Luxembourg make-over bill of law

As is well known the Luxembourg law of 10 August 1915 on commercial companies (the “Luxembourg Company Law”) underwent a major reform which was completed back in August 2016 implementing a series of a new concepts and providing for more corporate flexibility in a lot of instances (the "Reform").

However, as is so often inevitable in protracted and complicated legislative projects due to numerous details to be taken into account a certain amount of errors and misleading omissions had unfortunately found their way into the final draft. In addition to that other inconsistencies and gaps were only discovered over time in the process of the practical everyday application of the new rules.

In order to finally address these errors, omissions and inconsistencies a bill of law (n° 8007) was introduced into the Luxembourg legislative process back in May 2022 (the "Bill of Law"). The Bill of Law has not yet been finally adopted and was most recently commented by the Chambre des Métiers in October 2022.

Most of the changes and corrections are being proposed from a strictly grammar and structural point of view and therefore should not necessitate detailed discussions and explanations. However, in our view some of the intended amendments are worth taking a closer look at:

Decision to transfer the registered office of an SARL by the board of managers

The Reform introduced in the second paragraph of article 710-26 of the Luxembourg Company Law the possibility for the board of managers to transfer the registered office of the company from one municipality to another or to do so within one municipality provided the articles of association of the company foresee that. During the implementation of the Reform article 710-28 of the Luxembourg Company Law which provides that certain articles, among which the aforementioned article 710-26, are not applicable to companies held by one single shareholder, had however not been amended. As there is no specific justification to restrict the possibility for the board to decide to transfer the registered office only to multiple shareholder companies the wording of article 710-28 is now intended to be changed by deleting the reference to article 710-26.

Transfer of shares of an SARL to a non-shareholder

A rather well-known transfer requirement with respect to the shares issued by an SARL and to which voting rights are attached is the fact that such transfer can only be effected if shareholders representing at least three quarters of such shares have consented to the transfer (article 710-12 (1) of the Luxembourg Company Law). The third paragraph of this article 710-12 (1) is however misleading as it refers to a refusal of the company to consent to such transfer. Consequently, the wording of the article seems to suggest that there might be two different entities/bodies which are involved in such a consent process, i.e. the shareholders on the one hand and the company as legal entity on the other hand. The Bill of Law therefore proposes to delete the reference to company and to merely refer to the consent being refused without further specification by which body.

Furthermore, in scenarios in which the company is only held by one shareholder the application of the consent process set forth in article 710-12 of the Luxembourg Company Law for obvious reasons does not make much sense. However, so far article 710-28 of the Luxembourg Company Law does not expressly stipulate, in contrast to other explicit exclusions, that article 710-12 is to be disregarded with respect to SARLs which are held by one single shareholder. The disapplication of article 710-12 is therefore now expressly foreseen in article 710-28 in the Bill of Law.

Voting rights to take or not to take into account with respect to quorum and majority rules?

a) SAs

The current article 450-1 (9) of the Luxembourg Company Law provides the board of directors or the management board with the right to suspend the voting rights of any shareholders which are in breach of their obligations, whether these are statutory or contractual. Furthermore, the shareholder of an SA can voluntarily waive the voting rights attached to their shares in a temporary or definitive manner. In this context, however, the Luxembourg Company Law does not provide any answer to the question whether or not the shares the voting rights of which have been suspended must be taken into account for the calculation of the quorum and of the majority. Therefore, the Bill of Law now proposes to add a third paragraph to article 450-1 (9) which expressly clarifies that such shares will not be taken into account for quorum and majority calculation purposes at shareholder meetings.

b) SARLs

The above-mentioned article 450-1 (9) has its counterpart with respect to SARLs in article 710-19 but also lacks a similar clarification as to whether the shares the voting rights of which have been suspended are to be taken into account for quorum and majority purposes. An express exclusion is now being foreseen in this respect as well.
Furthermore, the current article 710-5 (6) of the Luxembourg Company Law is intended to be amended in order for it to expressly provide that redeemed shares of an SARL are not to be taken into account for the calculation of the quorum and of the majority at shareholder meetings. Such an express rule already exists with respect to SAs in article 430-18 (1) of the Luxembourg Company Law. The proposed amendment will therefore further align the legal system applicable to SAs and SARLs.

Liquidations of SARLs

Article 1100-2 third sentence of the Luxembourg Company Law is also intended to be modified to set forth that the approval necessary for the decision to liquidate an SARL will have to be taken by shareholders representing three-quarters of the share capital in contrast to the current wording referring to more than half of the shareholders representing three-quarters of the share capital.

Clarification with respect to the derogation of certain bondholder representation provisions

Finally, the Reform introduced article 100-14 of the Luxembourg Company Law clarifying that any form of company (including an SA) may issue bonds. This article further specifies that issuers may derogate from the provisions of articles 470-1 to 470-19 (bondholder representation rules) applicable to the issuance of bonds irrespective of whether or not they subject the bonds to non-Luxembourg law. Under Luxembourg securitisation rules the afore-mentioned article has it counterpart in article 66 (1) of the Luxembourg law of 22 March 2004 on securitisation which does not depend on the relevant company issuing bonds which are governed by Luxembourg law either. It is however commonly understood that a replacement system covering such rights (which could also be contractual) would need to be applied instead.

While the requirement to submit bonds to foreign law was dropped in article 100-14 of the Luxembourg Company Law, article 470-20 applicable to the SA was not amended accordingly in the Reform and therefore still provides that SAs may derogate to articles 470-3 to 470-19 provided they submit their bonds to foreign law. This has triggered the question whether the regime applicable to SAs in this respect had to be construed more narrowly. In order to end any such discussion and uncertainty the disapplication of this foreign-law requirement in article 470-20 is therefore now expressly foreseen in the Bill of Law.

We will keep track of any further developments on this legislative project and will publish any additional guidance in this respect as the procedure unfolds.

In the meantime please feel free to contact our corporate experts in case of any questions or specific assistance required.