New law relating to the immobilization of bearer shares

By law dated 28 July 2014 (published on 14 August 2014), the Luxembourg legislator substantially modified the rules governing the holding and transfer of bearer shares in Luxembourg (the "Law").

The purpose of the Law is to increase transparency and facilitate the identification of the holders of bearer shares, in line with the FATF Recommendations and the Global Forum on Transparency and Exchange of Information for Tax Purposes.

In this perspective, the Law obliges the holders to deposit their bearer shares with a professional depositary (to be appointed by the management body of the company), who shall keep a register recording the holders of bearer shares as well as any transfer or conversion of the same. Access to the information recorded in the register is however restricted.

Which shares are concerned by the Law?

The Law applies to bearer shares (or units) issued by:

- Luxembourg public liability companies (S.A. : sociétés anonymes)
- Corporate partnerships limited by shares (S.C.A. : sociétés en commandite par actions)
- Common funds (F.C.P. : fonds communs de placement)
- European companies (sociétés européennes)

Who can act as professional depositary?

- The professional depositary must be chosen amongst the following professionals: credit institutions, private portfolio managers, distributors of shares/units in UCIs, certain specialized PFS such as domiciliation companies, lawyers (Lists I and IV), notaries, independent auditors ("réviseur d'entreprises"), and certified accountants (all subject to rules against money laundering).
- The professional depositary is chosen by the management of the issuing company. Its appointment shall then be filed with the Luxembourg Trade and Companies' Register for publicity purposes.
- No shareholder of the company having issued the bearer shares may be appointed as professional depositary.

The register of bearer shares

The appointed professional depositary shall keep a register of bearer shares in Luxembourg containing the following information:

- Identity of the holder of the bearer shares
- Number of bearer shares held
- Date of their deposit
- Date of their transfer or conversion into registered shares (actions nominatives)

Access is limited to shareholders to the entries in the register concerning their own bearer shares only (plus specific authorities). Confidentiality is therefore maintained towards the issuing company and other shareholders.

What are the new rules governing the holding and ownership of bearer shares?

- Ownership shall no longer be established by the possession of the bearer shares.
- Once deposited as required by Law, the bearer shares will be held by the professional depositary on behalf of the shareholders who will remain their owners.
- Ownership of bearer shares shall be recorded in the register. The professional depositary shall issue, at the shareholder's request, a certificate reflecting the entries of the register relating to such shareholder (which in practice may turn out useful, e.g. for attending general meetings).

What does the Law change as regards transfers and pledges of bearer shares?

- The bearer shares can no longer be transferred by mere physical handing over (simple tradition).
- The transfer of bearer shares will be perfected upon the registration of such transfer in the bearer shares' register by the professional depositary, upon receipt of any document or notice establishing the parties' consent to transfer.
- Pledges are perfected by entering the pledges in the register kept by the professional depositary.

What are the deadlines?

All bearer shares issued as from 18 August 2014 must comply with the Law as from their issuance.

As regards bearer shares existing prior to 18 August 2014:

- Concerned entities must appoint a professional depositary by 18 February 2015 at the latest.
- Bearer shares must be deposited with the appointed professional depositary by 18 February 2016 at the latest. The Law provides however for a strong incentive for the bearer shares to be deposited promptly since all voting rights and rights to distribution attached to shares which have not been deposited by 18 February 2015, will be automatically suspended until their deposit.
- All shares not deposited by 18 February 2016 must be cancelled (leading to a share capital decrease of the corresponding amount).

Does the management incur new liabilities?

Directors/managers may face criminal sanctions (fines) if they:

- do not appoint a professional depositary or do not have the bearer shares deposited in due time,
- recognize any rights to bearer shares which violate the Law,
- do not comply with the legal requirements to cancel the shares.

New liability regarding registered shares: directors/managers may face criminal sanctions if they do not keep a register of registered shares as legally required.

Marie-Beatrice Noble - Managing Partner - noble@mnks.com 
Katia Scheidecker - Partner - scheidecker@mnks.com
Catherine Baflast - Partner - baflast@mnks.com
Saskia Myners - Partner - myners@mnks.com