Luxembourg

As Luxembourg law only introduced new corporate protective insolvency procedures in November 2023, there is not much case law that can be relied upon.

The debtor may choose between:

• reorganisation by mutual agreement (réorganisation par accord amiable), following which the debtor may suggest to all or at least two of his or her creditors an amicable agreement with a view to reorganise all or part of its assets or activities;
• judicial reorganisation by mutual agreement (réorganisation judiciaire par accord amiable), following which the debtor may suggest to all or at least two of his or her creditors an amicable agreement with a view to reorganise all or part of its assets or activities, and the debtor will be protected due to a stay of the enforcement proceedings;
• judicial reorganisation by collective agreement (réorganisation judiciaire par accord collectif), aiming to obtain the agreement of creditors on a reorganisation plan. During this period, the debtor will be protected by a stay of the enforcement proceedings; and
• judicial reorganisation by the transfer of assets by court order (réorganisation judiciaire transfert par décision de justice), aiming to transfer by court order all or part of the debtor’s business or activities with a view to ensure its continuity, should the debtor consent thereto. During this period, the debtor will be protected by a stay of the enforcement proceedings.

The latter three options will protect the debtor from any potential claims, as there is a stay of enforcement that will be granted by the judge for a minimum of four months.

Otherwise, generally speaking, the most commonly used proceeding is the bankruptcy proceeding. Following such a proceeding, a debtor is declared as bankrupt upon:

• a claim from a creditor (faillite sur assignation);
• its own declaration/admission of bankruptcy (faillite sur aveu); or
• a compulsory bankruptcy (faillite d’office).

The opening of a bankruptcy proceeding leads to the appointment of an insolvency trustee who will manage the insolvency estate (see Question 2, below).

The goal of such a proceeding is to liquidate the assets of the debtor and repay the creditors following a defined order.

The available options under Luxembourg law are limited as new protective measures for a debtor were only introduced into Luxembourg law in August 2023.

The debtor may, amongst others, choose between:

• the conciliation d’entreprise proceeding;
• reorganisation by mutual agreement (réorganisation par accord amiable);
• judicial reorganisation by mutual agreement (réorganisation judiciaire par accord amiable);
• judicial reorganisation by collective agreement (réorganisation judiciaire par accord collectif); and
• judicial reorganisation by the transfer of assets by court order (réorganisation judiciaire transfert par décision de justice).

Further to the above, if the debtor is insolvent (i.e. has: (1) ceased its payments; and (2) is no longer able to refinance itself through external financing) the debtor will have to file for insolvency and will eventually be declared insolvent by the competent commercial court.

Once declared bankrupt, the competent commercial court will appoint an insolvency trustee (curateur) who will manage the insolvency estate in order to liquidate all of its assets and, if possible, reimburse the creditors of the debtors.

As mentioned (see Questions 1 and 2, above), the pre-insolvency regimes were introduced on 7 August 2023 and came into effect on 1 November 2023. At this stage, there is limited case law enabling the legal doctrine to take a firm position.

3.1 What are the conditions to entry?

Judicial reorganisation (réorganisation judiciaire) can be initiated as soon as the debtor is endangered (mise en péril de l’entreprise), whether in the short or long term. Luxembourg law is strongly influenced by Belgian law when it comes to pre-insolvency measures. The Luxembourg legislator intentionally decided to leave the criteria broad, in order to allow the judge to decide case-by-case whether a debtor may be allowed to benefit from judicial reorganisation and its stay of enforcement.

Recent case law has shown that a judge is likely to grant the benefits of judicial reorganisation and to allow the debtor to seek protection against any potential creditors. Once the debtor files for a judicial reorganisation, it will be protected against any enforcement action from a creditor, for a minimum of four months.

The state of solvency of the debtor has no impact on the judicial reorganisation.

3.2 Can creditor claims be compromised “within a class”?

The creditors must be treated equally within the same category and in proportion to the amount of their claim.

Luxembourg law provides for the introduction of two different classes of creditors, the créanciers sursi­taires ordinaires and the créanciers sursitaires extraordinaires.

Luxembourg law defines the créances sursitaires (ordinary stayable claims) as claims other than wages claims arising prior to the opening judgment of the judicial reorganisation or arising as a result of the filing of the request or decisions taken in the context of the judicial reorganisation proceeding.

The créances sursitaires extraordinaires (extraordinary stayable claims) are claims secured by a special privilege or mortgage, owner-creditor claims (créancier-propriétaire), and stayable claims from the tax and social security administration.

3.3 Is there a “cross-class cramdown”?

Luxembourg law includes the cross-class cramdown mechanism. If a reorganisation plan has not been approved by the concerned creditors in each class authorised to vote, it may be homologated on the proposal of the debtor or with the agreement of the debtor and be imposed on the dissenting class of creditors.

This assumes that the restructuring plan has been approved by one of the classes of creditors authorised to vote and that it meets at least the following three conditions:

• any new financing is necessary to implement the plan, does not unfairly prejudice the interests of creditors, and satisfies the “best-interests-of-creditors” test;
• where the plan has been approved solely by the class of créanciers sursitaires ordinaires, creditors in the class of créanciers sursitaires extraordinaires must be treated “more favourably” than creditors in the class of créanciers sursitaires ordinaires; and
• no class of affected parties may, under the restructuring plan, receive or retain more than the total amount of its claims or interests.

3.4 Can shareholder claims be compromised?

Under Luxembourg law, there is no specific protection for the shareholder claims. Generally, in an insolvency, they will be the last to be paid if some assets remain after the distribution of all the recovered monies to the creditors.

3.5 Can secured creditors’ claims be compromised? Are deficiency claims treated differently?

As mentioned (see Question 3.3, above), where the plan has been approved solely by the class of créanciers sursitaires ordinaires, the class of créanciers sursitaires extraordinaires must be treated “more favourably” than creditors in the class of créanciers sursitaires ordinaires.

In other words, the extraordinary stayable claims cannot be treated less favourably than ordinary stayable claims.

3.6 Can creditors propose competing plans?

The prospect of creditors proposing competing plans has not been foreseen by the relevant law, but creditors will be involved in the process of approving the plan.

3.7 What level of court or other third-party supervision is there of the process(es)?

Following the judgment granting judicial reorganisation, a supervising judge is appointed. Depending on the type of judicial reorganisation, a judicial trustee (mandataire de justice) may be appointed upon request of the debtor in a judicial reorganisation by mutual agreement or a judicial reorganisation by collective agreement and is mandatorily appointed in case of a judicial reorganisation by the transfer of assets by court order. Finally, in case of mismanagement and/or wrongful actions by the director(s) of the debtor, the court can appoint an interim administrator (administrateur provisoire).

Under Luxembourg insolvency law, several provisions allow the nullity of an act to be sought during the clawback period.

4.1 What is the applicable law that provides for clawback and/or antecedent transaction claims?

Under Luxembourg law, clawback and/or antecedent transaction claims are null and void in relation to the insolvency estate when transactions have been made by the debtor since the time period determined by the court as being that of the cessation of its payments (période suspecte) or in the ten days preceding that time.

Nullity by law

The law enumerates the following transactions falling within the clawback period:

• all deeds transferring movable or immovable assets free of charge, as well as commutative or onerous deeds, transactions or contracts, if the value of what has been given by the bankrupt party substantially exceeds that of what was received in return;
• all payments, either in cash, or by conveyance, sale, set-off or otherwise, for unmatured debts and for matured debts and all payments made otherwise than in cash or negotiable instruments; and
• all conventional or judicial mortgages and all rights of antichresis or pledges constituted on the debtor’s assets for debts previously contracted.

The law considers that the above-mentioned acts include a fraudulent intent to advantage some creditors to the detriment of other creditors. Such nullities are therefore based on a presumption of fraud.

The above-mentioned transactions will lead to an “automatic” nullity installed by law (présomption de nullité), that is, as soon as the conditions are met there is no longer any room for discretion on the part of the judge.

However, such clawback actions will mostly be initiated by the insolvency trustee as the creditors will not agree with the insolvency trustee’s view.

However, from a practical perspective, the judge will, most of the time, upon request from the insolvency receiver, declare the act null and void, and cannot refrain from doing so for reasons of expediency or because of the motives of the parties.

Legal set-off (compensation légale) will not be affected by the clawback period and continues to have its normal effects during the suspect period, but only if the acts on which it is based are themselves unattackable. It takes place without the debtor’s knowledge and is per se not “an act of the debtor”, but an effect of the law.

The legal set-off resulting from a sale concluded during a suspect period and having no other purpose than to extinguish the reciprocal debt is unenforceable against the general body of creditors. However, the underlying deeds of the legal set-off must be valid.

For example, if a supplier is a creditor of the future bankrupt in relation to services rendered or goods delivered, and if such supplier in turn buys from the future bankrupt during the clawback period, even though he or she is aware of the insolvency of his or her co-contractor, it could appear that the supplier has simply sought to obtain payment by creating an artificial legal set-off.

Such a situation would lead to an artificial set-off, and the deed signed between the parties in question would therefore be declared null and void, under which there is no longer any room for discretion on the part of the judge, the prejudice resulting from the disputed deed being moreover irrefutably presumed.

However, Luxembourg case law allows amounts to be set off post-insolvency if the underlying deeds are related to each other (connexité).

Facultative nullity

Luxembourg law further states that all other payments made by the debtor for matured debts, and all other acts for valuable consideration performed by the debtor made after the cessation of its payments and before the declaratory judgment, may be annulled if, on the part of those who have received from the debtor or who have dealt with it, such transactions take place with knowledge of the cessation of payments.

In order to succeed in an application for annulment of a payment, it is up to the insolvency trustee to prove unequivocally that the bankrupt’s creditor was aware of the cessation of payments on the part of the debtor.

The knowledge of the cessation of payments must exist at the time of the planned transaction.

4.2 What are the relevant “look-back” periods for claims?

Under Luxembourg insolvency law, the “look-back” period (période suspecte) is usually six months and ten days.

4.3 Who can pursue the claims?

The pursuit of claims is limited to the insolvency trustee who will replace the management body of the debtor.

The management body will, however, remain in place to assist the insolvency trustee, but the insolvency trustee will take over the management of the company in question.

4.4 What remedies are available and how do they operate in practice?

The insolvency trustee will have to initiate claims in front of the commercial court in order to seek the annulment, even though the applicable law considers that the transaction executed in the course of the clawback period is automatically null and void without the intervention of the court.

The burden of proof will lie on the insolvency trustee as he or she will have to prove that the transaction falls within the scope of the callback actions.

Once the annulment is sought, the transferred asset will belong to the insolvency estate again.

4.5 What defences are available?

The creditor may try to prove that the assets have been sold at a fair market value or to explain the reasons of a discounted price. He or she may prove this by presenting an expert opinion that will value the concerned assets.

The creditor may also try to settle in case of a dispute with the insolvency trustee.

4.6 Is there a general right of action in respect of transactions defrauding creditors or Actio Pauliana claims?

In the case of an insolvency of a Luxembourg entity, all acts and payments made which defraud creditors are void, regardless of the date on which they took place.

Under Luxembourg insolvency law, the Actio Pauliana  presupposes a damage that resulted from the actions made fraudulently of the creditors. It will be up to the insolvency receiver to prove such fraud and the damages that resulted from it.

The Actio Pauliana  under Luxembourg law is not limited in time and hence may allow the insolvency trustee to challenge deeds that have been executed outside of the clawback period.

Luxembourg case law considers that for transactions or deeds that are governed by foreign law, such Actio Pauliana  will be governed by the lex concurus, (i.e. Luxembourg law), in order to safeguard Luxembourg public order.

As for all the nullities provided by the Luxembourg law, the Actio Pauliana  aims to reestablish the situation of the common body of creditors (masse des céranciers/Gläubigermasse) prior to the contested act.

4.7 Who can pursue the claims?

As confirmed by case law, such legal means are only available to the insolvency trustee upon insolvency of a debtor.

4.8 What remedies are available and how do they operate in practice?

The remedy following nullity can only relate to the restitution of the good or its equivalent value.

4.9 What defences are available?

The creditor will have to prove that there was no intention of defrauding the debtor and/or the other creditors. He or she may also wish to settle with the insolvency trustee.

5.1 What are the duties of directors and managers?

Luxembourg company directors are subject to fiduciary duties. The board of directors of a company has to keep in mind the corporate interests of a company at all times. The corporate purpose of a company is defined in its articles of association and will guide the board of directors of the company.

Failing to comply with its corporate objectives may lead to civil and criminal liabilities of the directors if the company has suffered damages due to its directors’ wrongful actions.

5.2 What claims can be brought against directors and managers arising from breaches of those duties?

The insolvency trustee may bring claims against the directors of the debtor either criminally or civilly. The insolvency trustee may have several legal bases for these claims, following which he or she may sue the directors of the debtor. He or she may sue the directors either for breach of their fiduciary duties as applicable outside of insolvency or for following the insolvency provisions that came into effect following the bankruptcy of the debtor.

Civil liability

Common civil law regulations

Under Luxembourg corporate law, the company may sue its directors in case of wrongdoing and/or mismanagement (faute de gestion). In order to do so, the shareholders of the said company will have to approve such actions during a general meeting.

Once approved, the company may sue its directors for wrongdoing and/or negligence that affected or altered the corporate interests of the company and resulted in damages.

Further, the directors or managers may be held severally liable in case of a violation of Luxembourg law or of the articles of association.

Insolvency law regulations

In the event of a company’s insolvency, any legal or de facto manager may be declared personally bankrupt (extension de la faillite) if he or she:

• conducted commercial transactions for personal gain under the guise of the company to conceal their actions;
• used the company’s assets as if they were their own; or
• persisted abusively in operating at a loss for personal benefit, knowing it could only lead to the company’s inability to meet its financial obligations.

The liabilities of the director’s insolvency include not only their personal debts but also the debts of the company. The date of cessation of payments is determined by the judgment declaring the company’s bankruptcy.

Further to the above, when the bankruptcy of a company reveals a shortfall in assets, the court may decide, at the request of the insolvency trustee or the public prosecutor, that the amount of the shortfall will be borne, in whole or in part, by all legal or de facto managers, if a serious and demonstrable misconduct contributing to the bankruptcy can be established (action en comblement de passif).

In the case of multiple managers, the court may hold them jointly liable.

Criminal liability

Under Luxembourg law, any merchant declared insolvent or any de jure or de facto manager of a commercial company declared insolvent shall be deemed a simple bankrupt (banqueroutier simple) and shall be subject to imprisonment for a period ranging from one month to two years and a fine between EUR 251 to EUR 25,000 if they are found to have:

• excessive personal or household expenses;
• spent large sums on gambling or speculative operations;
• made purchases or loans intended to delay bankruptcy;
• fabricated expenses or unaccounted-for assets; or
• displayed favouritism toward a creditor.

Further to the above, any merchant declared insolvent or any de jure or de facto manager of a commercial company shall also be deemed a simple bankrupt if they are found to have:

• excessive commitments on behalf of others;
• violated matrimonial property regime provisions;
• failed to declare bankruptcy;
• an unjustified absence or failure to respond to summons; or
• failed to maintain prescribed accounting records.

Further sanctions may be imposed on:

• directors who, in the interest of the bankruptcy, have removed, concealed or fraudulently retained all or part of their movable or immovable property;
• directors who have fraudulently presented during the bankruptcy and made, either in their own name or through an intermediary, fictitious or exaggerated claims;
• a creditor who has stipulated, either with the bankrupt or with any other persons, special advantages in exchange for their vote in the bankruptcy proceedings, or who has entered into a special agreement resulting in an advantage in their favour at the expense of the bankrupt’s assets; or
• a trustee who has been guilty of embezzlement in their management.

The offenders may be sentenced to a fine equal to the value of the unlawfully obtained advantages, as well as to restitution and damages owed to the collective creditors.

It will be up to the insolvency trustee to file a criminal complaint in order to initiate criminal proceedings against the de jure or de facto managers/directors of the debtor.

Finally, any insolvent merchant or de jure or de facto manager of an insolvent company can be declared banqueroutier frauduleux (fraudulent bankrupt) and sentenced to imprisonment of between six months and five years and a fine between EUR 500 and EUR 50,000, if:

• he or she has concealed all or part of the books or accounting documents as applicable under Luxembourg law, or have fraudulently removed, erased or altered their content;
• he or she has misappropriated or concealed part of their assets; or
• in his or her accounts, either through public deeds or commitments under private signature, or on the debtor’s balance sheet, he or she has fraudulently acknowledged that he or she owes the debtor sums that he or she did not owe.

5.3 Who can pursue the claims?

The insolvency trustee may pursue the claims civilly or criminally.

5.4 Do directors have, at any time, a strict obligation to file for insolvency and, if so, when does that arise?

Under Luxembourg law, a debtor is technically insolvent if it meets three criteria:

• being a merchant (commerçant);
• ceasing payments (cessation de paiements); and
• is no longer able to refinance (ébranlement de crédit)

If the three criteria are met, the debtor has the legal obligation to file for insolvency within a month. Should the debtor not comply with the deadline, it can be held criminally liable.

Finally, the directors of the debtor may be held liable for all debts that became due following the cease of payments and the filing of bankruptcy if the filing is not done within the month.

5.5 Can directors and managers be found liable for the increase in sums owed to creditors after a company becomes insolvent?

Yes. As mentioned (see Question 5.4, above), the goal of the deadline to file for insolvency within one month of meeting the criteria is to avoid the amount owed to creditors increasing (Insolvenzverschleppung).

5.6 In what other circumstances can directors and managers be found liable directly to creditors of the company?

The creditor may hold the managers and directors directly responsible for any damages they have suffered because of their wrongdoings.

Under civil law, the creditor will have to prove a personal damage that is separate from the damage suffered by the debtor-company and all of the creditors (universalité des créanciers).

Once a company is declared insolvent, an insolvency trustee (curateur) will be appointed who will replace the managers or the directors of the insolvent company. The directors will remain in place but will no longer be able to represent the company. The claims filed by the creditors during an insolvency can be made available at the court.

6.1 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

The insolvency trustee will be able to contact the relevant administrations in order to collect as much information as possible regarding the property of the insolvent company and the location of its assets. Such information may include — amongst others — the property of the insolvent company and the vehicles registered with the debtor, as well as the bank accounts of the insolvent debtor.

Upon request, the banks will assist the insolvency trustee and disclose to him or her all the assets held on behalf of the insolvent company.

6.2 How is that information obtained in practice?

The insolvency trustee contacts the relevant entities and/or administrations directly, as the judgment is immediately enforceable.

6.3 Can the court assist in obtaining that information and how does that work in practice?

The public prosecutor may assist the insolvency trustee if he or she requires the addresses of the managers or directors of the insolvent company, should they not be available.

7.1 Is the UNCITRAL Model Law on Cross-Border Insolvency adopted in the jurisdiction?

No.

7.2 Is it possible to recognise office holders from other jurisdictions?

All office holders appointed in a Member State of the European Union are automatically recognised by other Member States of the European Union. The lex concursus will be applicable as defined by Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings [2015] OJ L141/19.

For the recognition of office holders outside of the European Union, Luxembourg adopted the theory of the universality of insolvency (système de l’universalité de la faillite). Following this theory, a specific debtor can only be subject to a single insolvency proceeding at any given time and this insolvency proceeding has effect in all countries where the debtor’s assets are located.

Such theory is opposed to the theory of territoriality of an insolvency (théorie de la territorialité) which limits the effects of an insolvency to its home jurisdiction.

Following the above, an insolvency trustee who has been appointed in a country adopting the theory of the universality of insolvency will be recognised in Luxembourg.

7.3 What is the process and what are the conditions for recognition?

Following Luxembourg law, the insolvency judgments outside the European Union must meet certain requirements on the merits.

For instance, a judgment must be regular in the sense that it has been rendered by a court that is internationally competent to appoint an insolvency trustee. Further to the international competence of the court, the jurisdiction rendering the insolvency judgment must accept the theory of universality of the judgment.

Depending on the case, the insolvency trustee may have to enforce the insolvency judgment in Luxembourg following an exequatur procedure.

7.4 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

The foreign insolvency trustee may contact the relevant administrations in order to collect as much information as possible regarding the property of the insolvent company and the location of its assets. Such information may include — amongst others — the property of the insolvent company or the vehicles registered with the debtor.

Upon request, the banks will assist the insolvency trustee and disclose to him or her all the assets held on behalf of the insolvent company.

Needless to say, if the insolvency judgment is not in an official language, it must be translated either into French or German.

7.5 What steps can a foreign office holder take to recover assets belonging to the debtor?

The foreign insolvency trustee may be able to recover the assets belonging to the debtor as long as he or she has a title or judgment allowing them to do so.

7.6 Is a foreign office holder able to bring clawback claims or fraudulent transaction claims?

Yes, but he or she will have to be locally assisted in order to be represented in front of the Luxembourg courts.

8.1 Can a foreign office holder take appointments?

Following Luxembourg law, a person has to be registered on the list of experts, traducteurs et interprètes, conciliateurs d’entreprise et mandataires de justice assermentés to be appointed as a judicial trustee (mandataire de justice) or insolvency trustee (curateur).

Exceptionally, the court may appoint a trustee that is not on the list.

8.2 What are the conditions for becoming an office holder?

All persons holding a Luxembourg university diploma in law, economics or management corresponding to a recognised Master’s degree or a foreign university diploma in law, economics or management corresponding to a recognised Master’s degree awarded by a higher education institution established in accordance with the laws and regulations governing higher education on the territory of the awarding state, may be admitted as company conciliators or judicial representatives. Their diplomas must have been registered with the Luxembourg government and they must present guarantees of knowledge and experience in insolvency proceedings.

8.3 What are the main rules of professional conduct?

There are no specific profession rules of conduct that have to be followed.

However, should the office holder be registered with a regulated body, for example the Luxembourg bar association, the office holder will have to comply with the rules of that association.