Insolvency Law at Luxembourg
Luxembourg's insolvency law underwent a significant reform with the enactment of the Law of 7 August 2023 on business continuation and modernization of bankruptcy law, which entered into force on 1 November 2023. This reform aligns with EU Directive 2019/1023, aiming to modernize Luxembourg's insolvency framework by introducing preventive restructuring mechanisms and enhancing the efficiency of insolvency procedures. (Luxembourg Law of 7 August 2023 on business continuation and modernisation of Bankruptcy Law | Recent case law developments | BSP)
Key Features of the New Insolvency Law
1. Preventive Restructuring Procedures
Out-of-Court Amicable Agreement: Distressed companies can voluntarily seek to reach an agreement with at least two creditors to reorganize all or part of their assets or activities. A conciliator, appointed by the Minister for the Economy, facilitates this process. Once agreed upon, the company can apply to the district court for certification, making the agreement enforceable and protecting it from claw-back actions, even if the company later files for bankruptcy. (Luxembourg parliament adopts long-awaited reform on insolvency laws - NautaDutilh)
Judicial Reorganization: If out-of-court negotiations fail, companies can initiate a judicial reorganization procedure. This can involve:
Amicable Agreement: A court-supervised agreement between the company and creditors.
Collective Agreement: A plan agreed upon by the company and its creditors.
Court-Ordered Transfer: The court orders the transfer of some or all of the company's assets to preserve business continuity. (Luxembourg Modernises Its Insolvency Legislation | HUB | K&L Gates)
2. Enhanced Tools for Early Detection
The law establishes a Business Evaluation Committee comprising representatives from various public administrations to assess companies in financial difficulty. This committee can recommend preventive measures and facilitate early intervention to avoid insolvency. (Luxembourg Modernises Its Insolvency Legislation | HUB | K&L Gates)
3. Modernization of Bankruptcy Provisions
Fraudulent Bankruptcy: Reclassified from a criminal offense to an administrative offense, streamlining prosecution and enforcement. (Luxembourg Modernises Its Insolvency Legislation | HUB | K&L Gates)
Director Liability: Expanded to include de facto directors, holding all individuals effectively in control of a company accountable. (Luxembourg Modernises Its Insolvency Legislation | HUB | K&L Gates)
Filing Deadlines: Creditors must file claims within six months from the date of the insolvency judgment, under penalty of foreclosure. Disputed claims must be addressed within 40 days of notification. (Dentons - New Luxembourg law to preserve businesses and modernize insolvency law – What to expect?)
4. Exclusions
The law does not apply to certain entities, including:
Credit institutions and investment firms
Insurance and reinsurance companies
Payment institutions and electronic money institutions
Investment funds (e.g., UCITS, SICARs, RAIFs, SIFs) (Luxembourg Modernises Its Insolvency Legislation | HUB | K&L Gates, New-Luxembourg-law-modernizing-insolvency-law-and-introducing-new-rules-on-business-preservation)
Practical Implications
For Distressed Companies: The reform provides flexible tools for restructuring, aiming to preserve business continuity and avoid liquidation.
For Creditors: Clearer procedures and timelines for filing claims enhance predictability and enforceability.
For Legal Professionals: The introduction of new procedures and responsibilities necessitates familiarity with the updated legal framework.
RELATED Blog
0 comments