Recent significant corporate litigation case law

Decision of the Luxembourg District Court of 18 November 2016 on judicial management report

The Luxembourg District Court had the opportunity to specify the requirements and procedure of the judicial management report provided for in article 1400-3 (previously 154) of the law of 10 August 1915 on commercial companies as amended. It can first be recalled that the new version of the article 154 introduced by a Law of 10 August 2016 had significantly extended the conditions allowing shareholders to initiate a judicial management report procedure (see our Newsletter Q3 2016). In its decision, the Court ruled, on the basis of the criteria established by the French case law, that there is no need to order a judicial management report as long as the answers provided to the shareholders by the board of directors, even after the legal action has been initiated, include all the information that can be expected and are thus satisfactory. The Court also specified that questions of the shareholders may only address matters falling within the power of the management bodies and not operations falling within the power of shareholders' meetings, even when effected by the management bodies. Moreover, a question may address several issues, as suggested by the use of the plural form of “operations” in the law. However, a question should not address management or accounting in general. Finally, questions concerning future projections but unrelated to an existing act of management are excluded. This ruling provides valuable insight into the right of shareholders to request information on management decisions. While the decreased threshold suggested a trend in Luxembourg law towards shareholders’ empowerment as well as accountability and transparency of the managing bodies, the present ruling appears pro-management. It shields management from unwarranted intrusions by setting an arguably low standard of disclosure and limiting the scope of the shareholders’ inquiries to pure and specific managerial issues.

Decision of the Luxembourg District Court of 12 July 2017 concerning the conditions for the enforcement of a pledge

Further to the decision of the Luxembourg District Court, collateral consisting in a pledge over shares of a company can be enforced even without any payment default, i.e. even if the secured debt is not due and payable. In fact, under Luxembourg law, the parties may freely agree over the triggering event (in the present case non-compliance with a binding financial ratio), notably as article 1(6) of the Law of 5 August 2005 on financial collateral arrangements provides that “any other event agreed by the parties” can activate and render the pledge enforceable. Hence, it is sufficient that one party notifies the other that the latter breached the related contractual clause.