Luxembourg subjects its Company Law to a general make-over

Providing useful clarification in an M&A and transactional context

On 20 July 2023 the Luxembourg parliament approved bill of law 8007 which constitutes a follow-up reform to the major reform made to the Luxembourg law of 10 August 1915 on commercial companies (the "Bill of Law" and the “Luxembourg Company Law”, respectively), which was completed back in August 2016.

Given that a number of omissions and inconsistencies had unfortunately been overlooked in the final draft of the 2016 reform the Bill of Law was introduced to the Luxembourg Parliament in May 2022 in order to address these issues.

Most of the modifications adopted are tidy-up amendments triggered by linguistical and structural purposes but will nonetheless be helpful to give legal certainty regarding some technical matters that were subject to diverging interpretation since the reform.

In a nutshell, the major amendments relate to the following topics:

• Non-use of voting rights which have been suspended or waived for the calculation of quorum and decision majority requirements;
• Transfer of shares in an SARL to a non-shareholder;
• Transfer of the registered office of an SARL in a single shareholder context;
• Majority requirement for the liquidation of an SARL; and
• Prohibition of the leonine clauses in an SCSp.

1. Suspended or waived voting rights not to be used for calculation of quorum and decision majority requirements with respect to SAs and SARLs

SAs

Article 450-1 (9) of the Luxembourg Company Law gives the board of directors or the management board the right to suspend the voting rights of any shareholders in breach of their obligations. However, the shareholders of an SA can also voluntarily waive the voting rights attached to their shares. 

Such waiver of voting rights is made in the personal capacity of the waiving shareholder and is therefore not attached to the shares in question and nor does the waiver affect the transfer of the shares to a new shareholder and the exercise of such new shareholder's rights attached to the shares. However, in order for the waiver to be binding the company must be notified of the waiver. The waiver is usually provided in a shareholder agreement, a subscription agreement or any other specific agreement. 

The waiver can be temporary or definitive (although this latter point is controversially being discussed in the Luxembourg doctrine) and relate to the entirety of the shares or only a certain number of them.

The Luxembourg Company Law had however not provided any answer to the question whether or not the shares the voting rights of which have been suspended or will not be voluntarily exercised are to be taken into account for the calculation of the quorum and of the majority. The Bill of Law therefore adds a third paragraph to article 450-1 (9) which expressly clarifies that such shares shall not be taken into account for quorum and majority calculation purposes at shareholder meetings. The existence of a waiver should however not preclude the shareholder's right to attend such general meetings and take part in any discussions or deliberations. 

SARLs

Since the present article 710-19 has also lacked a similar clarification with respect to SARLs an explicit clarification along the same lines as described above will be added to that provision as well. 

Furthermore, the current article 710-5 (6) of the Luxembourg Company Law is also 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. This clarification became necessary as an express rule had only existed with respect to SAs in article 430-18 (1) of the Luxembourg Company Law.

2. Transfer of shares of an SARL to a non-shareholder

Any transfer of shares issued by an SARL must be approved by shareholders representing at least three quarters of the issued shares (article 710-12 (1) of the Luxembourg Company Law). 

Article 710-12 (1) third paragraph addresses a situation in which such approval has not been obtained by providing a procedure by way of which the shares held by the transferring shareholder can be acquired by the other shareholders. However, the wording of the article was misleading as it referred to a refusal of the company with respect to such approval. In other words, the article seemed to imply that the shareholders on the one hand and the company on the other hand were involved in the approval process. The Bill of Law now deletes the reference to company in that article by merely referring to the consent being refused.

Furthermore, in scenarios in which the company is only held by one shareholder the application of the approval requirement did not make sense. 

However, article 710-28 of the Luxembourg Company Law, which stipulates that a number of articles are not applicable in a context in which the SARL is only held by one shareholder, did not explicitly provide that article 710-12 was not to be applied either. Such disapplication of article 710-12 is therefore now added to the other explicit exclusions listed in article 710-28 of the Luxembourg Company Law.

3. Transfer of the registered office of an SARL held by a single shareholder

Article 710-26, second paragraph of the Luxembourg Company Law provides the board of managers of an SARL with the right to transfer the registered office of the company from one municipality to another or to do so within one municipality on condition that the articles of association of the company provide for such right. 

Article 710-28 of the Luxembourg Company Law so far had however expressly provided that the afore-mentioned article 710-26 was not applicable in its entirety (including its second paragraph) with respect to SARLs which are held by a single shareholder. 

Given that from a practical and legal perspective there is no reason not to provide the board of managers with the possibility to decide on such transfer, even if the company is only held by one shareholder, the Bill of Law now provides such right irrespective of the company being held by one or more shareholders. 

4. Majority requirement for the liquidations of SARLs

Article 1100-2 third sentence of the Luxembourg Company Law now explicitly stipulates that the approval necessary for the decision to liquidate an SARL is taken by shareholders representing three-quarters of the share capital instead of the former double requirement of more than half of the shareholders which represent three-quarters of the share capital.

5. Prohibition of the leonine clauses in the partnership agreement of an SCSp

Article 320-1 last sentence of the Luxembourg Company Law now stipulates that the leonine clauses (clauses allocating all profits to a partner or shielding a partner from all losses) in the partnership agreement of a SCSp are null and void. This essential principle of the Luxembourg Company Law now explicitly applies to both SCS and SCSp.

Should you have more questions on the above topics or any related issues please feel free to reach out to our Luxembourg Ashurst corporate team: