In a decision delivered on 7 June 2024 (2024TALCH02/00950) (the Decision), the Luxembourg District Court provided for substantive clarifications regarding article 10 of the Luxembourg Law of 7 August 2023 on the continuation of businesses and modernisation of insolvency law (the Restructuring Law). This article empowers the Court to appoint judicial agents (mandataires de justice) in case of serious and aggravated misconduct (manquements graves et caractérisés) by the debtor or its corporate bodies, threatening the continuity of the business.
Key takeaways from the Decision
In this case, pleaded by Loyens & Loeff, the District Court
restated the two prerequisites for the designation of a
judicial
agent:
- serious and aggravated misconduct: the
existence of a serious and aggravated misconduct which threatens
the
continuity of the business; and - preservation of business: the measure requested is likely to preserve the business continuity.
Although the parties disagreed on the powers of the Court in
relation to the appointment of a judicial agent – the
Court
upheld that:
- the Court can appoint a judicial agent with the powers of a
provisional administrator (administrateur
provisoire),
effectively replacing the management bodies if necessary; and - in line with Belgian doctrine, the decision to designate a judicial agent under article 10 of the Restructuring Law can only be made in compliance with the principles of proportionality (meaning that the advantage of the measure must not be disproportionate to the damage suffered by the company) and minimal interference in the affairs of the company.
The Court also emphasised that the mission entrusted to the legal agent must enable him to "concretely and effectively" discharge of its duties. It was also note that the powers vested with the legal agent must be "reasonable but sufficiently extensive and likely to ensure the continuity of the relevant companies"
Why this matters
Before the Restructuring Law, provisional administrators could
be appointed by the summary judge
(i) in urgent situations; or
(ii) to prevent an imminent harm or bring a manifestly illicit
disorder to an end – in principle only at the request of
shareholders or directors of a company.
It is generally recognised that the mission of a provisional
administrator can be very wide based on the needs of each case and
can go so far as to manage the company with powers of
administration and representation, as well as, in certain
circumstances, disposal powers. Luxembourg Courts have long held
that the principles of subsidiarity, proportionality and limited
interference must be complied with when such appointment is
made.
Article 10 of the Restructuring Law expands this capability, allowing any interested party with a legitimate interest, including creditors, to request the appointment of a provisional administrator.
Conclusion
The Decision marks a significant step in clarifying the
application of article 10 of the Restructuring Law. While
emphasising the application of proportionality and minimal
interference, the Court recognised the ability of interest third
parties to request
the appointment of judicial agents who can effectively replace the
management body of a company, in the interest of business
continuity in times of crisis.
Importantly, creditors can now rely on article 10 of the Restructuring Law to request the replacement of the management of a company with a court-appointed agent, if the above-mentioned conditions are fulfilled. This alternative open will undoubtedly be a useful tool for creditors to consider if severe misconduct of management needs to be addressed swiftly, with an eye on the continuity of the business.
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.