Luxembourg publishes first draft of administrative dissolution without liquidation procedure

Draft legislation n°6539B, issued from the split of bill n°6539 relating to business preservation and the modernization of bankruptcy law, contemplates the introduction of a new procedure of compulsory dissolution applicable to certain Luxembourg companies that are non-compliant with Luxembourg law.

Currently, pursuant to article 1200-1 of the law of 10 August 1915 on commercial companies, as amended (the Company Law), the public prosecutor can request the district court to order the dissolution and liquidation of any Luxembourg company that (i) pursues activities that contravene criminal law or (ii) seriously contravenes the provisions of the commercial code, the laws on commercial companies (e.g. absence of registered office or management, or failure to approve and file annual accounts) or the provisions governing business licences.

If the offences are considered sufficiently serious, the court appoints one or more liquidators and decides on the method of liquidation. The liquidator's task is to identify all the company's assets and liabilities, to pay the liabilities by realizing the assets and to distribute the liquidation surplus, if any, to the shareholders.

This procedure imposes a significant administrative burden on the courts as well as important costs that are considered disproportionate when the procedure involves inactive companies with no assets.

Against this background, there is a proposal to introduce a new procedure, administrative dissolution without liquidation, as an alternative method to judicial liquidation, which should eliminate "empty shells" in a short period of time and at a limited cost.

Who is eligible?

To fall within the scope of the administrative dissolution procedure, three cumulative conditions must be met:

  • The company is a commercial company falling under the provisions of article 1200-1, paragraph 1 of the Company Law, i.e. a company whose activities breach criminal law or that seriously contravenes the provisions of the commercial code or the laws governing commercial companies;
  • the company has no employees; and
  • the company has no assets.

The procedure of administrative dissolution without liquidation would not apply to entities that are subject to prudential supervision and that do not fall within the scope of the regulations applicable to bankruptcies, including:

  • credit institutions and investment firms subject to part II of the amended law of 18 December 2015 on the failure of credit institutions and certain investment firms;
  • other financial institutions and entities listed in article 2, paragraph 1 of the amended law of 18 December 2015;
  • insurance and reinsurance undertakings subject to the amended law of 7 December 2015 on the insurance sector;
  • specialized investment funds subject to the amended law of 13 February 2007 relating to specialized investment funds;
  • payment institutions and electronic money institutions subject to the amended law of 10 November 2009 on payment services; and
  • reserved alternative investment funds subject to the amended law of 23 July 2016 on reserved alternative investment funds.

How it works?

The procedure is still subject to changes but, based on the latest version of the draft bill, would mainly consist of the following steps:

  • Identification by the public prosecutor of the companies that may be subject to administrative dissolution on the basis of information and documents obtained from the Luxembourg Trade and Companies Register (RCS), the National Institute of Statistics and public administrations.
  • Request by the public prosecutor to the RCS to open the procedure of administrative dissolution without liquidation.
  • Opening by the RCS of the procedure within three days of the request made by the public prosecutor.
  • Notification by the RCS of the decision to open the procedure by registered letter, with acknowledgement of receipt sent to the registered office of the company.
  • Publication of the above decision by extracts within three days in two newspapers in Luxembourg and in the Recueil Electronique des Sociétés et Associations (RESA).
  • Option for the company subject to the decision to open the administrative dissolution procedure, as well as any interested third party, to lodge an appeal against such decision within one month of its publication in the RESA.
  • Audit by the RCS to confirm the absence of assets and employees in the company. For this, the RCS will request information from banks, non-life insurance companies, the mortgage office, the land registry, the National Society of Automotive Traffic (Société nationale de circulation automobile), tax administrations and the Joint Social Security Centre (Centre commun de la sécurité sociale).
  • On completing its task, the RCS will inform the public prosecutor of its findings. If the conditions for the dissolution are met, the public prosecutor will ask the RCS to continue the procedure.
  • Decision of the RCS to close the procedure (to be taken no later than six months after the publication of the decision to open the procedure). This decision entails the dissolution of the company.
  • Publication in the RESA of the decision to close the administrative dissolution procedure.
  • If assets are found after the administrative dissolution procedure has closed, the district court sitting in commercial matters may order the liquidation of the company at the request of the public prosecutor pursuant to article 1200-1 of the Company Law, provided the estimated value of the assets exceeds the estimated costs of the liquidation. The company is deemed to exist for the purpose of its liquidation.

Gérard Maitrejean, Luxembourg  - Partner | Avocat à la Cour

Pawel Hermelinski, Luxembourg - Partner | Avocat à la Cour

Hélène Grandmaire, Luxembourg - Knowledge Lawyer