1. Purpose and aim of the Bill of Law
On 19thJuly 2023 the Luxembourg’s Parliament (Chambre des Députés) adopted the Bill of Law No. 6539A (the “Law”) the purpose of which is to implement several measures and introduce new procedures to promote the preservation of businesses and modernize the insolvency law. The Law is set to enter into force on the first day of the third month following its publication in the Luxembourg Official Journal, i.e., during Q4 2023.
It took more than ten years to finally adopt the Law, as it was originally part of the Bill of Law n°6539 to preserve businesses and modernize bankruptcy regulation, which was introduced on 1st February 2013 and then split in two parts:
The Law aims at transposing Directive (EU) 2019/1023 of the European Parliament and of the Council of 20th June 2019 on preventive restructuring frameworks as well as at modernizing Luxembourg’s legal framework on insolvency law by granting, inter alia, a second chance to companies in financial difficulties.
2. Applicability
Pursuant to art. 2 of the Law, it only applies to:
(Together, the “In-Scope Entities”)
According to the provisions of art. 3 (i) Investment firms; (ii) Insurance and reinsurances companies; (iii) undertaking for collective investments; (iv) Specialized investment funds; (v) venture capital investment companies;(vi) Pension funds; and(vii) RAIF fall expressly out of the scope of application of the Law.
3. The key provisions of the Law
The institutions involved in the legislative procedure, such as the Chamber of Commerce (Chambre de Commerce), noted, in the opinions they rendered that the Law constitutes a significant improvement in the planned liability regime for managers and is a good step towards the grating of a second chance.
The Law introduces important procedures such as, inter alia:
In addition to the main procedures listed above, the Law also introduces (i) new procedures regarding conservatory measures, such as the conciliation, and (ii) amendments to the bankruptcy -related provisions.
The detection of companies in difficulties
Under chapter 2 of the Law, the legislator introduces provisions regarding the detection of companies in difficulties and companies likely to be assigned for bankruptcy.
The purpose of these provisions is to enable the Ministry of Economy and the Ministry having the Middle Class in its competences to detect In-Scope Entities facing difficulties and to invite them to discuss about possible reorganization measures.
The preventive aspect of the Law will therefore consist of enabling these two ministries, based on the information at their disposal, to identify and contact In-Scope Entities likely to be in difficulty.
Once an In-Scope Entity in difficulty has been identified, the Minister may invite it to discuss the state of its business and inform it of the available reorganisation measures.
Similarly, it is within the competences of these two ministries to appoint, at the request of the In-Scope Entity facing difficulties, a company conciliator (conciliateur d’entreprise) to (i) assist the debtor in the preparation and conclusion of an out-of-court agreement with creditors, or (ii) obtain the creditors’ consent on a reorganisation plan, or (iii) achieve a business/asset transfer.
The mission of the conciliator can be both inside and outside a judicial reorganization procedure.
Furthermore, the Law also introduces a new assessment unit for companies in difficulty (Cellule d’évaluation des entreprises en difficulté).
This unit will be responsible for assessing the appropriateness, for an In-Scope Entity, to file for bankruptcy and it will be composed by five members nominated by the Ministry of Economy.
The Law defers further provisions regarding the functioning and the organisation of the unit to a Grand-Ducal regulation (règlement grand-ducal).
Reorganization by mutual (out-of court) agreement
Chapter 4 section 2 of the Law also introduces a procedure enabling a distressed In-Scope Entity to seek to reach an out-of-court agreement with all its creditors or at least two of them, with or without the assistance of a conciliator, for the reorganisation of all or part of its assets or activities.
The debtor may request that such agreement be judicially homologated. Such homologation by the court gives to the agreement direct enforceability and sets aside the application of certain statutory claw-back provisions.
The judicial reorganization procedure
According to the provisions of the Law, the debtor may also apply for a judicial reorganization procedure. The purpose of such judicial reorganization procedure is to preserve, under the control of the judge, the continuity of all or part of the assets or activities of such debtor.
The Law provides for three different judicial reorganisation proceedings depending on the intended objective:
Procedural aspects
The procedure for the opening of a judicial reorganisation procedure established by the Law is particularly detailed and complex.
Some key elements are:
4. Final remarks
The impact of the new Law on the day-to-day life of companies and managers are hard to assess. Indeed, in particular it will take some time to evaluate if the Law achieved its aim of granting a second chance to the debtor.
The Law introduces new procedures which will require intense educational effort to make sure In-Scope Entities, stakeholders and creditors are aware of the various options and their effects.
For more information or assistance on this topic, please do not hesitate to contact our Corporate team at the following address: welcome@brouxelrabia.lu
The Luxembourg Chamber of Commerce has paved the way for progress with their recent opinions, and now, the much-anticipated Bill of Law N°8185 regarding the transfer of non-performing loans is on the verge of adoption…
