The Law aims at modernizing, among others, the law of 10 August 1915 on commercial companies and the law of 1st August 2001 on the circulation of securities and other fungible financial instruments by allowing Luxembourg issuers to issue dematerialized securities.
1. THE NEW PLAYERS
Listed fungible securities must all be recorded in a single "issuer" account held by a clearing entity.
Unlisted fungible securities must all be recorded in a single "issuer" account held by a clearing entity or a central account holder ("teneur de compte central").
Only securities settlement systems whose operator is located in Luxembourg (Clearstream, for instance) will be entitled to act as clearing entities.
The clearing entity ("organisme de liquidation") or the central account holder may create or ask the issuer to create global certificates for the purpose of the circulation of the securities in International Central Securities Depositories.
The clearing entity or the central account holder must be appointed by the management body of the issuer.
2. CREATION OF DEMATERIALIZED SECURITIES
The Law now allows issuers to (a) issue dematerialized securities or (b) convert existing securities into dematerialized securities.
a.Issuance of dematerialized securities
- Any Luxembourg issuer contemplating to issue dematerialized equity securities shall first:
- update its articles of association to expressly provide for the possibility to issue dematerialized securities and the rules applicable;
- take all necessary actions to record all securities in a single account opened with a clearing entity or a central account holder;
- publish in a national newspaper and, as the case may be, on its website the name and address of the relevant clearing entity or central account holder; and
- file with the RCS an extract indicating the name and address of the relevant clearing entity or central account holder for publication on their website.
- Any Luxembourg or foreign issuer(s) contemplating to issue dematerialized (Luxembourg law) debt securities shall first take all necessary actions to record all securities in a single "issuer" account opened with a clearing entity or a central account holder.
b.Conversion of existing securities into dematerialized securities
- A preliminary step for the conversion of equity securities: the amendment of the articles of association of the issuer in order to provide for:
- the possibility to issue dematerialized securities;
- the securities subject to the conversion;
- the mandatory or optional nature of the conversion;
- the conversion process; and
- in case of mandatory conversion, the conversion period (not less than 2 years) and the sanctions applicablein the absence of actions from the ultimate holders within the conversion period.
- Conversion process for all types of securities:
- Bearer securities will be converted upon delivery of the securities to a Luxembourg or foreign account holder for their recording in a securities account. Physical certificates shall be destroyed.
- Registered securities will be converted by a mere book entry into the relevant securities account whose details shall be provided to the issuer by the account holder. The issuer account shall be adjusted accordingly by the clearing entity or the central account holder.
- Immobilized securities will only be able to be transferred by way of book-entry upon the expiry of a 3 month period starting from the date of publication of the decision to convert in the Mémorial C. Physical certificates (if any) shall be destroyed and the shareholders' register (if any) shall be updated accordingly.
- Sanctions applicable in the absence of actions from the ultimate holders within the mandatory conversion period:
- suspension of the voting rights and of any dividends distribution;
- possibility for the issuer to force the conversion after 2 years; and
- possibility for the issuer to sell the securities after 8 years.
3. RIGHT OF THE ISSUER TO ASK INFORMATION ON SECURITIES HOLDERS
If the articles of association so provide, the issuer may require detailed information on the ultimate (indirect) holders of the securities and the number of securities owned by such holders to the clearing entity, the central account holder or any other (Luxembourg or foreign) account holder. The exercise of the voting rights attached to securities for which the required information would not be provided could be suspended by the issuer.
4. EXERCISE OF THE RIGHTS ATTACHED TO DEMATERIALIZED SECURITIES
For the exercise of their rights or actions against the issuer or any third parties, shareholders need to obtain from their account holders certificates confirming the number of securities owned on their own behalf or for which they are exercising the rights on the basis of a proxy.
Any Luxembourg law pledges over bearer or registered securities will remain valid and enforceable without any further formalities (other than their recording in a securities account) once securities have been dematerialized.
When pledged securities become subject to a mandatory conversion, the pledgor and the pledgee may determine which of them will proceed to the dematerialization. In the absence of agreement or in the absence of any actions from the pledgor within the conversion period, the pledgee may proceed to the dematerialization.
In order to avoid any uncertainty, this may need to be taken into account in future pledge agreements.