of the financial sector: Law of 18 December 2015 on resolution, recovery and liquidation measures of credit institutions and some investment firms, on deposit guarantee schemes and indemnification of investors.
  2. Insurance and reinsurance companies and pension funds: Law of 6 December 1991 on the insurance sector, as amended.
  3. Regulated investment funds and fund managers: Law of 17 December 2010 relating to undertakings for collective investment (UCIs), as amended; Law of 13 February 2007 on specialised investment funds, as amended; Law of 15 June 2004 on the SICAR, as amended; Law of 23 July 2016 on reserved alternative investment funds (RAIF); and Law of 12 July 2013 on alternative investment fund managers.
  4. Regulated securitisation entities: Law of 22 March 2004 on securitisation, as amended.

The insolvency procedures provided for under Luxembourg law may be divided into those intended to preserve the business of the debtor (i.e., stay of payments, controlled management and composition with creditors) and procedures intended to wind up and realise the assets of the debtor (i.e., bankruptcy and compulsory liquidation).3

Each procedure will be further analysed under Sections I.iii and Each procedure will be further analysed under Sections I.iii and, along with the substantive provisions of Luxembourg insolvency law relating thereto.

ii Policy

While Luxembourg insolvency law boasts three specific reorganisation procedures, which are essentially designed to keep failing businesses operating and to facilitate their restructuring into proper going concerns, there have been few cases of such procedures being opened in practice. For instance, there was a total of slightly over 100 cases of controlled management over the past 25 years, roughly half of which ended up in formal bankruptcy proceedings.4 Neither have there been any cases of composition with creditors nor of stays of payments (relating to general commercial or holding companies)5 during this time.

There are many reasons for this situation, although this may be more a case of inadequacy of the available instruments for restructuring distressed businesses than the authorities' willingness to favour bankruptcy and liquidation procedures over reorganisation measures. Among the obstacles to resorting to reorganisation procedures is the requirement generally expressed by the Luxembourg courts that, at the time of the opening of the reorganisation proceedings, the relevant distressed business should still have sufficient assets to settle the estimated costs of the restructuring process, which is not always realistic. The formal conditions for allowing procedures such as compositions with creditors are also too restrictive, as – for example – the approval of a majority in number of the creditors representing at least three-quarters of the debts (i.e., a fairly high threshold) is mandatory.

Importantly, the courts are also entitled to verify at any time during the processing of a request for controlled management proceedings or during the course of the reorganisation itself whether the conditions for opening formal bankruptcy proceedings are met and, under such circumstances, to declare the debtor bankrupt ex officio.6 Finally, the business in the name of which acts of gross negligence or fraud have been committed would typically be denied the benefit of reorganisation measures.7

If the Luxembourg courts have so far dealt with more formal bankruptcy (i.e., liquidation) proceedings than reorganisation measures, a change appears to be imminent.

A significant number of bankruptcies (which in 2012 and 2013 exceeded 1,000 per year8 but amounted to 983 in 20169 and 935 in 2017, respectively),10 and the general public acknowledgement of a shortage of appropriate instruments to deal with companies experiencing financial difficulties led the government to act and propose an ambitious reform of Luxembourg insolvency law as part of its 2009 governmental programme – under which 'efforts will be made to favour reorganisations over liquidation'.11 Such a change of policy was also debated at the Chamber of Deputies in February 2011, where it was expressed that 'in a period of crisis, the creation of appropriate instruments to deal with businesses facing financial difficulties became a matter of national priority that could not be overlooked'.12

So far, the government's work on this matter has resulted in draft bill No. 6539 on business preservation and modernisation of bankruptcy law, dated 26 February 2013. Up to this date, the legislative process is continuing, in particular, new amendments to the project were published on 6 March 2018 (see Section V.iii, for further details on this draft legislation).

Finally, the period from the financial crisis of 2008 to date saw Luxembourg courts resorting more to stay of payments proceedings in the form applicable to regulated entities, which were opened in some notable cases.13

iii Insolvency procedures

Main proceedings

The procedures available in Luxembourg under the general insolvency regime are: (1) compositions with creditors; (2) controlled management proceedings; (3) stays of payments (which all fall within the category of the reorganisation procedures (i.e., aiming at restructuring a business experiencing financial difficulties rather than winding it up)); and (4) bankruptcy proceedings, which essentially involves a liquidation procedure (i.e., a procedure involving the realisation of the assets of the debtor with a view to settling the debtor's liabilities, either in full or, in case of insufficient assets, in part).

All of the foregoing insolvency procedures are judicial procedures, which means they are all subject to the control of the district court of competent jurisdiction.


1 Pierre Beissel and Sébastien Binard are partners at Arendt & Medernach. The authors wish to thank Thainá Dantas Bacelar for her assistance with the update of this chapter.

2 On 20 May 2015, the European Parliament adopted Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast), which replaced Council Regulation (EC) 1346/2000 of 29 May 2000. It applies to insolvency proceedings opened after 26 June 2017, whereas Council Regulation (EC) 1346/2000 remains applicable to insolvency proceedings opened prior to this date.

3 Article L-1200-1 of the law on commercial companies dated 10 August 1915, as amended, provides for an additional compulsory liquidation procedure that may be opened by the district court at the initiative of the public prosecutor in case of substantial breach of this law. This procedure, being unrelated to the solvency of the company in relation to which it is opened, will not be analysed in this chapter.

4 Source: Rapport des juridictions judiciaires, 2016-2017; rapport d'activité du ministère de la Justice, 2017.

5 There have, however, been some cases with regard to regulated entities (see below).

6 See Luxembourg Court of Appeal, 26 July 1982, Moyse.

7 See Luxembourg Court of Appeal, 17 February 1982, Reding et Kunsch and Luxembourg Court of Appeal, 10 February 1982, Pas. 25, 301.

8 Source: Creditreform Luxembourg, Communiqué de presse: Analyse de Creditreform sur l'évolution des faillites en 2016 au Luxembourg, 4 January 2017.

9 Source: Creditreform Luxembourg, Communiqué de presse: Analyse de Creditreform sur l'évolution des faillites en 2016 au Luxembourg, December 2017.

10 Source: Creditreform Luxembourg, Communiqué de presse: Analyse de Creditreform sur l'évolution des faillites en 2017 au Luxembourg, Baisse des faillites au Luxembourg, 3 January 2018.

11 Luxembourg 2009 governmental programme, p. 108.

12 Draft Bill on business preservation and modernisation of insolvency law No. 6539, p. 1.

13 See, for example, failed banking institutions Lehman Brothers (Luxembourg) SA, Landsbanki Luxembourg SA, Glitnir Luxembourg SA and Kaupthing Bank Luxembourg SA in 2008-2009 (see Section III.i).

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Originally published in 2018 Law Business Research Ltd

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