Background to this overview
The below overview is deemed to be a high-level overview providing the general outlines of the legal Luxembourg framework applicable to the members of the management board in private limited liability companies (sociétés à responsabilité limitée) (an “SARL”) in times of financial distress.
This edition will cover:
In times of financial uncertainties, and the subsequent distress that may follow, companies may have to look for ways to soften the financial burden they bear during this particular period.
The following options (a non-exhaustive list of "out of court" options) are usually put on the table:
ON 18 OCTOBER 2022, THE LUXEMBOURG PARLIAMENT PASSED A LAW (THE “LAW”) INTRODUCING AN ADMINISTRATIVE PROCEEDING BY WHICH A COMPANY MAY BE DISSOLVED WITHOUT LIQUIDATION (PROCÉDURE DE DISSOLUTION ADMINISTRATIVE SANS LIQUIDATION) (THE “ADMINISTRATIVE DISSOLUTION PROCEEDING”) AT THE REQUEST OF THE PUBLIC PROSECUTOR (PROCUREUR D’ETAT). THE LAW IS THE FIRST PART OF THE LARGEST-EVER REFORM TO MODERNISE LUXEMBOURG BANKRUPTCY LAW.
Objective of the Administrative Dissolution Proceeding
ON 18 OCTOBER 2022, THE LUXEMBOURG PARLIAMENT PASSED A LAW (THE “LAW”) INTRODUCING AN ADMINISTRATIVE PROCEEDING BY WHICH A COMPANY MAY BE DISSOLVED WITHOUT LIQUIDATION (PROCÉDURE DE DISSOLUTION ADMINISTRATIVE SANS LIQUIDATION) (THE “ADMINISTRATIVE DISSOLUTION PROCEEDING”) AT THE REQUEST OF THE PUBLIC PROSECUTOR (PROCUREUR D’ETAT). THE LAW IS THE FIRST PART OF THE LARGEST-EVER REFORM TO MODERNISE LUXEMBOURG BANKRUPTCY LAW.
Objective of the Administrative Dissolution Proceeding
In brief
On 15 July 2022, a new law ("Law") amending inter alia the Luxembourg law of 5 August 2005 on financial collateral arrangements, as amended ("2005 Law"), was adopted.
The Luxembourg act of 28 October 2022 introducing the procedure of administrative dissolution without liquidation (procédure de dissolution administrative sans liquidation, the "Administrative Dissolution Procedure") (the "Act") has just been published and will enter into force on 1st February 2023.
Background and objective
The purpose of the Act is to dissolve empty shell companies within a short timeframe at reduced costs for the Luxembourg State.
Legal proceedings were initiated in front of the Luxembourg district court by a public limited liability company (société anonyme), seeking the deletion of bankruptcy filings made with the Luxembourg Trade and Companies Register (hereinafter "RCSL"). The company had been declared bankrupt by judgment of the Luxembourg district court and such court decision had been filed and published with the RCSL.