LUXEMBOURG: An Introduction to Corporate/M&A

Key legislation 

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 the 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 sociétéà 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 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 2020 and December 2021, most recently the law of 17 December 2021, 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 31 December 2022.

The law of 6 August 2021, which came into force on 16 August 2021, brought to a conclusion the ongoing legal debate on the applicability of the financial assistance rules to private limited liability companies (SARLs). By deleting the reference to the term for shares in a SARL (parts sociales) from article 1500-7,2° of the Law providing for criminal sanctions in the event of a violation of the provisions relating to financial assistance rules, the law of 6 August 2021 expressly clarified that the regime of the financial assistance rules is not applicable to SARLs. SARLs being the most used special purpose vehicles in the acquisition structure, such clarification is welcomed for M&A transactions since it enhances the array of the tools offered to the investors.

2021: An overview 

The COVID-19 pandemic continues to affect in general the economy in Luxembourg and around the world.

Nonetheless, despite the uncertainties in 2021 created by the COVID-19 pandemic, as with the record of activity in M&A experienced worldwide, Luxembourg has known a good year in terms of level of activity in 2021.

Such degree of activity in Luxembourg has notably been fuelled by the important activity of the private equity firms, which are now part of the Luxembourg landscape.

The current conditions of the market with low interest rates and high stock market prices created suitable conditions for acquisitions or exits for the private equity firms.

Thus, in the framework of exit strategies of private equity houses, Luxembourg has seen a certain number of IPOs launched in 2021. In addition, in the wake of the US trend, a few Luxembourg special purpose acquisition companies (SPACs) have been implemented.

Despite growing concerns about a strengthening of the financial conditions with the high level of inflation and the expected rise of the interest rate, there are some expectations that 2022 will remain a good year from an M&A perspective.