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  • Writer's pictureMoyse & Associates

Modernising Luxembourg bankruptcy law

The Law of 7 August 2023 on the preservation of businesses and the modernisation of bankruptcy law (henceforth "the Law") will come into force on 1 November 2023. It is a long-awaited reform of Luxembourg bankruptcy law, which comes into being after ten years of legislative procedure.

This new law revolutionises the legal landscape by proposing a new paradigm for bankruptcy law, establishing new units and modernising the tools already available to practitioners and courts.

The Law also aims to increase the Grand Duchy's competitiveness and economic initiatives by enabling entrepreneurs who have been bankrupt for the first time to swiftly reintegrate the economic sector.

Although the Law is made up of many sections and contains many important changes, we have endeavoured to summarise the main new features :

1) Scope of bankruptcy proceedings

Previously reserved solely for businesses and individuals deploying a commercial activity, Article 71 of the Law will allow any natural person carrying on a self-employed professional, commercial, industrial or crafting activity to apply to the District Court of the place where their registered office or principal place of business is located for bankruptcy proceedings to be opened.

Nevertheless, a number of legal entities governed by specific laws remain excluded from the scope of the Law, in particular law firms.

The aforementioned article also provides that, in the event of doubt as to the compatibility of a legal provision applicable to the liquidation of the bankruptcy with an obligation arising from the legal status of a debtor who is a member of a regulated liberal profession, the Court may request the opinion of the order to which the bankrupt person belongs.

It is also important to note that, notwithstanding Article 455 of the Commercial Code, the Court will appoint at least one trustee who is a member of the same Order as the debtor. The Order concerned is informed by the Court of the opening and closing of bankruptcy proceedings against one of its members.

2) Identifying companies in difficulty

Article 5 of the Law provides that the Minister for the Economy and the Minister for Small and Medium-sized Businesses are responsible, within their respective remits, for detecting debtors in financial difficulty where this is likely to jeopardise the continuity of the debtor's business.

The competent Minister may invite the debtor concerned to obtain any information relating to the state of his affairs and inform him of the reorganisation measures available to him.

The ministers will have access to the information held by STATEC, to contradictory judgements pronounced against the debtor if the latter has not contested the principal amount claimed, to the table of protests, to notifications of dismissal for economic reasons and to the list of debtors who have not paid, within three months, all social security and VAT debts and deductions from wages and salaries which have been the subject of an administrative constraint issued against them. Debtors will be able to view their personal data electronically and demand that it be corrected.

3) Setting up a unit to assess companies that may be subject to bankruptcy proceedings

Article 8 of the Law provides for the creation of an assessment unit for companies in difficulty, which will be made up of five civil servants, each appointed on the proposal of different institutions and ministries, namely the Centre commun de la sécurité sociale, l’Administration des contributions directes, l’Administration de l’enregistrement et des domaines, the Ministry for Small and Medium-Sized Businesses and the Ministry for Economy. In addition to the information published in the Luxembourg Trade and Companies Register, the Unit will have access to all the information available from each of the above-mentioned institutions.

The task of the unit will be to identify companies whose survival is threatened. Once identified, the Unit may invite the company concerned to provide information on the situation of its activities and inform it of the reorganisation measures available to it.

4) Possibility of appointing a company conciliator

At the request of the debtor, the competent ministry may appoint a company conciliator to facilitate the reorganisation of all or part of the debtor's assets or activities.

The conciliator's task is to prepare and promote the conclusion and implementation of an out-of-court agreement, to obtain the agreement of the creditors to a reorganisation plan, or to transfer all or part of the assets or business to one or more third parties.

5) Reorganisation by amicable agreement and the introduction of judicial reorganisation proceedings

The debtor will be able to reorganise his business either by amicable agreement or by court order.

Article 11 provides that the debtor may propose to all its creditors, or to at least two of them, an amicable agreement with a view to reorganising all or part of its assets or business. To this end, the debtor may request the appointment of a company conciliator to facilitate the implementation of this agreement. In the event of an amicable agreement, the Court may, at the request of the debtor, approve the agreement and make it enforceable.

The debtor may also initiate a judicial reorganisation procedure. The aim of this is to preserve the continuity of the business, under the supervision of the judge, and is designed to :

  • obtain a stay of execution to allow the conclusion of an amicable agreement as provided for in the aforementioned Article 11; or

  • obtain the agreement of creditors on a reorganisation plan; or

  • allow a transfer by court order, to one or more third parties, of all or part of the debtor's assets or activities.

It should be noted that legal proceedings are opened as soon as the company's economic activity is threatened, and that bankruptcy is not an obstacle to the opening or continuation of such proceedings.

6) Six-month time limit for filing a statement of claim

The new article 466 of the Commercial Code provides that the Court will order creditors to file a declaration of their claims with the court registry within a time limit of six months from the date of the declaratory judgment.

The same article also allows the Court to relieve a claimant of the aforementioned time bar where he can show that moral or material circumstances, within the meaning of the amended law of 22 December 1986 on the relief from forfeiture resulting from the expiry of a period allowed for bringing legal proceedings, prevented him from submitting his statement of claim in good time.

7) Promoting the "second chance" principle

The new article 536-3 of the Commercial Code provides that the bankrupt individual may be discharged by the court from the balance of claims arising prior to the declaration of bankruptcy, without prejudice to any security given by the bankrupt or a third party. Discharge may only be granted by the court at the request of the bankrupt, who may either attach the request to the admission of bankruptcy or lodge it before the closure of the bankruptcy. If the bankruptcy is closed less than six months after it was opened, the bankrupt will have a period of one month after the closure to file his petition.

The trustee or the State Prosecutor may request refusal of erasure or partial erasure if the debtor has committed serious and proven faults that have contributed to the bankruptcy, or has knowingly provided inaccurate information at the time of the admission of bankruptcy or subsequently to the requests made by the official receiver or the trustee.

The court will rule on the request for cancellation within eighteen months of publication of the bankruptcy judgment.

This new article goes hand in hand with article 536-6 of the same code, which states that, where an insolvent individual has benefited from a debt write-off under articles 536-3 et seq. of the Commercial Code, any disqualification from taking up or pursuing a commercial, industrial or self-employed activity on the sole grounds that the entrepreneur is insolvent is automatically terminated on expiry of the debt write-off period.

These two new articles in the Commercial Code will therefore enable an entrepreneur, under the conditions set out above, to move on from his first bankruptcy, without any serious consequences, and to re-enter the economic sector. This is a change of perspective, which should render the economic sector more attractive.

In conclusion, as of 1 November this year, Luxembourg will have a modern legislation on bankruptcy proceedings. The Law will undoubtedly be a valuable new tool for companies in difficulty, insolvency practitioners, and commercial courts alike.

The Moyse & Associates law firm remains at your disposal for any further information or clarification you may require.


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