Luxembourg is modernising its restructuring and insolvency law
25 October 2023
The law of 7 August 2023 on business preservation and modernisation of bankruptcy law (the Law) will enter into force on 1 November 2023.
In addition to introducing certain amendments to the existing insolvency framework, the Law implements EU Directive 2019/1023 of the European Parliament and the Council of 20 June 2019 on preventive restructuring frameworks.
Scope
The Law applies to all types of commercial companies and traders (commerçants), including special limited partnerships.
Credit institutions, investment firms, insurance and reinsurances undertakings, pension funds and investment funds (including RAIFs) are out of scope.
Key provisions
Detection of early warning signs of insolvency
Access to certain information, including payment defaults and judgements, is granted to the Ministry of Economy and the Ministry of the Middle Classes in order to enable them to identify companies facing financial difficulties.
Once identified, distressed companies can be invited to discuss the state of their affairs and how business continuity can be ensured.
At the request of the distressed company, a conciliator (conciliateur d’entreprise) can be appointed to assist the debtor with the reorganisation of all or part of its business.
Reorganisation by mutual agreement
A conciliator can also be appointed in the context of the negotiation by the distressed company and at least two of its creditors of a reorganisation by mutual agreement (accord amiable).
Once the agreement is ratified by the court, payments made in execution of the mutual agreement cannot be set aside, even if made during the hardening period preceding the opening of a bankruptcy proceeding.
Judicial reorganisation proceedings
The Law further introduces the possibility of a stay in favour of in-scope entities whose business is jeopardised (en péril), in order to reach either:
- a reorganisation by mutual agreement (accord amiable);
- a reorganisation by collective agreement (réorganisation judiciaire par accord collectif) enforceable against all the creditors – even, under specific circumstances, dissenting ones – for the purpose of reducing debt or deferring payment; or
- a judicial reorganisation by court-ordered transfer (réorganisation judiciaire par transfert par décision de justice) of all or parts of the debtor’s business.
As from the filing of a petition for judicial reorganisation, no insolvency proceeding can be opened again the debtor, nor can enforcement measures be taken over its assets. However, in order to prevent any misuse and unless the court orders otherwise, no stay will apply if the debtor already filed an application less than 6 months before the submission of a new request.
The statutory obligation of the directors to declare a cessation of payments within the month of its occurrence is suspended during the stay.
The court decision declaring the opening of the judicial reorganisation proceeding also entails a stay of enforcement which cannot exceed 4 months, but can be extended up to a maximum of 12 months.
It is important to note however that the enforcement of security agreements falling within the scope of the Luxembourg law on financial collateral arrangements is not affected and remains possible during this suspension period.
The composition with creditors (concordat préventif de la faillite) and the controlled management (gestion contrôlée) which for practical reasons were rarely used, will be replaced by these new procedures.
