Reform of the Bearer Shares Regime In Luxembourg

Instead of abolishing bearer shares as already done or planed to be done by some neighboring countries, the Luxembourg lawmaker, after leading an in-depth reflection of many years on the subject and as a result of the introduction of the dematerialised securities regime in 2013, has chosen to retain the possibility, for Luxembourg commercial companies, to issue bearer shares provided to their immobilisation and has thus begun to reform the legal system attached to the bearer shares.

Within such context, Luxembourg has adopted the law of 28 July 2014 ("the Law") concerning the immobilisation of the bearer shares and the keeping of the register of shareholders and the register of bearer shares and amending:

• the law of 10 August 1915 on commercial companies (the "LSC"); and

• the amended law of 5 August 2005 on financial collateral arrangements (the "Financial Collateral Law").

By initiating this reform, the Luxembourg legislator sought to make the Luxembourg company law in line with the requirements formulated as from 2010 by the international organisations, including the Financial Action Task Force (the "FATF") and the Global Forum on the transparency and the exchange of information for tax purposes, in the field of the identification of holders of shares and bearer shares (the "Global Forum") to ensure a greater transparency in the ownership of commercial companies.

The FATF had left the choice to the States between the outright abolition of bearer shares, approach adopted by some states, and the dematerialisation of securities or the immobilisation of securities beside a qualified depositary. Consistent in this to its weighting tradition, Luxembourg chose the middle path for the immobilisation of the bearer shares.

The Law introduced the obligation for holders of bearer shares to immobilise them. Materially, this immobilisation is reflected in the requirement for their holders to deposit such securities, when localisable, with a qualified professional based in Luxembourg, which becomes the depositary (dépositaire) of these securities, including the obligation for the latter to ensure the keeping of a register and its update.

In order to strengthen the incentive for holders of securities to deposit their securities with the depositary within the time allowed, the legislator has provided a mechanism to suspend the rights attached to bearer shares which may therefore be exercised only in case of deposit beside the depositary. The legislator has positioned this new actor halfway between shareholders, which guarantees the confidentiality of the identity, and the issuing company of which he is the agent because he is appointed by the management body.