The Luxembourg bill of law (6539B) creating an administrative dissolution procedure without liquidation has been finally adopted by the Luxembourg Chamber of Deputies

As part of an extensive and long-lasting reform of Luxembourg insolvency law which has been in process since the introduction in 2013 of the draft law on the preservation of companies and on the modernization of bankruptcy law, the Luxembourg Chamber of Deputies (“Chambre des Députés”) adopted on 18 October 2022 the Luxembourg bill of law n°6539B creating the administrative dissolution procedure without liquidation (Projet de loi portant création de la procedure de dissolution administrative sans liquidation) (the “Bill of Law”). The Bill of Law shall enter into force 3 months after its publications (i.e. presumably between end of January and beginning of February 2023). [1]

By introducing the possibility of dissolving certain commercial companies without liquidation, the Bill of Law aims not only to reduce the public costs of liquidating shell companies with no assets left but also to avoid burdensome and time-consuming court proceedings. Indeed, numerous are the Luxembourg entities currently put into liquidation for reasons unrelated to financial issues but connected with serious breaches of certain applicable Luxembourg law (e.g. domiciliation issues, lack of annual accounts approval, lack of functioning and operational management). It is expected that the Bill of Law will lead to the quick dissolution of phantom-type companies and alleviate administrative work to the Luxembourg Trade and Companies’ Register (Registre de Commerce et des Sociétés, Luxembourg – RCS) by “cleaning it up” from shell companies.

Key terms of the Bill of Law:

• The procedure is available to all types of Luxembourg companies, thereby including partnerships without legal personality, with limited exclusions resulting from the supervision of certain types of companies (e.g. credit institutions, investment funds, securitization vehicles issuing securities offered to the public, lawyers’ firms, central securities depositories).
• The administrative dissolution procedure is an autonomous procedure, distinct form the procedure of judicial liquidation set forth in article 1200-1 and seq. of the amended law of 10 August 1915 on commercial companies.
• No court is involved in this new administrative and unilateral process. The procedure is under the management of the RCS and supervision of the Public Prosecutor. Judicial remedy is nonetheless available before the President of the District Court who decides on the merits of the case following the procedure applicable to summary proceedings. This procedural choice brings a certain degree of continuity to the extent that the procedure is similar to the one existing to challenge certain decisions of the RCS. However, the appeal of the Public’s Prosecutor’s decision should be made within one month following the publication of the procedure’s opening in the Recueil Electronique des Sociétés et Associations, Luxembourg.
• The opening of an administrative procedure under the Bill of Law remains at the sole discretion of the Public Prosecutor, which is exclusively empowered to determine the eligibility of a Luxembourg company to this procedure, on the basis of precise and consistent indications that the conditions are met (see infra). It is not possible for third parties, creditors, shareholders or companies themselves to request or initiate the opening of such procedure.
• Three cumulative conditions must be met for the administrative dissolution procedure to be initiated against commercial companies:
   
  1. a company must pursue activities contrary to criminal law or which seriously contravene the provisions of the Luxembourg Criminal Code [2], Commercial Code or the laws governing commercial companies including those laws governing authorisations to do business;
  2. the absence of employees; and
  3. the absence of assets.

If any of them fails to be met at any time of the process, the procedure will be ended.

• As from the publication by the RCS manager of the decision to open the procedure, the concerned company will not be able to manage its assets anymore, and any subsequent transaction, payment or disposal of assets will be null and void.
• Following the opening of the administrative dissolution, the RCS manager must perform material checks (“vérifications”) on the absence of assets and employees. It shall require such information from the institutions listed in the Bill of Law (such as the Land registry, the social security institution, the banks, non-life insurers…).
• As soon as the verifications have been made by the RCS manager, it informs the Public Prosecutor of the outcome thereof. Should any asset or employee be identified, the cumulative conditions for an administrative dissolution are not met and the Public Prosecutor shall request the RCS manager to stop the procedure. Otherwise, the Public Prosecutor shall request the RCS Manager to pursue the administrative dissolution proceeding.
• The concerned companies will be automatically dissolved upon the closing of the procedure which shall be closed no later than 6 months after the publication of the opening decision.
• A liquidation procedure may be opened even after the dissolution has been closed, upon the initiative of the Public Prosecutor which informs the competent district court of existing assets of the companies. Under such circumstances, the normal judicial liquidation procedure will apply. The court may also decide, on a discretionary basis, to partially apply bankruptcy rules.

Click here for a short overview of steps of administrative dissolution without liquidation procedure.

Another bill of law (bill of law n°6539A) – still under parliamentary work in the dedicated parliamentary Commission – aims at consolidating a procedural reform of Luxembourg insolvency processes. By doing so, Luxembourg is segregating pre-dissolution processes (i.e. procedures seeking to avoid a dissolution) from dissolution ones, in an effort to clarify the procedures and expand the scope of the pre-dissolution processes/debt restructuring processes.

Please feel free to reach out to our Corporate team should you have any question regarding the dissolution of companies in Luxembourg.