The key corporate and M&A legislation in Luxembourg is the law of 10 August 1915 on commercial companies, as amended (the “Law”). This Law sets out the framework governing commercial companies, including the requirements of corporate governance, as well as substantive and procedural requirements for mergers, acquisitions and other transformative corporate transactions, such as conversions, divisions, liquidation and dissolution.
The Law was significantly modernized by the law of 10 August 2016 and it was re-numbered following the Grand Ducal Regulation of 5 December 2017. The changes introduced by the law of 10 August 2016 inter alia included:
- the new société par actions simplifiée (simplified company limited by shares) company form, with similarities to the société anonyme (public limited liability company) but with greater contractual freedom;
- a detailed set of provisions regarding conversions;
- an extension to all companies of the right to issue bonds;
- the recognition of tracking shares, the financial rights of which are tied to the performance of certain assets or activities;
- the removal of the requirement of unanimity for a change of the nationality of a société en commandite simple (limited partnership), a société à responsabilité limitée (private limited liability company) and a société anonyme: the threshold is now the same as for changes to the constitutive document or articles;
- the express acceptance of the single-step dissolution without liquidation procedure by way of one notarial deed rather than three;
- a new right for shareholders with 10% of the share capital or of voting rights to ask written questions of the company’s management body about its management;
- a recognition of agreements concerning voting arrangements between shareholders for the sociéte à responsabilité limitée and the société anonyme, subject to certain limitations;
- for the société à responsabilité limitée, a reduction of the minimum share capital to EUR 12,000 and an increase of the maximum number of shareholders from 40 to 100; the introduction of the right for the company’s managers to pay interim dividends, subject to certain conditions; the introduction of the authorised capital mechanism (as for the société anonyme), enabling the board of directors to increase the company’s share capital up to a set limit specified in the articles of association; the removal of the shareholder headcount majority requirement for changes to the articles (previously, a majority of shareholders representing three quarters of the share capital had been required); the ability for managers to take decisions by unanimous circular (written) resolutions if the articles so provide; and the recognition of contributions of labour.
- for the société anonyme, a reduction of the minimum share capital to EUR 30,000; the introduction of a minority shareholder action that may be brought against board members by shareholders holding at least 10% of voting rights at the relevant shareholders’ meeting; and the ability for managers to take decisions by unanimous circular (written) resolutions if the articles so provide.
The other significant statute is the law of 19 December 2002 on the Trade and Companies Register, the accounting and annual accounts of companies, as amended, which sets out filing, publication and accounting requirements. A register of beneficial ownership was introduced by the law of 13 January 2019, as amended: this is a register of natural persons who ultimately own or control companies, by shareholding, voting rights or other means (other than in respect of companies listed on regulated markets that meet EU disclosure requirements or equivalent international standards). Generally, a shareholding of more than 25% is an indication of ownership. If the relevant natural person cannot be identified, then the senior managers of the company who are natural persons are to be registered as the beneficial owners.
Companies listed on an EU regulated market are also subject to the following laws (among others):
- the law of 24 May 2011, as amended (which implements in Luxembourg law the requirements of the first and second EU shareholder rights Directives and permits shareholders to be represented at general meetings by a proxy; requires shareholders’ identities to be communicated by relevant intermediaries to companies; requires the communication of information which companies must communicate to shareholders enabling them to exercise their rights through relevant intermediaries to shareholders or specified third parties and the equal treatment of identically placed shareholders at general meetings and provides the right for shareholders holding at least 5% of a company’s share capital to add items to the agenda and file draft resolutions concerning matters to be included, as well as providing for an advisory or, if the company’s statutes so provide, binding vote on a remuneration policy concerning managers);
- the law of 11 January 2008 on transparency requirements for issuers of securities, as amended, which sets out periodic and continued disclosure requirements for listed issuers, including with respect to financial statements, the notification of the acquisition or transfer of significant shareholdings by shareholders or by issuers or of significant voting rights, and makes provision regarding information provision to shareholders;
- the law of 19 May 2006 on takeover bids, which implements in Luxembourg law the EU takeover Directive and provides, among other things, that shareholders who, pursuant to an acquisition of shares made alone or in concert, hold a controlling percentage (which for a company with its registered office in Luxembourg is one third) of the voting rights in a listed company must, as a means of protecting the minority shareholders of the company, make a bid for the remaining shares;
- the law of 21 July 2012 on mandatory squeeze-out and sell-out, which provides, among other things, that a majority shareholder (one who holds alone or together with others acting in concert a 95% holding of voting shares and 95% of the voting rights in a company) who attains that status following an acquisition of shares made alone or with others acting in concert, is obliged to purchase the shares of the remaining shareholders who make such a request.
Recent legislative changes
Pursuant to a series of measures enacted between March and December 2020, most recently the law of 25 November 2020, as amended, since the outbreak of the pandemic, general meetings of shareholders and meetings of the board of directors, including any supervisory board and management board, may be held without any physical presence, even if the company’s articles of association make no such provision. Participation in a meeting by such means satisfies the presence requirements for calculating the applicable quorum and majority. At present, this regime, which also covers listed companies, is applicable until 30 June 2021.
The law of 22 May 2020 extended the deadlines for filing and publication of annual accounts by three months and for holding general meetings of commercial companies by nine months for accounts and general meetings concerning financial years that ended in June 2020.
Other recent legislative changes that may have an impact on the activity of the lawyers involved in M&A transactions include the law of 25 March 2020, which implements in Luxembourg law the DAC 6 Directive, the fifth revision to the Directive on Administrative Cooperation.
This EU mandatory disclosure regime requires intermediaries and, in certain circumstances, taxpayers, to report cross-border transactions that are deemed to represent aggressive tax planning.
It requires relevant taxpayers or intermediaries (generally and among others, those involved in the implementation of a reportable cross-border arrangement) to file information on reportable cross-border arrangements with the competent authorities of the relevant EU Member State. A reportable cross-border arrangement is one that has specified characteristics or features that indicate a potential risk of tax avoidance.
In light of this, corporate and M&A lawyers in their daily practice could be considered as intermediaries and as a result be obliged to comply with the reporting obligations imposed by the DAC 6 Directive.
2020: An overview
2020 was a particular year in every sense of the word because of the outburst of COVID-19. COVID-19 was very unexpected and like the other countries Luxembourg has not been spared the disastrous economic effects related to the measures taken by the various states to fight the pandemic.
After a comprehensive diminution of the corporate and M&A activity following the implementation of the first lock-downs resulting from the fact that companies needed a period of adaptation to navigate in their new environment, the corporate and M&A activity in Luxembourg has rapidly shown a good resistance to the new conditions. Such resilience mainly comes from the composition of the Luxembourg market. Luxembourg’s leading position as a financial centre has made Luxembourg a financial hub for major private equity houses and investment funds. Therefore, the necessity for additional funding for some of their portfolio companies due to the downturn of the economic activity has required them to restructure the existing structures creating an increase of general corporate work.
Furthermore, the economic crisis has also created opportunities for acquisitions following the decrease of value of some companies.
Accordingly and as a paradox, despite the pandemic, the last year was a good year in terms of activity for the corporate and M&A lawyers in Luxembourg.
Unfortunately, the pandemic is still continuing in 2021 but a strong rebound of the economic activity is expected for the second half of the year which would hopefully contribute to generate an increase of corporate and M&A activity.
Brexit took place when the United Kingdom left the European Union on 31 January 2020. In accordance with the Withdrawal Agreement between the UK and the EU, the Brexit transition period, which was not extended before 1 July 2020, ended on 31 December 2020, at which point EU law ceased to apply in and to the UK. Given the UK’s former position as a centre for the exercise of EU passporting rights, the effects on the investment funds industry and the capital markets sector will be more marked than those in corporate and M&A.