Luxembourg: Insolvency In Luxembourg

The following options are available in Luxembourg to companies in financial distress:

  • bankruptcy (faillite/banqueroute) (Articles 437 to 592 of the Commercial Code);
  • controlled management (gestion contrle) (Grand Ducal Regulation of 24 May 1934);
  • a moratorium or suspension of payments (sursis de paiement) (Articles 593 to 614 of the Commercial Code); and
  • a company voluntary arrangement (concordat) (Articles 508 to 527 of the Commercial Code).

In addition, the possibility of involuntary (court-ordered) windingup and liquidation (dissolution et liquidation) (Articles 1200-1 and 1200-2 of the Act of 10 August 1915 on commercial companies) is also worth mentioning.

Of the above options, the most commonly used procedure in Luxembourg is bankruptcy. Controlled management, suspension of payments and the company voluntary arrangement are rarely used in practice.

Bankruptcy

A company can be declared bankrupt if the following cumulative criteria are met: the company is:

  1. unable to pay its debts as they fall due; and
  2. unable to obtain credit.

Under Luxembourg law, bankruptcy is thus a liquidity rather than a solvency issue.

A company can be placed in bankruptcy:

  1. at the initiative of the company's directors;
  2. as a result of proceedings brought by an unpaid creditor; or
  3. by the court after having received information about the company's financial situation.

The district court of the place where the company's registered office is located when it becomes insolvent has jurisdiction to declare the company bankrupt.

The debtor is prevented from administering its assets as from the date of the adjudication in bankruptcy by the competent district court. All payments, transactions and acts made by the insolvent debtor as from the date of the adjudication in bankruptcy shall be deemed null and void.

In addition, certain acts and transactions carried out prior to the adjudication in bankruptcy, during the hardening period and within ten days prior to the start of this period, can be voided (such as transactions transferring property without reasonable consideration, payments by whatsoever means of debts that are not yet due, payments of debts by non-cash means and the granting of security for debts incurred prior of the start of the hardening period). The hardening period cannot be set more than six months prior to the date of the adjudication in bankruptcy.

In accordance with the Act of 5 August 2005 on financial collateral, secured creditors with qualifying collateral may enforce their security interests notwithstanding the bankruptcy.

Controlled management

This procedure may be used if a debtor is facing financial difficulties but has real prospects of either:

  1. reorganising and restructuring its debts and business; or
  2. realising its assets in the best interest of creditors, under the supervision of one or more court-appointed administrators.

Creditors that do not participate in the proceedings remain subject to the agreed reorganization plan and may not pursue their claims individually. It should be noted that this procedure, comparable to Chapter 11 in the United States, frequently ends in bankruptcy.

Moratorium or suspension of payments

This procedure is available to a debtor that is unable to meet its financial obligations due to unexpected events but, based on its balance sheet, has sufficient assets to satisfy its debts or could still rebalance its assets and liabilities. A moratorium allows the debtor to defer its payments until it is able to meet its financial obligations. A suspension of payments is typically used when the debtor is a financial sector professional.

Company voluntary arrangement

This is a court-supervised procedure, initiated by the company, to facilitate negotiation between the company and its creditors. The company must be acting in good faith and may not have suspended payments. Unlike controlled management, creditors that do not participate are not subject to the agreed reorganization plan and may pursue their claims individually.

Involuntary liquidation

The court can order, at the request of the public prosecutor, the winding-up and liquidation of a company that pursues activities which constitute a criminal offence or violate the provisions of the Commercial Code or the legislation regulating commercial companies, including the laws governing business licenses (e.g. the requirement to file annual financial statements on time).

Several developments in relation to Luxembourg insolvency law are currently in the pipeline, including a legislative proposal to reform the insolvency legislation in order to facilitate the earlier detection of financial difficulties and thereby rescue and recovery. The bill provides for new customized tools designed to help distressed companies continue their activities and to protect stakeholders, notably by favouring restructuring over liquidation.

Furthermore, following the adoption of the Preventive Restructuring Framework Directive, Luxembourg is required to transpose the provisions of the directive into national law. Once this has been done, debtors will have access to a preventive restructuring framework that allows them to restructure with a view to preventing insolvency. Indebted businesses will also have access to at least one type of procedure which can lead to a full discharge of their debts after a maximum period of three years.

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
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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