Clarification of the financial assistance rules applicable to Luxembourg sociétés à responsabilité limitée

On 14 July 2021, the Luxembourg Parliament adopted a long-awaited amendment to the law of 10 August 1915 on commercial companies, as amended (the “LSC”) aiming at clarifying that the financial assistance rules applicable to Luxembourg sociétés anonymes (“SA”) (including European companies (“SE”), and sociétés en commandite par actions (“SCA”) do not apply to sociétés à responsabilité limitée (“SARL”).

What is financial assistance?

Article 430-19 of the LSC, which applies to SA, SE and SCA, provides restrictions for a company to “directly or indirectly, advance funds or make loans, or provide security with a view to the acquisition of its shares by a third party”.

Such financial assistance is allowed if the following conditions are met:

Arms’ length conditions are applied when the financial assistance is granted;
Prior approval of the general meeting of shareholders of the company is obtained on the basis of a management report;
An unavailable reserve amounting to the same amount as the financial assistance is created;
Net assets of the company must be kept above the amount corresponding to the sum of the capital and unavailable reserves.

In case of violation of the above-mentioned rules, criminal and civil penalties may apply (e.g.: jail term of one month to two years and a fine of EUR 5,000 to EUR 125,000).

Why was a clarification needed?

Article 1500-7 (2) of the LSC provides for criminal sanctions in case of violation of such restrictions.

Prior to the amendment to the LSC made by the law of 10 August 2016, there was no doubt that such restrictions did not apply to SARL.

However, during the preliminary works of such law, it was proposed to add two articles providing for similar restrictions to SARL, and to amend article 1500-7(2)[1] of the LSC to include a reference to “parts sociales”, which is the term usually used to refer to the corporate units issued by SARL. In the final version of the bill, it was ultimately decided to delete these articles. However, the proposed changes to article 1500-7(2) of the LSC were (mistakenly) not removed.

As a consequence, since the entry into force of the law of 10 August 2016, some doubts arose as to the application of the financial assistance rules to SARL.

What does the amendment imply?

Article 1500-7 has been amended by deleting the reference to “parts sociales”. As a consequence, the only securities covered by article 1500-7 are “actions”, meaning that such article applies to SA SE and SCA.

What will the amendment change?

As from the entry into force of the amendment, i.e. 16 August 2021, there will no longer be any doubt that the financial assistance restrictions set out in article 430-19 of the LSC do not apply to SARL.

That said, any financial assistance provided by a SARL in order to acquire its own shares should be carefully reviewed to ensure that it is granted in line with the corporate interest of the company.

[1] Article 1500-7(2) was then article 168.

Pawel Hermelinski,  Partner | Avocat à la Cour

Mélody Brunot, Senior Associate | Avocat à la Cour