In short: the liquidation and reorganization processes in Luxembourg


Types of liquidation and reorganization processes

Voluntary liquidations

What are the conditions for a debtor to initiate voluntary liquidation proceedings and what are their effects?

There are no Luxembourg rules for the voluntary liquidations of insolvent companies.

Voluntary reorganizations

What are the conditions for a debtor to undertake a voluntary reorganization and what are the effects?

For companies facing financial difficulties, but which are not bankrupt, three main procedures, rarely used in practice, are available: suspension of payments, controlled management and composition with creditors.

The suspension of payments can be requested by debtors who are in suspension of payments following extraordinary and unforeseeable events and who have sufficient assets to repay all their creditors or who have a credible prospect of recovery. The consent of creditors representing (by number) more than 50 percent and (by value) more than 75 percent of the debtor’s debts must be obtained and the measure must also be approved by the court. If successful, the procedure will result in the suspension of payment requests and enforcement procedures on the part of all creditors, unsecured or guaranteed (with the exception of the securities governed by the law on financial guarantee contracts of 5 August 2005, as amended or for goods which are necessary for the continuation of the debtor’s business), during the period decided by the court.

Controlled management allows a company to either reorganize and restructure its debts and its business, or to liquidate its assets in the best interest of creditors. Controlled management procedures rarely succeed and usually end in bankruptcy. The company must seize the commercial court when it is in good faith and that either (1) suffers from a loss of solvency, or (2) encounters difficulties in honoring all of its commitments and that its creditors wish initiate enforcement proceedings. Controlled management requires the consent of more than 50 percent of creditors (by number) representing more than 50 percent by value of the debtor’s debts. The court appoints a delegated judge responsible for reporting on the debtor’s economic situation. If, on the basis of this report, the request is accepted by the court, the latter appoints one or more auditors who will take control of the management of the company and establish a reorganization or liquidation plan. The business can regain control of its business if the plan is approved by creditors. If the court considers that the conditions for controlled management are not met, it declares the company bankrupt.

The pre-bankruptcy arrangement with creditors can only be accepted by the courts with respect to debtors considered unlucky and in good faith and requires the consent of at least 50 percent of the creditors, holding at least 75 percent of the creditors. debtor’s capital unpaid debts. Any measure agreed between the creditors, if ratified by the court, will apply to all unsecured creditors.

Successful reorganizations

How are creditors classified for the purposes of a reorganization plan and how is the plan approved? Can a recovery plan release non-debtor parties from liability and, if so, under what circumstances?

The three reorganization measures only apply to existing claims and therefore do not apply to subsequent creditors, who remain free to enforce their claims. None of the proceedings result in court-imposed debt relief on creditors, only temporary suspensions. The stay of execution resulting from a suspension of payments and of the arrangement with the creditors does not release the guarantors.

Controlled management entails a suspension of the rights, privileges or pledges of creditors (with the exception of securities under the law on financial guarantees of August 5, 2005, as amended), which also applies to guarantors.

Involuntary liquidations

What are the conditions for creditors placing a debtor in involuntary liquidation and what are the effects? Once the procedure has started, are there any important differences compared to a procedure opened voluntarily?

At the end of the bankruptcy procedure, the debtor is liquidated. Judicial liquidation may be ordered by the courts at the request of the public prosecutor in the event of serious breaches of the rules applicable to commercial companies or of contravention of criminal laws.

Involuntary reorganizations

What are the conditions for creditors who undertake an involuntary reorganization and what are the effects? Once the procedure has started, are there any important differences compared to a procedure opened voluntarily?

There are no involuntary reorganization procedures.

Accelerated reorganizations

Are there procedures for expedited reorganizations (eg “prepackaged” reorganizations)?


Unsuccessful reorganizations

How is a proposed reorganization rejected and what is the effect of an unapproved reorganization plan? What if the debtor fails to execute a plan?

Any reorganization measure can be revoked by the court at any time if the conditions set out in the judgment pronouncing it are not respected by the debtor or if the company has gone bankrupt. The suspension of payments may be revoked in the event of fraudulent or bad faith behavior by the debtor or if his financial situation no longer offers any prospect of full repayment of all his creditors. The arrangement with creditors is revoked if the debtor is found liable for an insolvency-related offense or has fraudulently concealed the extent of its assets or liabilities, or both.

In most cases, the revocation is likely to lead to the immediate opening of bankruptcy proceedings and the date of bankruptcy can be set retroactively to the date on which the court approved the reorganization measures.

Business procedures

Are there corporate procedures for dissolving a company? How do these processes contrast with bankruptcy proceedings?

Voluntary (solvent) business dissolution and liquidation proceedings only require the consent of shareholders and bondholders (if applicable) and are settled out of court. Consent of creditors may be required under an existing contractual arrangement.

Closure of the case

How are liquidation and reorganization files formally concluded?

The reorganization procedures end at their end or by the opening of collective proceedings.

The collective procedure ends by decision of the commercial court.

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