Luxembourg publishes a first draft of administrative dissolution without liquidation procedure

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Bill n°6539B, resulting from the splitting of bill n°6539 relating to the safeguard of companies and the modernization of bankruptcy law, provides for the introduction of a new forced dissolution procedure applicable to certain companies Luxembourg companies that do not comply with Luxembourg law.

Currently, pursuant to article 1200-1 of the law of August 10, 1915 on commercial companies, as amended (the company law), the public prosecutor may ask the district court to order the dissolution and liquidation of any Luxembourg company which (i) carries out activities contrary to criminal law or (ii) seriously contravenes the provisions of the commercial code , laws on commercial companies (eg absence of registered office or management or failure to approve and file annual accounts) or provisions relating to commercial licenses.

If the offenses are deemed serious enough, the court appoints one or more liquidators and decides on the mode of liquidation. The liquidator’s mission is to identify all of the company’s assets and liabilities, to pay the liabilities by realizing the assets and to distribute the liquidation proceeds, if any, to the partners.

This procedure imposes a significant administrative burden on the courts as well as significant costs deemed disproportionate when it comes to inactive companies without assets.

In this context, it is proposed to introduce a new procedure, administrative dissolution without liquidation, as an alternative method to judicial liquidation, which should eliminate the “empty shells” in a short time and at a limited cost.

Who is eligible?

To enter the scope of the administrative dissolution procedure, three cumulative conditions must be respected:

  • The company is a commercial company subject to the provisions of article 1200-1 paragraph 1 of the Companies Code, i.e. a company whose activities violate criminal law or which seriously contravenes the provisions of the commercial code or laws governing commercial companies;

  • the business has no employees; and

  • the company has no assets.

The procedure for administrative dissolution without liquidation would not apply to entities subject to prudential supervision and which do not fall within the scope of the regulations applicable to bankruptcies, in particular:

  • credit institutions and investment firms subject to Part II of the amended law of 18 December 2015 relating to the failure of credit institutions and certain investment firms;

  • the other financial institutions and entities referred to in Article 2, paragraph 1 of the amended law of 18 December 2015;

  • insurance and reinsurance companies subject to the amended law of 7 December 2015 relating to 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 relating to reserved alternative investment funds.

How it works?

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

  • Identification by the public prosecutor of companies likely to 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 of 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 initiate the procedure by registered letter with acknowledgment of receipt addressed to the registered office of the company.

  • Publication of the above decision in extracts within three days in two newspapers in Luxembourg and in the Electronic Compendium of Societies and Associations (RESA).

  • Possibility for the company that is the subject of the decision to open the administrative dissolution procedure, as well as any interested third party, to lodge an appeal against this 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 Automobile Traffic Company (National Motor Traffic Company), tax authorities and the Joint Social Security Center (Common Social Security Center).

  • At the end of its mission, the RCS informs the public prosecutor of its findings. If the conditions for 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 leads to the dissolution of the company.

  • Publication in the RESA of the decision to close the administrative dissolution procedure.

  • If property is found after the closure of the administrative dissolution procedure, the tribunal de grande instance 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 code. companies, provided that the estimated value of the assets exceeds the estimated costs of liquidation. The company is deemed to exist for the purpose of its liquidation.

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