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

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

I INSOLVENCY LAW, POLICY AND PROCEDURE

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 III.vi, 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.

Footnotes

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).

To view the full article, please click here

Originally published in 2018 Law Business Research Ltd

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
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
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